Canadian Debt Collection Laws

The term ‘collection agency’ is perhaps something that no Canadian in debt wants to hear.

This is because turning debt over to an agency is perhaps the worst-case scenario.

But before getting into collection agencies, let’s try and understand who can legally handle debt related issues in Canada.

Only first-party lenders, lawyers, authorized collection agencies and debt buyers have the right to deal with collecting debt in Canada.

In all cases, the individual collecting debt needs to adhere to certain collection laws which are applicable to their particular province.

Speaking of agencies specifically, these businesses are known for their persistence in debt collection and can be quite difficult to deal with.

However, each of these agencies needs to have a license granted by the province in which they conduct their business in order to operate.

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The licenses are obtained from the Office of Consumer Affairs.

While the majority of the agencies tend to function within the ethical and professional boundaries of the industry, there are cases when some threatening, harassing and deceitful practices are used, which have the effect of violating consumer rights.

These ultimately call for the implementation of stricter regulation.

Understanding The Function Of Collection Agencies

In the simplest terms, collection agencies are third-party businesses that operate to recover defaulted or overdue debts.

This means that when a person in debt fails to make the said payment, and his/her creditor has lost faith in their ability to come through and make the accounts current, the file is turned over to a local collection agency by them.

The agency then takes over all the tasks, which involve contacting the debtor for the purpose of attempting to implement payment arrangements.

Some of the common techniques and tactics employed by collection agencies include the following:

  • Sending letters to the debtor that inform and remind them about their debt going into collections as well as the overdue amount
  • Making offers to set up payment arrangements to ward off the debt
  • A collection agency typically relies on the debtor’s anxiety and pressure to collect the overdue amount. It keeps reminding them about the various consequences of not paying the debt. In this way, it manages to corner the debtor to the point that he/she feels that making payment of the outstanding amount is the best and least stressful option
  • Collection agencies tend to make frequent calls to the debtor, informing and requesting them to make payment

What Should A Debtor Do When They Receive Frequent Calls From A Collection Agency?

Most debtors dealing with collection agencies feel tempted to put their phones on vibrate, however that’s hardly a feasible option.

First and foremost, you need to understand whether or not the agency has a legit claim against you.

So, it is best to pick up the call and get details regarding your debt in order to be sure that you owe that particular amount.

In case the claim is legitimate and you have the resources to pay, then it’s an ideal scenario, and you should immediately clear up the overdue amount.

But if not, then figure out if it is possible to make some sort of arrangement with the agency.

It is critical to have all communication in writing i.e. your discussions with the collection agency must be recorded on paper for future references.

When Agencies Follow Unfavourable Practices

As mentioned earlier, there can be scenarios when a collection agency ends up using deceitful techniques to receive the outstanding amount from the debtor.

This may include unsubstantial threats, making a false claim or misrepresenting itself.

Governments across Canada have been increasingly making efforts to crack down on these unscrupulous practices on the part of collection agencies.

Rules Applicable to Collection Agencies

Since collection of debt is regulated by the local province, it is mandatory for a debt collector to contact the Office of Consumer Affairs for a license.

This local body follows the provincial and federal laws for debt collection in all its operations.

Across Canada, explicit guidelines have been given by authorities on how debt collectors need to conduct themselves and what practices must be followed for recovering debts.

The rules stated below are devised by the federal government and are applicable universally:

  • It is imperative for a debt collector to make a rational attempt for notifying the debtor. He must send them a letter informing that their creditor has hired the collection agency, thereby turning over the account to them.
  • It is acceptable for a debt collector to contact family, employer, friends, family or neighbours, however this should only be done with a view to get the existing mailing address and phone number of the debtor.
  • A debt collector could contact the debtor any time between 7 am and 9 pm, Monday to Saturday. They could also get in touch with the debtor on a Sunday between 1 pm and 5 pm.
  • No calls should be made to the debtors on official/government holidays.
  • A debt collector is not to disclose any financial or personal information of the debtor to the neighbours, family, employers or friends. Additionally, they cannot request these people to make payment of the outstanding amount when there is no record of them co-signing for the same.

For those who’ve been hounded by a collection agency for years, and may for instance have a 15-year-old pending debt, they might be wondering if the claim is even legitimate anymore.

Well, sadly the answer to the question is yes.

The government does not have any cap on the time for which creditors or collection agencies may try collecting the outstanding debt from debtors.

But there is a law in Canada with regards to the time period for which a creditor can sue basis the debt acknowledgement by the falter.

The time period varies from province to province.

  • 2 years: British Columbia, Alberta, New Brunswick, Saskatchewan, Ontario
  • 3 years: Quebec
  • 6 years: the territories, Newfoundland, Manitoba, Labrador, Prince Edward Island, Nova Scotia

There are two primary credit bureaus in Canada- TransUnion and Equifax.

They are responsible for collecting, analyzing and reporting details about consumers, including their history of finances.

Lenders typically purchase credit purchases from either one or both the bureaus, which helps them determine a consumer’s creditworthiness before they issue an additional or new debt.

The credit report of a consumer has details which have been obtained from multiple sources., such as public records, creditor records, and credit applications.

These include information like:

  • Name, current address and details of employer;
  • Reports of any court judgements, payment agreements, foreclosures or bankruptcies;
  • Outstanding balances and account numbers of all existing debts;
  • Details of any defaulted, inactive or closed accounts in the last six years;
  • Their nine-point rating which reflects payment history of all above debts.

It is a consumer’s right to be informed about the data that has been documented in the credit report prepared for them, along with its source.

There could be significant implications of the ratings and details in their report on their potential to get new credit.

It would also affect the amount of interest rates and credit limits they could secure for themselves, required down payments and if they need a co-signer.

The ability of a consumer to gain new credit reduces monumentally in the case of bas debt, frequent or consistent late payments and collections action.

Can Collection Agencies Sue?

As explained earlier, a collection agency may use various unscrupulous to attempt to get money from debtors, and one of them could be threatening a criminal prosecution, lawsuit, wage garnishment and maybe even jail.

In some cases, the agency might even create fake documents to project how such actions might come into effect on a certain date or within a specific time period.

However, they do not have the legal right to carry out any such action.

A collector, working for a creditor, first needs to take the debtor to court and win the case before taking any such action.

There is one exception to this- when it is a credit union or the government to whom the debtor owes the money.

In such cases, collectors may give wage assignments.

How Can Debtors Navigate The Process?

A debt collector or agency has several techniques and advantages when it comes to recovering outstanding claims for creditors.

These can generally make things very stressful for debtors, especially when there is absolute lack of understanding and cooperation between the two parties.

Debtors might be in an unfortunate position vis-à-vis collecting agencies, but it is still important for them to know their rights as well as understand what steps a collecting agency can legally take in the case.

It is imperative that debtors have everything in writing as far as the collection act is concerned.

They also need to check if the debt claimed is correct and the collecting agency is acting and communicating within professional boundaries.

In case of violation of any regulations by the debt collector, a debtor needs to contact the local office in their province dealing with consumer affairs.

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