How Does The BC Law Protecting Consumers Work?
Under the proposed legislation debt settlors and credit counsellors will be called debt repayment agents.
Fees of debt repayment agents will be limited, and no fees can be charged until a settlement with the debtor and creditor has actually been reached.
As well, mandatory disclosure rules will help consumers understand what a debt settlement accomplishes, and what it does not.
As of April 1, 2016, debt settlement companies in BC will now only have two options restricting how much they can charge for fees:
- If the debt will be repaid within 90 days, debt agents may only charge a fee of up to 10% of the total amount of debt being repaid.
- If you need 90 days or longer to repay your debt, debt settlement companies may charge a fee of up to 15% of the total amount repaid, plus a one-time service fee.
- The service fee can be no more than the cost of one average monthly payment.
- These companies will now also have to be transparent about the risks associated with debt settlement.
- All contracts will be required to contain a disclosure statement indicating that, while the debt may go away, the debt settlement process will not improve their credit rating.
How The System is Impacted
Under the old system, some companies would counsel customers to avoid calls from creditors.
This can make the situation much worse and debt settling agents will be prohibited from providing this advice.
These changes, which will take effect on April 1, 2016, will bring BC’s laws into alignment with similar laws already in place in Alberta, Manitoba, Ontario, Nova Scotia and PEI.
Debt settlement companies typically offer to negotiate, on behalf of a consumer, lump-sum settlements with creditors for amounts significantly less than the consumer’s outstanding debt.
Consumers are often required to pay excessive, largely non-refundable fees up-front and are encouraged to stop paying their debts and instead save up for a lump-sum settlement.
This differs from traditional debt pooling services, which set up reduced-interest repayment plans that assist consumers with eventually paying off their full debts.
The current system is very confusing for consumers.
There are debt settlement firms operating illegally from the US.
Also, some credit counsellors hold themselves to be non-profit credit counsellors, while they accept kickbacks from credit grantors.
It is a dark, murky industry. You can read more on this industry here. You can also read how Ontario regulates its debt settlement companies and credit counsellors.
So, how does a consumer protect himself? Your best protection is to only deal with a Licensed Insolvency Trustee (LIT) also known as a Bankruptcy Trustee.
You have a multitude of protection when dealing with a Licensed Insolvency Trustee.