What Are The Debt Collection Laws in Ontario?
In the vast landscape of Canada, every province has its unique set of rules and regulations governing debt collection. If you are in Ontario and are dealing with collection calls, it’s paramount to understand your rights. This article provides a comprehensive Guide to Ontario Debt Collection Laws. It details the protocols that a debt collector must adhere to when trying to reach you and when it might be more beneficial to avoid paying a debt collector.
Understanding Debt Collection Laws in Ontario
When you’re unable to repay a debt, the company to whom you owe may assign the outstanding debt to a collection agency. This agency’s role is to recover debts that are past due on behalf of creditors. They also purchase debts that are in arrears, implying that they might reach out to you on their behalf instead of your original creditor.
In Ontario, collection agencies are required to register and adhere to the rules outlined by the Ontario Collection and Debt Settlement Services Act. However, these regulations are only applicable to third-party agencies, not the internal collection departments of your original creditor.
The objective of a debt collection agency is to recover as much debt as possible because the more money they collect from you, the more they earn. If you fail to pay off your outstanding balance, collection agencies can resort to aggressive tactics to recover their money. In extreme cases, a collection agency can sue you or impose wage garnishments to recover the debt.
Ontario has stringent laws that regulate what a debt collection agency can and cannot do. These laws are designed to control the procedures a debt collector can follow when contacting you or anyone you know.
Initial Contact Regulations
Before a collection agent in Ontario can start reaching out to you, they are obligated to send you a letter through traditional mail or email. This letter must contain:
- Information about the original creditor who held the debt;
- Details regarding how much you owe;
- The type of credit (for example, credit card debt or car loan);
- The amount of debt as of the date it was first due, and if different, the current amount owing;
- The name of the debt collection agency, including their contact information;
- Confirmation that the collection agency is registered in Ontario;
- A statement that the collection agency will provide a detailed breakdown of the current amount owing if requested;
- A consumer disclosure statement providing information about your rights and how to file a complaint if you feel the collection agency has broken the law.
Following the initial contact, there is a six-day waiting period before they can make a call to collect the debt you owe. If you have not received the written notice, the collection agency or collector must resend the notice to you at the address you provide. They are prohibited from discussing the debt or demanding payment until they have sent the letter and waited the six days unless the consumer invites or authorizes the agency to discuss the debt.
What Collection Agents Can and Cannot Do
Interactions with debt collectors can be stressful. However, Ontario debt collection regulations ensure that debt collector methods do not turn into harassment or intimidation.
Under the Collection and Debt Settlement Act, an agency cannot threaten legal action in communication with a debtor without the prior written authorization of the original creditor.
Some collection agencies send out “Draft Statement of Claims” that appear they have been issued by the court. This is against Ontario regulations. We recommend that you photocopy this letter and send it to the Ontario regulator at Consumer Protection Ontario and also to the Law Society under complaints.
While debt collectors can sue you, applying to the court is costly, which is why collection agencies rarely commence legal action. Also, government cheques such as Ontario Disability Support Program, Ontario Works, or Canada Pension cannot be seized by a collection agency.
Frequency of Debt Collector Calls
Debt collectors in Ontario are permitted to contact you between 7 am and 9 pm from Monday to Saturday and 1 pm and 5 pm on Sunday. They cannot contact you on statutory holidays.
After the first contact, debt collectors can only reach out to you a maximum of three times in seven days without your express consent for more frequent contact. However, the debt collector must speak to you on the phone, leave a voicemail, or send an email for it to count as contact. They can’t threaten you or use unreasonable or offensive language.
Communication via Cellphone
In today’s world, it’s not uncommon for someone to exclusively use a cellphone for communication. This can come with data and calling charges. If you notify a collection agency or collector that a specific method of communication incurs costs, they cannot continue to contact or attempt to contact you using that method of communication. You are under no obligation to prove that a cost is incurred to stop communication this way. The collection agency is required to reimburse you for any costs if you request repayment and provide proof.
Who else can Debt Collectors Contact?
A debt collector can legally contact your friends, family, spouse, or neighbor in Ontario, but only to find your contact details or if you have given permission in writing or the person has guaranteed payment of your debt.
A debt collector can contact your employer without your permission to confirm your employment status. They can also call to inquire about the status of a court order for a wage garnishment, which requires automatic deductions from your salary.
How much can Debt Collectors Ask You to Pay?
Debt collection agencies in Ontario cannot charge you any additional fees. You are only required to pay the actual amount of debt owing. There is an exception for Provincial Offences fines owing to municipalities. Collection agencies can add a fee where the municipality permits.
The debt collector must also provide a breakdown of the current amount owing if you request.
Debt Collector vs Debt Settlement Consultant
A 2015 alteration to Ontario’s debt collection laws necessitated debt settlement companies to register as debt collectors. Even though they must register under the same Act, debt settlement companies don’t operate as debt collectors. A debt collector works on behalf of the creditor, while a for-profit debt settlement company assists you in negotiating a debt settlement agreement with a creditor to pay less than you owe.
A Licensed Insolvency Trustee is not required to register provincially as a debt collector. LITs are licensed and registered through the federal government. They cannot charge any additional fees for services other than the prescribed fees permitted under the Bankruptcy & Insolvency Act. These fees are taken out of your consumer proposal or bankruptcy payments, before payments to creditors.
Time Limit for Debt Collection in Ontario
In Ontario, the statute of limitations for standard debts, like bank loans and credit cards, is two years. After this time, a collection agency can no longer sue you or pursue legal action to collect on a past-due debt. Be careful not to acknowledge the debt when talking to a debt collector as this can reset the two-year clock.
