Understanding Debt Collection Laws in Canada: A Comprehensive Guide
Debt collection in Canada can often be a daunting experience for many individuals. Collection agencies, notorious for their tenacity, can create a challenging environment for those in debt. While many agencies operate within the confines of their professional and ethical standards, there have been instances of deceitful and threatening practices that breach consumer rights.
These scenarios have necessitated tighter government regulation to curb such practices and protect consumers. To navigate this landscape, it’s crucial for consumers to familiarize themselves with the laws that debt collection agencies must adhere to, their rights in these situations, and the steps to take when these rights are infringed.
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Understanding the Legal Landscape for Canadians in Debt
The experience of receiving collection calls can be overwhelming and confusing for Canadians. Your rights as a debtor depend on various factors, including your province of residence, type of debt, and the employer of the debt collector.
SECTION ONE: GETTING TO GRIPS WITH DEBT COLLECTION
i. Identifying the Employer of the Debt Collector
Understanding who owns your debt is critical. Your debt may be held by the original creditor who extended the credit, goods, or services, or it might have been sold to a debt purchaser. Debt purchasers, or debt buyers, are entities that buy unpaid accounts from original creditors.
There are two types of debt buyers — traditional collection agencies that buy debts to collect them and pure debt buyers who only own the debt and do not collect on behalf of others. Some original creditors do not sell their unpaid accounts, while others sell their bad debts when they remain unpaid for a certain period, typically ranging from six months to a few years.
ii. Understanding the Role of Collection Agencies
Your original creditor or debt buyer may enlist the help of a collection agent, an entity authorized to collect the owed amount. Collection agents include collection agencies and collection lawyers, with the former handling over 95% of all collection work in Canada.
Collection agencies operate under a code of conduct and require licensing in all provinces and territories where they operate. The code of conduct varies significantly across provinces and territories, and its enforcement is often dependent on the effectiveness of the responsible government bodies.
iii. The Illegality of Multiple Collection Agencies
It’s uncommon, and illegal, for a debtor to receive collection calls from more than one agency for the same debt. Creditors typically assign a debt to a single collection agency for a specific period, usually six to 12 months. If the debt remains unpaid, the creditor recalls the account and assigns it to a different collection agency.
iv. The Probability of Legal Action Against Unpaid Debts
Collection agencies usually work on commission, so the cost of litigation often deters them from suing a debtor. However, original creditors or debt buyers might sue, especially if the debtor owns property. Debt buyers, having purchased the debt at a fraction of the face value, might be more inclined to sue to recoup their investment.
SECTION TWO: STATUTE OF LIMITATIONS
The Statute of Limitations, dictated by provincial and territorial laws, might allow a debtor to avoid repaying a debt after a certain period. However, this is a complex issue, and debtors are advised to consult with a lawyer to understand this aspect fully.
i. Decoding the Limitation Periods
The length of the limitation period varies across provinces and territories. Most Canadians live in provinces with a two-year Statute of Limitations. Quebec has a three-year period, while Manitoba, New Brunswick, Newfoundland, Prince Edward Island, and the three territories have a six-year period.
However, the Statute of Limitations does not apply to certain types of debts:
- Secured debts like mortgages and car loans;
- Unsecured debt with a judgment against the debtor;
- Unsecured debt with a lawsuit commenced before the expiry of the relevant limitation period;
- Child or spousal support;
- Debts from fraud;
- Court fines;
- Government debts;
- Student loans.
ii. Key Facts about Limitation Periods
Here are five crucial points to remember:
- The limitation period applies based on your province or territory of residence;
- The limitation clock starts ticking within six months after your last payment;
- You can restart the clock by acknowledging the debt in writing or making a partial payment;
- Some provinces paused the limitation periods during certain periods of the Covid-19 pandemic;
- The expiry of a limitation period doesn’t forgive the debt; instead, it provides a potential defense if sued.
SECTION THREE: LAWS REGULATING CREDIT REPORTING AGENCIES
Credit reports play a vital role in determining whether creditors extend credit and at what interest rate. These reports contain an individual’s credit history, including unpaid accounts, court judgments, and enrollment in credit counselling programs or bankruptcy filings. They also influence decisions by potential employers and landlords.
Provincial governments in Canada regulate credit reporting agencies. In Ontario, an unpaid account must be removed from a credit report seven years from the last payment date. In other provinces, this period is six years. However, any attempt by collection agencies or debt buyers to keep an account on a credit report beyond the legal timeframe is illegal and constitutes defamation.
Navigating the Debt Collection Maze
If you’re dealing with bill collectors, it’s crucial to stay informed about the alleged debt, the name of the creditor, the amount due, and the collector’s contact information. Also, knowing whether a judgment has been obtained against you is important.
Remember, you’re not legally obliged to engage with a bill collector. They can’t disclose your debt to anyone other than you. However, they can contact others to obtain your contact information.
If you’re receiving collection calls, consider consulting with a Licensed Insolvency Trustee to explore your options for managing your debt.
Seek a free consultation near you. We have trustees across Canada, from Toronto to Quebec and more. Get your questions answered.
