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With debt levels in Canada reaching new heights, the government is trying to crack down on predatory debt professionals with steep fines for bad actors. But finding trustworthy help still feels like navigating a minefield.
More than a quarter of Canadians don’t expect to pay at least one of their current bills and loans in full, according to January data from consumer credit reporting agency TransUnion. About one-fifth of people intend to take on additional debt or refinance existing credit in the next year, of which 43 per cent expect to apply for a new credit card.
The heightened demand for credit has opened a door for bad actors who make misleading promises to help tackle or eliminate debt, said André Bolduc, the board chair of the Canadian Association of Insolvency and Restructuring Professionals.
While the federal government and the Office of the Superintendent of Bankruptcy have announced plans to put a stop to such practices, with some advisers pretending to be licensed trustees, the debt advisory space remains confounding for most people.
A quick Facebook or Google search for “debt advice” or “debt help” will return a host of sponsored ads for debt “advisers,” “advocates” or “counsellors,” some of them wielding promises to “write off” 90 per cent or more of your debt.
Though all the names and titles can read like a thesaurus entry, in reality there are roughly three categories of debt professionals, said Ilan Kibel, a licensed insolvency trustee and senior vice-president of accounting firm BDO Canada: credit counsellors, insolvency trustees and debt advisers or advocates.
On the for-profit side are debt advisers, who are not regulated by the Superintendent of Bankruptcy. “They’re not legally monitored, have no formal training and still charge consultation fees,” Mr. Kibel said.
Since debt advisers are not legally permitted to file consumer proposals or bankruptcies, they sometimes charge clients thousands of dollars in consultation fees before redirecting them to an insolvency trustee.
But Connie Brannigan, an Ontario-based debt adviser, insists that isn’t always the case. She said her firm, First Step Debt Solutions, doesn’t charge any upfront fees and only makes money off what she calls “after-care” programs, which help ensure people don’t bounce back into debt after they’ve filed a consumer proposal or declared bankruptcy. They include regular checkups and advice on how to cut spending and deal with creditors.
“People are terrified, they’re scared, and I try to make them feel comfortable so they can talk to a trustee,” Ms. Brannigan said, adding that her team helps walk debtors through options other than bankruptcy or insolvency, too.
Francisco Remolino, a licensed insolvency trustee, agrees that not all debt advisers are outright predatory. However, the lack of regulation in this space creates significant risks for consumers. “Debt advisers operate in a grey area, without the same oversight or accountability,” he said.
Superintendent of Bankruptcy Elisabeth Lang said in an e-mail that while it’s not illegal to provide debt advice, it’s important to consider that anyone can claim to be a debt adviser. “There are no education or experience requirements, no standards on services provided, and no caps on the fees that debt advisers may charge,” she said.
Licensed insolvency trustees, by contrast, are federally regulated under the Bankruptcy and Insolvency Act, which puts pressure on them to adhere to strict ethical standards.
The reason why debt advisers can still often attract more clients is that they have free rein over what they can say in ads, whereas insolvency trustees don’t, Mr. Kibel said.
“We’re not allowed to say, because we’re regulated, certain terminology or words,” he said. Those include promises to eliminate all debt or claiming to be debt “specialists,” which can sometimes allow debt advisers to dominate ad space on certain online platforms.
Credit counsellors, on the other hand, usually operate through non-profit organizations and are regulated by provincial authorities.
Stacy Yanchuk Oleksy, the chief executive officer of Money Mentors in Alberta, a non-profit credit-counselling agency, says their job is to provide a middle ground for people facing mounting debt while not necessarily at the stage of insolvency. They also offer debt management programs.
She says they help clients create a debt management plan, a voluntary repayment plan with interest relief from creditors. In Alberta, they can help debtors make an orderly payment of debt program, a legislative program through the Bankruptcy and Insolvency Act to consolidate unsecured and government debt into one payment while reducing interest.
Ms. Yanchuk Oleksy says that, even though there is a range of safe options available for those in debt, trying to find these professionals online is becoming increasingly difficult.
“Consumers will take the first life raft that arrives – sometimes it’s a predatory one,” she said. “We expect that someone’s going to somehow navigate the system well under financial straits.”