Even if two years have passed, it does not mean the debt will disappear. You still owe the money, and debt collectors can continue to contact you for payment even if they can no longer sue.
Running away from your debts will also negatively affect your credit report and credit score for much longer. Late payments, defaults, and accounts in collection remain on your credit report for six to seven years (depending on the credit bureau) from the date of your last payment.
The two-year limitation period applies to unsecured debts. Secured creditors (like mortgage and car loan lenders) can enforce their security rights at any time, and the prescribed limitation period in the Income Tax Act in Canada for Canada Revenue collections is ten years.
Dealing with a Collection Agency
Dealing with debt collectors can be intimidating, and frequently receiving calls from a collection agent can feel like harassment. But, the calls won’t stop unless you take action.
If the debt is yours, before you talk with the debt collector, you have some decisions to make:
- Can you afford to pay back your debt in full?
- Can you afford a partial payment or settlement?
- Should you pay the debt collector or talk to a credit counsellor or Licensed Insolvency Trustee first?
If you are in a financial position to make payments on the debt, you can attempt to negotiate a payment arrangement with the collection agency. You can offer to pay the amount at once or in installments. Ensure to:
- Only offer what you can afford;
- Get any agreement in writing;
- Never send cash or gift cards as payment.
If you negotiate a payment plan with a collection agency, you should, as part of the agreement, have them acknowledge in writing that if payments are made on time, they will remove the collection item on your credit report once the debt has been paid in full.
If you can’t afford to repay the debt, tell that to the collection agent and explain why, but don’t be bullied into making a partial payment that doesn’t fully solve your debt problems.
Reasons to Not Pay a Collection Agency
Paying a collection agency is only a good idea if it’s in your best interest. However, there are reasons not to pay a collection agency.
The credit bureau purge policy – Collections accounts, whether paid or unpaid, remain on your credit report for six years from the last payment. Once this time is up, a debt will be automatically purged and will no longer appear on your credit report for future lenders to see.
Making a payment to a collection agency can reset this clock. If you are close to the end of the purge window and it’s a small debt that you are unlikely to be sued for, you might be better off ignoring the calls and not paying the collection agency.
We recommend you get a free copy of your credit report to check your date of last payment. Some less reputable collection agencies and debt purchases may knowingly report an account in collection on a credit report well beyond the 6-year purge period. They do so to force the consumer to contact the credit bureau to have the item removed or to offer a settlement.
If it’s an old debt – This is similar to the purge policy. If a debt is past the limitation period where a collection agent can no longer sue you, and you can live with the hit on your credit, you can ignore the calls and you can choose not to pay and move on.
If you have ‘too much’ debt – If the debt is too large or multiple collections agents are calling you because you have too much debt, it’s better to make a plan for all your debts and not try to deal separately with several different collection agents. This is where a consumer proposal or personal bankruptcy might work for you and stop the collection calls altogether.
Settling with a Collection Agency
Sometimes, you can negotiate a deal with a debt collector yourself. It’s very important to do this carefully and ensure that your settlement has legal validity. You need to be confident enough to approach your debt collectors and be aware of your rights.
A successful negotiation with a collection agency involves many steps:
- Determine how much you can afford to repay;
- Rehearse your ‘story’;
- Be aware of your rights and the legality of your settlement;
- Stay composed and do not be afraid to hang up if things get nasty;
- Write everything down as you go so you remember what both sides said;
- Get the final agreement sent to you in writing;
- Make sure you can 100% keep up with your repayments, or else all your hard work could be undone.
While it is feasible to negotiate and settle with your creditors, debt collectors, or a collection agency on your own, this doesn’t mean it’s the best option.
Alternatives in Ontario to Dealing with Collection Agencies
You can decide not to pay your debt at all, but for a lot of people, that’s too stressful. The lender or creditor may decide to pursue legal options, like a wage garnishment, or you may be tired of juggling one debt payment for another.
You want to get out of debt and learn how to manage your debts and get your finances back on track. If you are in debt but want to avoid dealing with a collection agency, you can:
Arrange a Debt Management Plan
– With the help of a not-for-profit credit counselling service or agency, you can arrange a DMP. This means that if you have the money, and you want to clear your debt up, you offer to pay the debt in full over a period of time (usually years) by way of monthly payments. A credit counselling agency will charge you a 10% fee on top of the amount owing.
File for a Consumer Proposal
– If you don’t have the funds in full, there are still alternatives to a partial payment with a collection agency. A consumer proposal is a legally binding debt settlement agreement to repay your creditors a percentage of what you owe in exchange for full debt forgiveness. A Licensed Insolvency Trustee helps you negotiate a settlement offer and their fees come out of the amount paid to creditors. You pay only the agreed settlement amount.
File for Personal Bankruptcy
– Sometimes, declaring bankruptcy is the best way to deal with your debt and get debt relief. Personal bankruptcy is a legal practice designed to help an honest but unfortunate debtor who cannot afford to repay their debts. Debtors assign their rights to non-exempt assets for the benefit of their creditors in exchange for which they are released from unsecured debts. At the end of the bankruptcy, your debts are legally discharged, meaning you are no longer required to pay them back, and you can have a ‘fresh start’.
At Bankruptcy Canada, we are proud to be a team of understanding experts, trained in all of the different Ontario debt relief options.
Meet with a Licensed Insolvency Trustee who will ask you all the important questions about your income, budget, and debts to help you plan for the best outcome.
If you want a team of professionals to deal with your debts for you, who understand all there is to know about Ontario debt collection laws and how to stop debt collection calls for good, then all you need to do is give us a call or send us an email, and we can get started.
