A strong desire to bolster the balance sheets has encouraged the Government of B.C. to regulate the debt settlement industry to ensure borrowers can pay off what they owe.
B.C. residents could benefit from additional cost certainty and having the guesswork taken out of debt repayment rules when changes are made to the Business Practices and Consumer Protection Act (BPCPA) effectively taking place on April 1st, 2016.
“British Columbia families and individuals need to be confident that when they are making tough money decisions, they’re getting the right advice and that they have certainty over what they’re being charged,” said Minister of Justice Suzanne Anton in a recent press release. “These new regulations will help those people in debt understand their rights, and help ensure they do not get taken advantage of during a vulnerable time in their life. These changes will also help keep as much money as possible in the pockets of British Columbians.”
The Province will be restricting the fees that debt settlers can charge, which means companies will not be able to charge clients in debt until the creditor and the debtor have agreed to the terms of repayment.
“These changes are needed in British Columbia,” said Scott Hannah, president and CEO of Credit Counselling Society of BC, in a recent press release. “We know that debt can put an enormous amount of stress on people, particularly families. The new rules mean families and individuals facing financial strain are able to make informed choices about their money and debt repayment. We at the Credit Counselling Society look forward to employing these regulations while we work to help B.C. residents become debt-free.”
Before this change was proposed, some companies could charge large, non-refundable fees up front in order to negotiate a lump-sum payment — this action forced many consumers to stop paying their debt on the condition of making a lump sum payment to the creditor while negotiating fees to the debt settlement agency, which caused many people to miss their payments, thus ruining their credit score.
“These changes strengthen protections for British Columbians who are looking for help with debt issues,” said Rob Gialloreto, president and CEO of Consumer Protection BC, in the release. “As the regulator for the debt collection and debt repayment industries, we are committed to implementing these changes effectively and supporting our existing licensees in their understanding, while ensuring that consumers have access to information about their rights.”
As of April 1st, 2016, debt settlement companies will now only have two options, restricting how much they can charge for fees: A) If the debt will be repaid within 90 days, debt agents may only charge a fee of up to 10 per cent of the total amount of debt being repaid; B) If you need 90 days or longer to repay your debt, debt settlement companies may charge a fee of up to 15 per cent of the total amount repaid, plus a one-time service fee.
The service fee can be no more than the cost of one average monthly payment.
These companies will now also be forced to be transparent about the risks associated with debt settlement.
All contracts will be required to contain a disclosure statement that indicates while the debt may go away, the debt settlement process will not improve their credit rating, compared to the old system which allowed some companies the option to counsel customers to avoid calls from credits, which can easily worsen the situation. Now, debt settling agents will be prohibited from offering this advice to their clients.
“The new rules just make sense,” said Blair Mantin, VP of Sands and Associates, Trustees in Bankruptcy, in the release. “They mean everyone will be on the same page about what the rules are, what consumers can be charged for, and how much. So many times I hear from those in financial distress that high fees charged to manage their debt are what have kept them in debt.”
Moving forward, the new rules in B.C. will align with those that exist in other areas of the country.