According to the government, AFSs are high-cost financial services outside of traditional financial institutions like banks and credit unions. For example, they include offerings like payday loans, instalment loans, lines of credit, and auto title loans.

Significantly, Credit Counselling Canada was invited to submit its ideas on strengthening protections for Ontario Consumers.

Imposing limits on the amount lenders can charge

Credit Counselling Canada was happy to weigh in with its suggestions for strengthening protections for Ontario consumers.  We noted how research findings have highlighted the need for more vigorous regulatory enforcement of laws to safeguard vulnerable financial consumers.  For instance, for many lower-income Canadians and increasingly middle-class borrowers, high-cost instalment loans have become a debt trap.

Critically, one important way to prevent harm to vulnerable consumers is by imposing limits on the amount which lenders can charge for the cost of borrowing. Furthermore, a fixed limit is easier to administer and more straightforward for consumers.

If you are facing a severe debt problem, we recommend that you call one of our member agencies today.  They will offer you free, private, non-judgmental guidance from an accredited credit counsellor on the best way for you to deal with your debts.  Let us help you find the right solution for your situation. After all, you have got nothing to lose by calling – except your debt.

For more information on the Ontario Ministry of Government and Consumer Services consultation process, see Alternative Financial Services.

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Consumer rights and debt is an increasingly important topic. As modern societies move toward open data movements in government, health care and banking, it’s important to note that North American society wasn’t built on a bedrock of a citizen’s right to know.

Sociologist Michael Schudson reveals how consumer rights movements between the 1950s and 1970s were based mainly on environmental activists’ demands, consumer advocates and investigative journalists.  Schudson outlines this drive toward modern transparency in his book, “The Rise of the Right to Know: Politics and the Culture of Transparency, 1945-1975.”

Schudson’s book campaigns for greater openness across several domains such as truthful communication in health care and transparency at all business and government levels. Today, in an era of constant information and the uncertainty amid COVID-19, it’s important to revisit this idea of consumer rights, specifically around consumer debt.

Most find it hard to open up about their finances and lack the courage to ask for help

Broadly, consumer rights ensure people obtain accurate and unbiased information and that they are not mistreated. Additionally, being informed on individual rights increases economic welfare. It also improves societal health by bolstering demand for openness and encouraging industries to make ethical progress.

In the consumer debt space, access to non-judgmental, confidential options is essential. Most find it hard to open up about their finances and lack the courage to ask for help. Despite a recent drop in consumer insolvencies, Canada is a heavily indebted nation. Unfortunately, that is not going to change anytime soon.

In a recent Credit Counselling Canada survey, Canadians revealed the issues they face when seeking debt assistance. The greatest challenge was a lack of focus on financial wellness and education (72 per cent). Next, a lack of transparency around fees (70 per cent). Then, concern about conflict of interest and a lack of transparency around an organization’s motives (69 per cent).

The survey also shows motivates people to get out of debt. It’s one of the oldest tropes in recovery, and a claim that’s been repeated for decades. You’ve got to hit rock bottom before you can change course. Strikingly, nearly four in 10 Canadians would have no idea where to turn when facing rock bottom.

More work needed to build awareness

Major work is needed to increase awareness of consumer rights around debt and debt relief. Canada is taking steps in the right direction. The Financial Consumer Agency of Canada recently renewed its Consumer Protection Advisory Committee, seeking to strengthen financial literacy and ensure appropriate regulations are in place. Nevertheless, more can be done.

Canada should look towards models in the U.K., Australia and New Zealand. Together these countries have invested upwards of $115 million in financial help services to supplement their COVID-19 relief packages. Although Canada has responded swiftly to address the immediate emergency, there is no long-term strategy to build Canadians’ financial well-being beyond the crisis. These countries have put the interest of indebted consumers first.  Moreover, they have developed a progressive framework of sustainable options, including the critical service of non-profit credit counselling.

Protecting the right to unbiased, safe and holistic debt relief requires action from several players. Governments, local community foundations and charitable foundations can band together to support the financial literacy goals of non-profit credit counselling. Funding can also help shift the economics of debt repayment through incentives for banks and credit unions to innovate.  Meanwhile, community centers and organizations can provide space and resources for consumer debt education. Finally, Canadians can seek out Canada’s non-profit, certified credit counsellors as a smart place to start.

It takes a collaborative approach

There is no panacea for Canada’s consumer debt problem. A cross-sector, collaborative approach that includes the non-profit, credit counselling sector is essential.

