There have been several changes over the past year or two to the credit and collections industry, but most recently and dramatically, on November 27, the Legislative Assembly of Ontario passed Bill 55, otherwise known as the Stronger Protection for Ontario Consumers Act. You can read it in all its specific detail here:
Now that this law is passed, and will likely come into force shortly, there are a number of scenarios that I imagine are likely, that I don't think are obvious. Of course, this is all speculation on my part at this point, but I think the side effects that will come out of this law change will be significant.
Changes To The Debt Settlement Landscape
With the enactment of this law, licensing requirements, and the alluded 'maximum fee' in the act, I imagine a number of things will happen. First and foremost, with actual requirements for handling funds in trust, licensing individual agents, and the background screening that the Ontario Ministry conducts on those applicants, a number of debt settlement companies will either close up shop, or will fail to meet the provincial requirements, reducing the number of players in this field. They will be squeezed on both sides from bankruptcy trustees (exempt under this act), not-for-profit credit counselling agencies (also exempt) and collection agencies (who have already possess the licensing necessary).
Beyond the simple aspects of this law, there are many indirect consequences not obvious in legal text itself -- trust accounts are not easily opened through banks (although credit unions are now allowed in the act, another small change), and many existing or nascent settlement companies may have difficulties opening such an account, especially with their industry's reputation thus far. Some settlement companies will need to rethink outsourcing their call centre activities, as they will not be licensed agents. And most importantly, the fee structure and competitive landscape will significantly change with plain language contracts and the requirement that an agency not take their fee before services are rendered.
Changes To The Legal Landscape
Many people may not have thought about this, but this act may impact the paralegal industry in a major way. In the past several years, the interaction between collection agencies and paralegals has become strained as there are several 'gray areas' that both parties are involved in as a normal part of business -- whether it is initiating legal action, or negotiating settlement prior to a judgment action, both industries tread carefully to stay within their respective laws. This new revision makes matters complicated -- specifically the definition of an agency now to include:
... "offering or undertaking to act for a debtor in arrangements or negotiations with the debtor’s creditors or receiving money from a debtor for distribution to the debtor’s creditors, where the services are provided in consideration of a fee, commission or other remuneration that is payable by the debtor".
This means that paralegals (unlike lawyers, who are exempt in Ontario), acting as agents for a consumer as a Defendant in a civil action, or as agents for a creditor as plaintiff to receive a contingency amount based on a debtor's payment, in advance of a judgment, through settlement, or response to being served a claim, may be found to need to register under this act.
Understandably, the paralegal community is not pleased. A reaction-based article can be found at the Paralegal Scope website here:
I'm certain a number of law firms haven't enjoyed competition with the paralegal community in small claims court actions ever since the limit was increased to $25,000, and outspoken members of the legal community may take this new law as an opportunity to minimize paralegal activities. As well, while collection agencies in Ontario need P1 license holders to initiate small claims court actions on their behalf, suddenly paralegals may in turn need collection agencies to cover new requirements for settlement negotiation.
The Consumer Landscape
Most importantly, things are going to change for the consumer. Certainly, they will be protected from being taken advantage of through complex and unfair service agreements from debt settlement companies, which is a good thing. But here's a major change beyond that:
The registered collection agency in Ontario just became the consumer's new best friend.
Think of this. Rather than acting solely on behalf of a creditor to collect funds, agencies are now allowed to act on behalf of consumers. In my blog article reviewing the proposed act a few months ago, I discussed this aspect briefly, where a consumer could retain a compassionate agency on behalf of their creditors, basically choosing who could receive their funds in repayment. But I didn't go far enough.
One thing that I believe to be true in the collection industry is that while the government legislates agency practices, creditors drive agency behaviours. Without creditors, agencies have no source of income. Until now.
Having thought more on this subject, it becomes apparent to me that compassionate, and transparent collection (debt) agencies may attract consumers' business. Agencies who are able to negotiate with consumers will become a funnel for recoveries to creditors beyond their contracted vendors. This opens up opportunities and relationships that haven't had a chance to exist until now.
Because unsolicited agencies will be suddenly knocking at creditors' doors with funds to remit, or wish to negotiate settlements on behalf of consumers, the industry will need to adapt to this new challenge to third party confidentiality. Imagine this -- Cable Company "A" is contacted by a debt settlement company on behalf of a consumer, attempting to negotiate a payment schedule. However, the cable company does not want to discuss a debt with a third party who isn't a power of attorney. A concise debt settlement agreement solves the problem for the agency, but the creditors will need to adapt.
Conclusion
I certainly don't have all the answers on how this revision will impact us, but I can definitely tell that there will be major changes. Everyone is waiting to see what happens, and everyone is weighing in on the impact. Ultimately, consumers struggling with debt are going to benefit, and I'm sure that was the intended result of everyone involved in the law change, but I think the biggest changes to come will be from the unintended side-effects of Bill 55.
Our original article that discussed the proposed law change is here:
http://receivableaccounts.blogspot.ca/2013/05/regulating-debt-settlements-in-ontario.html
Also, if you would like to see the opinions and concerns of other parties involved by this act, here is a link to the transcript of the standing committee meeting on this Act, where many involved parties made their case for alterations of the legislation:
Also, if you would like to see the opinions and concerns of other parties involved by this act, here is a link to the transcript of the standing committee meeting on this Act, where many involved parties made their case for alterations of the legislation:
If anyone has a question or wants to discuss the changes to the Collection Agencies Act, I'd be very happy to talk with you. I can be reached at my office at Kingston Data and Credit, at 226-946-1730.
Regards,
Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario
226-946-1730
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