Are you feeling trapped by any debt collection agency? Well, you are not alone. Numerous Canadians find themselves in this tough spot and often wonder how to deal with it. Should you pay the agency immediately to resolve the issue? The thing is, acting impulsively might not work in your favour. Hence, it is important to know how collection agencies function, your rights, and the long-term implications of paying them. Here, we will discuss why you should never pay a collection agency in Canada without careful consideration and provide insights into legal timelines and alternatives.
What is a Collection Agency and How Do They Operate in Canada?
A collection agency in Canada is a third-party organization that creditors hire to recover unpaid debts. These agencies work for banks, credit card companies, utility providers, or other businesses that extend credit. They contact the debtor and persuade or press them to pay what is owed.
How Do Collection Agencies Work?
Purchase of Debt: In some cases, creditors sell delinquent accounts to a debt collection agency in Canada at a reduced rate. The agency then owns the debt and seeks to recover the full amount for profit.
Commission Basis: Alternatively, some agencies operate on a commission basis, earning a percentage of the recovery they make for the original creditor.
Tactics: Collection agencies typically contact debtors via phone, email, letters, and in-person visits. Some of their tactics may border on harassment, so knowing your rights is essential.
In Canada, collection agency activities are regulated by provincial laws. For example, Ontario’s Collection and Debt Settlement Services Act and similar laws in other provinces define what these agencies can and cannot do.
Why You Should Think Twice Before Paying a Collection Agency
Settling with a collection agency without understanding the implications can have unintended consequences. Here are key reasons why you should never pay a collection agency in Canada directly, at least not without a strategic approach:
Impact on Your Credit Report
Paying a collection agency does not always remove the negative impact of the debt on your credit report. Even after payment, the record of the delinquent account may remain on your credit file for up to seven years, depending on provincial regulations.
Legality of the Debt
Collection agencies often try to collect on debts that may already be time-barred. This means the creditor has missed the legal window to sue you for the debt, known as the Statute of Limitations. In most provinces, the limitation period is two years from the last date of the debt acknowledgement or payment. You could reset this timeline by paying or acknowledging the debt, giving the agency more time to pursue legal action.
Ownership of the Debt
The legal ownership changes once the original creditor sells the debt to a collection agency. Verifying whether the agency has the legal right to collect the debt is important. You can request proof, such as a statement of account or the original credit agreement.
Potential for Settlement
Paying the full amount demanded by a collection agency might not be your only option. Many agencies are willing to negotiate settlements for a fraction of the debt. However, this requires strategic negotiation and ensuring you get the terms in writing.
What Are Your Rights When Dealing With a Collection Agency in Canada?
In Canada, consumer protection laws ensure that individuals are treated fairly when dealing with collection agencies. These laws vary slightly by province, but common principles are designed to prevent harassment, unfair practices, and misinformation.
Communication Restrictions
Collection agencies are limited in how and when they can contact you. They cannot call excessively or during unreasonable hours, such as before 7 a.m. or after 9 p.m., or on statutory holidays. In most provinces, they are required to send a written notice of the debt before contacting you by phone. You can request, in writing, that a collection agency stop contacting you. While this does not erase the debt, it prevents further communication unless for legal actions like court proceedings.
Prohibited Practices
Agencies cannot use threats, abusive language, or harassment to collect a debt. They are also prohibited from publishing or sharing your debt with unauthorized third parties. False or misleading statements, such as claiming they can seize your property without a court order, are also illegal.
Written Verification of Debt
You have the right to request written verification of the debt. This ensures the amount claimed is accurate and prevents attempts to collect on invalid or previously paid debts.
Debt Dispute and Investigation
If you believe the debt is incorrect, you can dispute it. Notify the collection agency in writing, and they are obligated to pause collection efforts until the matter is investigated.
Protection Against Job or Credit Damage
Collection agencies cannot contact your employer except to confirm your employment or enforce a wage garnishment order through the courts. They also cannot threaten to damage your credit score unless the debt is valid and reportable.
Role of the Canada Revenue Agency Collections Officer
If your debt involves taxes owed to the CRA, the rules differ. A Canada Revenue Agency collections officer has broader powers than private collection agencies, including garnishing wages or seizing assets without a court order. Addressing CRA debts promptly and professionally is crucial to avoid severe consequences.
Alternatives to Paying a Collection Agency
If you’re wondering how long a collection agency can try to collect in Canada, the answer varies by province and the type of debt. While time limits exist, ignoring a debt entirely can lead to complications.
Here are some alternatives to consider before paying a collection agency:
Verify the Debt’s Legitimacy
Before taking any action, confirm whether the debt is valid. Request documentation from the collection agency and compare it with your records.
Negotiate a Settlement
If you decide to address the debt, negotiate a reduced payment amount. Be sure to get the agreement in writing to prevent future claims for the remaining balance.
File a Consumer Proposal or Bankruptcy
If your debts are overwhelming, you might explore filing a consumer proposal or declaring bankruptcy. These legal processes can relieve collection efforts and help you regain control of your finances.
Wait for the Statute of Limitations to Expire
If the debt is nearing the end of the limitation period, you may choose to wait it out. However, this approach carries risks, as the collection agency may escalate its efforts or take legal action before the deadline.
Seek Professional Advice
It’s always best to consult a credit counsellor, financial advisor, or legal professional. These experts can help you evaluate your options and develop a plan to manage your debt. In Canada, consider Bankruptcy Canada for well-suited solutions. Whether it’s debt settlement, dealing with creditors, or filing bankruptcy, we offer expert counselling to deal with such scenarios successfully.
The Bottom Line
Being well-informed is crucial when dealing with collection calls, be it from private agencies or even from the Canada Revenue Agency. Keep in mind that there are other options than paying a collection agency in Canada. By employing the correct approach, you can lessen the blow to your finances and credit score.