There is a clear path ahead.  One that involves a dual commitment to economic transparency and a progressive consumer debt approach. Egalitarian society advances when consumers have greater access to information and a protected set of rights. As we make our way through the second wave of the pandemic, we must strive to enshrine and elevate those rights.  Learn about Credit Counselling Canada’s bill of rights for Canadians in debt.

CEO of Credit Counselling Canada

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While you just want to get help fast, the decision you make can have a significant impact. And not only now, but into the future. There are a few facts to consider before making any decisions.

Filing Bankruptcy or a Consumer Proposal in Canada is a Public Process

Aside from just getting out of debt, personal privacy should be at the top of your list.

If you declare bankruptcy or file a consumer proposal in Canada, your name is added to a database compiled by the Office of the Superintendent of Bankruptcy, Industry Canada. For $8, anyone can search your name on a government website to see if you have declared bankruptcy or filed a consumer proposal in Canada.

In the future, should you apply for an important job, seek a prominent position in an organization, run for public office, have a nosy neighbour or a jealous colleague, your name is searchable on this database. While bankruptcy or a consumer proposal might seem like the only option now, one day you will be debt free. And you will want to live your life like someone who is debt free. Not held back because you needed help in your past.

Real, Private Help Through Not-for-Profit Credit Counselling

Sometimes bankruptcy or a consumer proposal may be your only option.  No one plans to have debt problems. These options are available to you to deal with your situation if it is the best course of action for you.  But it is also important to know how your decisions today will affect you for the rest of your life.

If you are facing a serious debt problem, call one of our member agencies today.  They will offer you free, private, non-judgemental guidance from an accredited credit counsellor on the best way for you to deal with your debts.  Let us help you find the right solution for your situation. You have got nothing to lose by calling- except your debt.

Find out more information about a Consumer Proposal from the Office of the Superintendant of Bankruptcy.

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In 2018 and 2019, Credit Counselling Canada continued pressing the OSB office for change, and in July 2019 the OSB opened a consultation on draft Directive  No. 1R5 Counselling in Insolvency Matters and enhancements/revisions to be made to insolvency counselling.  The draft directive rolled back several of the provisions that were of concern in Directive No. 1R4, resulting in positive changes to the legislation.

• Reduced the administrative burden for the not-for-profit/charitable credit counselling industry and provided for the removal of potential and perceived barriers for LITs to rely on qualified third-party counsellors;
• Eliminated the requirement to request a variance;
• Removed the requirement to audio record counselling sessions.

With this step in the right direction, we welcomed the opportunity to respond to the new draft directive with our comments. This is a summary of our submission. The full submission can be viewed here.

Directive No. 1R5 Counselling in Insolvency Matters was published in November 2019, and comes into effect in January 2020.

Overview

Credit Counselling Canada is governed by a volunteer board of directors. Our association members are accredited based on required governance, financial stewardship and operational standards. Given our expertise and credibility, members are often asked to provide expert opinions to the media as well as to governments contemplating legislative change.

Honesty, transparency, unparalleled expertise and professionalism are the basis of our members counselling services. We are not-for-profit and registered charities. We have been in operation for decades providing counselling services and money management education to individuals and families across Canada. For more than two decades we have offered counselling support services to trustees who do not have adequate resources, time or capacity to provide effective insolvency counselling services and develop quality educational material for their clients.  Trustees previously had flexibility to partner with not-for-profit/charitable credit counselling agencies to provide the legislated required debt counselling services to insolvent consumers.

We can assure the Superintendent that our association provides careful oversight and audits of our members who are required to track and report on performance data on the components of credit counselling programs. In addition, many of our members across Canada are already regulated in several provinces that have legislation requiring registration, licensing and oversight.

Our Perspective – Insolvency Counselling

While doors need to be closed to third party debt consultants who undertake to mislead consumers, helping Canadians who are in financial distress should be the overarching goal of debt counselling.

In terms of referral arrangements between trustees and debt counselling service providers, we agree that there should not be any closed-door arrangements. However, there is nothing inappropriate in trustees using external service providers that are highly competent, accredited and can provide quality counselling to indebted consumers.

We Request – An Exemption for Not-for-Profit Credit Counselling

By filing our response to the draft directive, we ask that the Superintendent implement a final directive that meets the objective of dealing with and eliminating inappropriate and harmful practices without causing unwarranted consequences for accredited not-for-profit/charitable credit counselling services and insolvent Canadians.

