In response to complaints from debtors, creditors, and fair practicing trustees, and in response to news reports about Debt Consultants – the Office of the Superintendent of Bankruptcy (“OSB”) the federal agency responsible for administering the insolvency process in Canada, such as the debt settlement option called a consumer proposal or bankruptcy, launched an investigation into debt consultant industry. Specifically, their investigation focused on the use of so called debt consultants by some bankruptcy trustees. The OSB’s investigation confirms complaints and unfair practices that I have witnessed in Victoria and other areas across Canada. I have blogged repeatedly about this issue and responded to many requests for interviews and comments and as a result I have even been threatened with lawsuits for speaking the truth. Clearly there is much money to be made by these large debt consultant franchises as well complicit licensed insolvency trustees. Hopefully, with this current report something can be done to protect both unsuspecting debtors and fair practicing trustees.
As a background, debt consultants offer a product that they cannot deliver. They say they offer a “debt settlement plan” called a consumer proposal. My experience is these plans are the only real thing these debt consultants offer. But what they are really doing is acting as the marketing arm for some Licensed Insolvency Trustees who are the only ones who can administer this federally regulated debt program (consumer proposal). But some trustees have found that if they simply allow the debt consultant company to do all the work (marketing, interviews, document preparation) they can still charge their mandated fees for doing this work, and never even have to meet the debtor other than a 5-minute sign-up interview. This is very lucrative for both the debt consultants and the trustees, as the debtor ends up paying two sets of fees instead of just one to access a consumer proposal.
Debt Consultants Cannot Offer Consumer Proposal Options
The primary conclusion in the OSB’s report is of unfair debt consultant practices in that debtors are consistently sold a service that is false and misleading. Debtors are told that going through a debt consultant will save them money because the debt consultants “act for the debtors and not the creditors”. However, the truth as born out in OSB’s investigation is in sharp contrast to this conclusion.
In their report the OSB concluded that the fees and the costs charged to debtors when taking into account both the deck consultants and trustees fees can exceed the total cost of the original debt. Consumer debtors are told that they are saving money when dealing with debt consultants. However, upon a closer review, going to a debt consultant ends up costing more than just paying the debts off in full on their own
It’s disturbing to note that these so-called debt consultants who contend that they “work for the debtors” in the end wind up costing unsuspecting debtors more, and sometimes by a large amount more. Debt Consultants also sneak in increase costs to debtors by selling superfluous products such as “consumer proposal insurance” and ongoing monthly “financial literacy fees”. The OSB concludes that debtors are made to feel that they MUST purchase these products while in a consumer proposal which is untrue and adds questionable value to consumer debtors.
Debt Consultants – No Standards of Ethics – No Qualifications or Training
The OSB also found that the qualifications and experience of the debt consultants themselves did not meet any set minimum standards. Further, the ethics, training, background, experience, education or any ongoing professional requirements was not present with debt consultants. As far as the OSB could determine, they had no professional qualification, financial training, professional guidelines or stated codes of ethics.
The OSB also found that debtors who went through debt consultants, upon filing a consumer proposal, showed very little understanding of the insolvency process. Also, debtors were not made aware that ongoing payments to the debt consultants was completely unnecessary when filing a consumer proposal.
Another shocking outcome of the OSB’s investigation was that debtors who go to debt consultants routinely end up filing unreasonable or unsustainable or inappropriate proposals. The logical outcome of this finding means that debtors are placed into proposals when the debt consultant knows full well that they are doomed to fail. These proposals will only cost the debtor more in the long run as they will never be successful. All this does is end up allowing the debt consultant to charge their large upfront fees
Further the fees the debt consultant charge can ranged between $2400 and reached as high as $4200. Although at a recent conference where a national consultant company was speaking, they indicated that their maximum fee went as high as $6500. The fees that they charge vary between debtors ability to pay. The more you have, the higher the fee.
Change in Legislation – To protect debtors from Debt Consultants
In response to their investigation, and to protect unsuspecting debtors, the OSB is looking to strengthen the legislation surrounding the consumer proposal and personal bankruptcy process. Hopefully future changes will help to safeguard debtors and to help them make better informed decisions so they understand which fees they’re paying to whom and for which services.
This once again points to the fact that if you want to file a compromise with their creditors in the form of a consumer proposal, debtors are advised to go directly to a licensed insolvency trustee. At C.E. Craig & Associates Inc., we have been working in the Victoria area in the insolvency field for over 18 years. I have personally been approached by various local and national debt consulting companies offering me great financial rewards if I agreed to work with them. I have refused all comers as I believe that taking advantage of someone in financial difficulties by using debt consultants is morally indefensible and financially unnecessary.
Part of why I do this work is because I truly believe that everyone deserves to enjoy life and that a society does not benefit if its citizens are struggling with unmanageable debts. My job is helping people through difficult financial times so they can focus on making the rest of their lives work for them.
Colleen Craig, CPA, CA, LIT
Chartered Insolvency and Restructuring Professional
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