I’ve been at the forefront of the battle against unlicensed and unregulated debt consultants for years. Today, I’ll delve into the recent developments surrounding this issue and explore whether the government is finally ready to end these dishonest practices.
We first wrote about the problem with unregulated debt consultants back in 2011. Our stronger fight against unlicensed debt advisors dates back to 2017 when Ted Michalos and I first discussed the issue on our Debt Free in 30 podcast. Fast forward to 2018, when a guest shared a personal story of being scammed by these individuals. Despite efforts to shed light on the problem, these consultants persist, as highlighted in a recent interview I did in November with Pat Foran from CTV News.
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Why the Fight Against Unlicensed Debt Consultants Matters
Debt consultants levy a fee for their advice, a practice common in many professions. However, the crucial distinction lies in their need for more expertise in insolvency.
In Canada, only a Licensed Insolvency Trustee possesses the authority to file a bankruptcy or consumer proposal on behalf of consumers. This exclusive designation requires that Licensed Insolvency Trustees hold in-depth knowledge of the process and have a documented history of successfully guiding individuals through insolvency. The examination and accreditation process to become a Licensed Insolvency Trustee is quite onerous and the obligations of a Trustee are regulated by the Office of the Superintendent of Bankruptcy.
In contrast, these debt consultants do not have the experience to assess your situation correctly. It’s like talking with your neighbour or co-worker about whether you should file a consumer proposal because they read something about it and know all the right words. The people you talk with on the phone are trained in selling consumer proposals but have no real experience when it comes to getting consumer proposals filed or approved. They also have no verified training or knowledge of The Bankruptcy & Insolvency Act which outlines the rules and regulations for consumer proposals.
Would you pay some unlicensed stranger to give you medical advice if you are sick? No, you would not. So why pay some salesperson to sell you their ‘help’ collecting information to send you to a Licensed Insolvency Trustee?
A Conversation with the Superintendent of Bankruptcy
On September 12, 2023, while attending a conference I had a quick chat with the Superintendent of Bankruptcy, Elisabeth Lang. She assured me that her team had diligently worked on the issue and promised imminent action. True to her word, on December 7, 2023, she published a comprehensive position paper titled “The Adverse Effects of the Debt Advisory Marketplace on the Insolvency System.”
The paper dissects the problems including:
- the deceptive portrayal of unlicensed consultants as licensed and qualified professionals in advertising and in practice,
- the solicitation of consumers into insolvency who perhaps should not be filing but pursing other options (which a Licensed Insolvency Trustee is required by law to disclose),
- potentially higher proposal payments and certainly extra debt consultant payments, amounts which result in an additional cost to the consumer and potential loss to his or her creditors.
Over the last two years, consumers have fallen victim to these dubious consultants, paying a staggering $21 million in fees. Shockingly, in 2022 alone, debtors committed to paying $7.6 million in fees after filing their proposals. Imagine paying a “medical consultant” a hefty fee after the surgery is complete—outrageous!
Superintendent Lang asserts her commitment to addressing non-compliance, including the consideration of licensing measures, civil, and criminal proceedings. A bold move, but will it be effective?
What Would I Do if I Were the Superintendent of Bankruptcy?
First, I would gather all the data on these offenders and their not-so-legal practices.
Next, I would speak with the senior Licensed Insolvency Trustees from the offending firms in private one-on-one meetings. No beating around the bush. I would give them fair warning to clean up their practices and say, “This ends now.” Ms. Lang might have done the same; I can’t confirm, but I am hopeful that that was her first action in her attempt to eliminate this egregious practice.
After “playing nice”, I would take a more direct approach. I would not bother with investigations (since I already have the data to know what’s happening)or legal battles.
Instead, I would use some bureaucratic tricks. I would “gum up the works.” A trustee needs a Letter of Comment from the Office of the Superintendent of Bankruptcy (OSB) to get paid. These comment letters are issued quickly and automatically, but the OSB could decide to do a manual review, which slows down the process and results in slowing down the trustee’s cash flow. If they want their cash flow to speed up, they will be forced to do the right thing. Simple as that.
I would also request creditor meetings and debtor examinations on files of firms suspected of working with debt consultants. Creditor meetings are rare but effective in stirring the pot as they can be quite time intensive. If a trustee dedicates an hour to a hundred creditor’s meetings convened by the OSB each month, their schedule would be overwhelmed, leaving little time for other tasks. That would significantly impede their workflow.
The OSB could also ask debtors what they paid prior to filing a consumer proposal. Most of them might not know upfront fees are not legally part of their consumer proposal. If debtor’s understood that they paid unnecessary fees, they could demand refunds, and demanding refunds could spread the word and may force the debt consultants (and the offending trustees) out of business.
Finally, while I blame Licensed Insolvency Trustees for teaming up with these crooks and the OSB for not dealing with this issue sooner, I also blame the large creditors for allowing this to happen. If you’re aware that debtors are tapping into credit card advances to pay these consultants, it’s time to rethink your voting process. Instead of voting for inappropriate proposals, they should vote to reject them, which puts both the trustee and the debt consultant out of business.
(I have discussed the “vote no” approach with the major creditors in Canada, and while they understand the issue, they are reluctant to “punish” a debtor by voting against the proposal when the debtor perhaps was unwilling duped by the debt consultant).
Avoid Debt Relief Scams
For consumers wondering how to avoid debt relief scams, here are some recommendations to ensure you don’t become the next victim.
Check if the person or company you’re talking to is a Licensed Insolvency Trustee. If you need more clarification, look them up on the OSB list of Licensed Insolvency Trustees.
Only sign agreements that ask for payments after you meet with a Licensed Insolvency Trustee, sign proposal documents, and have them filed with the government.
Ask the person you’re dealing with about their charges. You shouldn’t have to pay someone to help with the process or prepare paperwork for a consumer proposal. If you’re unsure, get a second opinion from another Licensed Insolvency Trustee. Reputable firms provide free consultations and request payment only after your proposal is officially filed.
Be concerned if the company you originally contacted, or person you speak with about your debt situation, works for a company that is different that the company you file your consumer proposal with. This is a glaring warning sign that you have been scammed with additional fees. Seek advice immediately, before filing your consumer proposal, with another Licensed Insolvency Trustee to ensure the proposal you are entering into is fair and necessary.
How will this play out? Although Ms. Lang’s position paper is a positive initial step, my past experiences indicate that government position papers often fall short of actual action and can be seen as a mere substitute for tangible measures. Nevertheless, this could mark the beginning of real change.
The unfolding events remain uncertain, and only time will reveal the outcome. Let’s hope today signifies the commencement of resolving this predicament for Canadian debtors. Stay tuned for further updates and valuable insights on the Debt Free in 30 podcast.