To achieve fairness, we again ask that accredited not-for-profit/charitable credit counselling services be granted a formal exemption from the proposed draft directive.

With over 50 years of respected collective history, we have helped hundreds of thousands of financially distressed Canadians across the country by improving financial literacy, providing counselling in making financial choices or in finding solutions to over-indebtedness. We are open to discuss applicable standards for all counsellors to ensure quality services are provided at a consistent level across Canada, including the concept of those standards being monitored/audited by the OSB.

We agree that there should be an effective monitoring and oversight framework to identify and address inappropriate behaviour and that it should include new powers for the Superintendent to issue administrative monetary penalties (AMPs).  AMPs would address infractions by trustees quickly in terms of non-compliance with new counselling standards whether the service is offered by the trustee or through an external service provider.

We appreciate the OSB giving us the opportunity to participate in this consultation.  As the OSB continues to refine the supervisory framework, we hope it will consider positively our suggestions so that quality services can continue to be delivered with integrity while respecting the right of trustees to use qualified external counselling services.

The post Credit Counselling Canada Advocates for Insolvency Counselling Change appeared first on Credit Counselling Canada.

Overview

Credit Counselling Canada and Canadian Association of Credit Counselling Services are national associations governed by professional volunteer boards of directors. Our members are accredited based on required governance, financial stewardship and operational standards. Honesty, transparency, unparalleled expertise and professionalism are the basis of our counselling services.  We are not-for-profit and registered charities.

For more than two decades we have offered counselling support services to trustees who do not have adequate resources, time or capacity to provide effective insolvency counselling services and develop quality educational material for their clients.  Trustees currently have flexibility to partner with not-for-profit credit counselling agencies to provide the legislated required debt counselling services to insolvent consumers.

We can assure the Superintendent that our professional associations, CCC and CACCS provide oversight and audits of our members who are required to track and report on performance data on the components of credit counselling programs. In addition, many of our members across Canada are already regulated in several provinces that have legislation requiring registration, licensing and oversight.

The Problem

In the ‘Review of Licensed Insolvency Trustee business practices in relation to administration of consumer insolvencies’ the Superintendent has identified some inappropriate practices through a small sampling of trustees that engaged in relations with certain external counselling service providers (third party debt consultants).  To remedy this, the Superintendent issued this draft directive which seeks to address and eliminate the inappropriate and unethical practices and dubious relationships. We strongly support the objective of improving oversight and eliminating disreputable practices that harm consumers and charge debtors with needless and costly services.

Clearly, when tens of thousands of Canadians seek bankruptcy protection with a trustee every year, trustees must ensure clients are provided with certified counsellors and accredited counselling services such as those offered by our not-for-profit agencies.

The Concern

The draft directive suggests that trustees are the only competent option for providing counselling services.

The draft directive, as currently written, will require trustees to curtail current service arrangements with us by creating unwarranted and restrictive barriers.

Our Perspective

We conclude that the draft directive establishes obstructive rules on trustees and that the proposed rules create barriers in the market place that deny not-for-profit counselling service providers with the right to offer and provide insolvency counselling services to trustees and Canadian citizens. It is our view that these excessive rules will close the door on not-for-profit counselling services ability to offer quality services to trustees and insolvent Canadians.

Trustees should be able to obtain professional assistance from proven, competent providers that are available to service their clients. In addition to being registered Insolvency Counsellors, credit counselling staff must achieve an Accredited Financial Counsellor Canada® designation and comply with the code of Ethics and Standards of Practice established and monitored by their association’s accreditation process. These mandatory requirements that we have distinctly exceed the standards as set out in the draft directive.

With respect to the issue of referral arrangements between trustees and debt counselling service providers, we agree that there should not be any closed-door arrangements. However, there is nothing inappropriate for trustees to use external service providers that are highly competent and can provide quality counselling to indebted consumers. We propose that when an external debt counsellor identifies bankruptcy or a consumer proposal as options for an insolvent debtor, that the counsellor be required to provide the debtor with a list of local trustees without recommendation.

We Recommend – An Exemption for Not-for-Profit Credit Counselling

By filing our response to the draft directive, we ask that the Superintendent implement a final directive that meets the objective of dealing with and eliminating inappropriate and harmful practices without causing unwarranted consequences for not-for-profit credit counselling services and insolvent Canadians. Our concern is that the proposed directive may be a violation of the Competition Act.

