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by Janet Doyle
As an organization dedicated to helping people, we often refer clients to a solution that may be outside of the services of Doyle Salewski. For a number of years, we’ve worked with not-for-profit credit counsellors and/or registered charities in partnership as part of our shared commitment to offering clients the best option for debt relief. In fact, Doyle Salewski has donated money to some of these organizations under the premise that our funds were being used to help people in our community seeking debt relief.
Recently we were shocked to learn that many of these companies across Canada are now losing their status as charitable organization because they are actually operating as debt collectors working on behalf of creditors. In fact, to operate legally they are required to be registered as a debt collector with the Ontario government.
In the past, not-for-profit credit counselling organizations would offer exactly that – credit counselling; meeting with people in person to help them with budgeting and identifying opportunities to improve credit management by reducing expenses. Doyle Salewski would often meet with clients who would benefit from credit counselling instead of working with Doyle Salewski, and when credit counsellors evaluated new clients who didn’t qualify for credit counselling they would advise the client to visit our office to receive advice from a Licensed Insolvency Trustee (LIT). These organizations served their local community by providing assistance to those who needed help managing their budget and cashflow, as well as helping people work through addictions, gambling, or marital issues that were the root of their debt problems.
Now many not-for-profit organizations are operating as large call centres, working with creditors to offer a debt management plan to repay the entire debt at a lower interest rate. They receive funding from banks and other lenders that are interested in receiving the full amount owed. Some of these not-for-profit agencies have been shown to actually make millions of dollars in revenue from charging additional fees to debtors on top of the debt repayments.
Although not-for-profit agencies seem like they aren’t trying to make money, they are. In essence, credit counselling organizations are debt collectors under the law; they are mandated under the same legislation, receive fees for their services from the creditors and appear to act in the best interest of the creditors who pay them – not their indebted clients. Because of this, there is a conflict of interest and what is supposed to be credit counselling often turns into a strong recommendation to buy into an unaffordable debt settlement program without discussing the option of seeing a Licensed Insolvency Trustee.
The Risk of Debt Management and Settlement Programs
What is a debt management program? Typically, it involves a credit counsellor negotiating with the creditors to stop charging interest and arrange for a new repayment program. This provides the creditor with the principal amount in full, and the credit counselling organization charges a fee to manage the agreement and collect payments. Some organizations offer debt settlement programs, where they offer a lump sum to your creditors. They advise you to stop making payments to creditors and begin making payments to their organization over a period of time, a strategy that they claim is to allow them to accumulate an amount to offer to creditors as a settlement, paying less than the full amount.
What most people don’t realize is that these informal debt management and settlement programs do not offer legal protection, allowing creditors to call and harass you, file a lawsuit, or even garnish your wages directly from your employer. In addition to repaying the debt, there are additional fees paid to the debt settlement company and your credit rating is negatively affected. While making payments towards the lump sum in a debt settlement program, creditors are charging interest and your credit rating begins to suffer. In many cases these programs have failed, and the organization has kept the monies paid to them by the debtor. The money is hard to reclaim, especially when the organization is located outside of Canada.
Outstanding tax debt is a serious liability for anyone considering debt management or settlement, as the CRA has special powers to seize your bank account or put a lien on your home (Read more about dealing with tax debt on our blog). Some creditors (like the CRA) refuse to work with credit counselling organizations, and if they choose not included in your plan you’ll still need to deal with them – and the debt – on your own.
If this sounds like these programs are not in your best interests, you’d be correct. Unlike Licensed Insolvency Trustees that are regulated, audited, and monitored by the government not-for-profit credit counsellors are in no way obligated to provide you with unbiased advice and alternatives that can get you out of debt faster.
What Is the Best Option?
If you need debt relief, you can arrange for a formal debt settlement with your creditors to reduce your debt up to 70% or more and receive legal protection from unsecured creditors immediately with a Consumer Proposal. This means that your creditors are in a legally binding contract, and you don’t have to pay the full amount of your debt – allowing you to become debt-free sooner.
A credit counsellor is not authorized to evaluate your suitability for a consumer proposal, only a Licensed Insolvency Trustee can provide you with a proper assessment and the opportunity to settle your debts for less than owed in a legally binding contract. If you are considering a debt management plan or settlement program, book a free consultation to speak to a professional at Doyle Salewski. We’ll go over the contract and identify any legal concerns as well as provide you with all the options available to you. If credit counselling is the best option, we’re happy to recommend a reputable firm that is known for their success with clients, but we’ll look at every alternative together, explain the pros and cons, and let you make the best decision for your future.