To achieve fairness, we ask that not-for-profit credit counselling services be granted a formal exemption from the proposed draft directive.

Clearly, the goal of the Office of the Superintendent of Bankruptcy should be to facilitate ways for trustees to offer financially distressed Canadians a high quality and transparent counselling service including access to external providers. The proposed requirements seem to unfairly put not-for-profit credit counselling services in the same category as third-party debt consultants.

We agree that there should be an effective monitoring and oversight framework to address inappropriate behaviour and that it should include new powers for the Superintendent to issue administrative monetary penalties (AMPs).  AMPs would address infractions by trustees quickly in terms of non-compliance with new counselling standards whether the service is offered by the trustee or through an external service provider.

We thank you for the opportunity to share our experiences and views with you as you seek to establish a supervisory framework that ensures quality services delivered with integrity and respects the right of trustees to use qualified external counselling services.

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While we are appreciative of the thoroughness of the investigation into the practices of licensed insolvency trustees (LIT) and third party consultants (debt consultants), we are particularly concerned about the identified risks to the insolvency system and the effect on consumers.  Although some stakeholders might be shocked at the outcomes cited in the report, we have been concerned about these growing problems for some time.

Our concerns focus on the protection of consumers.

As cited in the report, these activities “can negatively impact the financial interests of both creditors and debtors in an insolvency filing”.  We noted the excessive fees paid by debtors along with the general lack of awareness of fees charged by debt consultants, creditors and LITs.  The ‘double dipping’ in the instance of mandatory counselling fees is outrageous. The sale of additional products for credit rebuilding is astounding since much cheaper ways are available to re-establish credit.  These practices are blatant exploitation of vulnerable consumers.

Steps concerning ‘risk based supervision’ need to be strengthened.

The report cites the next steps are to ‘strengthen elements of the existing regulatory framework’ including amendments to the Directives, the OSB forms and compliance.  Credit Counselling Canada commends these necessary steps but we feel that these do not go far enough, and steps concerning ‘risk based supervision’ need to be strengthened. Without sufficient penalties for these violations the activities will continue.  An insignificant punishment is not enough to have LITs who contravene the standards discontinue these practices, particularly when there is associated revenue.

We suggest harsh financial penalties and suspension of licenses for non-compliant operators, as seen in numerous industries. This means a new enforcement mechanism similar to other regulators since the current system seems ineffective.  We have seen similar situations of strong enforcement with the Financial Consumer Agency of Canada impacting lenders who are not in compliance.  This will only help strengthen the reputation of the insolvency system.  We understand the limitations on the OSB with the risk based supervision approach, but the OSB needs an appropriate enforcement mandate to put into effect penalties for transgressions.

Transparency must be an essential component of the insolvency system.

Providing consumers access to information, which the report cites as the fourth step, is not sufficient. Being in a financial crisis is stressful. Very few financially troubled consumers will take the time to research their options. They believe they are taking a step in the right direction by reaching out for help from a professional. Seeking a “quick fix”, consumers often do not take the time to process information provided to them. We recommend that mandatory written, plain language communication be supplied by the OSB to ensure that details of consumer proposals and bankruptcy are provided to all debtors.

The OSB should provide leadership in having the government examine the legislation to require the licensing of third party debt consultants.

One way of approaching this is through the Consumer Measures Committee.  Legislation for other related financial products, such as debt settlement and payday loans, has improved protection for consumers.  Credit Counselling Canada has offered to assist in this endeavour by providing the perspective of the consumer on a stakeholder committee with the OSB and consumer ministries.  We also support the importance of appropriate licensing and training of debt consultants.

One of the significant roles of Credit Counselling Canada and its members is the focus on the consumer.

No one represents the debtor under bankruptcy legislation.  We feel that it is essential to provide additional options at the initial stages for a debtor.  With only two tools, consumer proposals and bankruptcy, we feel LITs are limited in their solutions to debtors.  Credit counsellors provide unbiased information to debtors which include these two options along with a detailed investigation of other potential options such as consolidation loans, re-mortgaging, co-signers, sale of property and improved money management with effective coaching.  This stage of consultation would provide a distinct opportunity to look at all the options in rehabilitating a debtor’s financial position.

Credit Counselling Canada appreciates the opportunity to provide feedback to the OSB. We hope our suggestions are taken under advisement to implement changes to better protect Canadian consumers.

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Credit Counselling Canada is pleased with many of the outcomes of these consultations, including the Ontario government proposing to lower fees on payday loans to $15 on $100 by 2018. A lower rate will ease the financial burden on consumers when they are at a difficult time in their lives.

Our position is that while such amendments are a start, they are not a sufficient solution to the payday loan problem.

While the cost of borrowing is certainly problematic, we believe that payday borrowing is a symptom of much deeper financial problems. These include a lack of financial literacy and consumer protection. To protect vulnerable consumers, there should be additional payday loan regulations put in place, not only in Ontario but across all jurisdictions.

1. Increase transparency around rates.

Consumers using payday loans may be vulnerable in the sense that the average consumer does not understand the actual calculation of interest for payday loans.

We prefer lowering the fee but more importantly, we recommend a requirement for the rate to be expressed as an annualized rate. Consumers see $21/$100 and think this is 21% which compares reasonably with other credit products and interest rates. Consumers do not realize that the annualized rate is more like 479%.  Having the rate expressed in an annualized rate makes the comparison with other credit products clearer and creates a better understanding of the cost up front.

2. Decrease repeat borrowing. Ie. the payday loan cycle.

We are concerned about the prevalence of repeat borrowing. Many consumers are unaware of the longer-term consequences of taking the maximum possible amount when applying for their first payday loan. For example, they will only have $X of their pay remaining after they pay for their first loan and the cycle begins.

How many times do you estimate you have used a payday loan in the last three years? (FCAC national survey of 1,500 Canadian payday loan users)

British Columbia has dealt with this by implementing a regulation that says if you take out three payday loans within a 62-day period, a repayment option will be triggered, which allows the borrower to repay the outstanding indebtedness over two or three pay periods. This gives the borrower a fair chance to get back on track and end the cycle.

To give borrowers a chance to repay their loans in full as opposed to paying debt with debt, as proposed in New Brunswick, consumers should be limited in the maximum amounts to be borrowed based on net income. New Brunswick has proposed the total amount that can be borrowed by any one person be at 30% of net income as compared to 50% which exists in other jurisdictions.

In addition to changing borrowing periods and maximum borrowing limits, repeat borrowing may be decreased by increasing reporting of payday loans to credit bureaus. This practice could help regulate multiple concurrent loans and give consumers the opportunity to increase their credit ratings when they properly pay back money borrowed.

With current legislation, repeat borrowing often creates a dependency on payday loans which in our experience only ends in personal bankruptcy.  This occurs after months of financial stress trying to repay with an even larger psychological effect on the borrower and their families.

3. Incentives for proper payday loan repayment.

Options on lending products where paying on time reduces the interest or even opportunities for lowering interest when the total amount of credit is reduced are incentives for good repayment.

Such incentives could include: At the request of a borrower who has successfully repaid three prior payday loans from a lender over the preceding 12-month period, the lender be required to either grant a payday loan extension at a rate of 5% or convert the payday loan to an installment loan. The installment loan would be repaid over the next four pay periods. The applicable rate for the installment loan may be 7% of the principal outstanding amount of the principal owing when the installment loan was requested.

As previously mentioned, reporting of payday loans to credit bureaus would also provide consumers with an incentive to build their credit ratings. This could potentially increase their prospects of qualifying for more traditional loans.

4. Development of new options.

People using a payday loan are frequently facing circumstances with significant pressure.  They are already cash strapped and spend their paydays going from lender to lender to renew loans creating added expense on an already tight budget. If they are not physically going to a payday loan company, they are renewing or obtaining loans online. More online businesses are providing loans and credit than ever before. Consumers are not always aware of the jurisdiction they are dealing with. This makes it difficult to understand the associated laws and risks.

We need to be much more open to other types of credit products to assist people with short-term borrowing needs. For this reason, we support governments in making it easier for other financial institutions to develop easy to access, low-cost products to compete with payday loans. Additionally, lending circles have become popular in community development groups. These circles establish savings and borrowing concepts.

Other solutions beyond regulatory considerations should include a view to treating the underlying cause versus the symptom.  Financial literacy education which addresses the root cause for high-cost borrowing is essential. In a national survey of 1,500 Canadian payday loan users conducted by the Financial Consumer Agency of Canada, self-reported financial literacy correlated with both successful budgeting and less frequent payday loan use. Helping people to understand how to plan for emergencies and how to manage when income and expenses are not aligned is critical.  Choosing the right credit product is also an important feature of using credit wisely.

Together, we need to do more to meet the needs of underbanked, marginalized and vulnerable populations.

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