The Ontario government announced plans last month to bring in new laws that would curb the debt settlement industry in that province. The proposed regulations, put out for public comment Jan. 4, would ban high upfront fees and restrict the kinds of contracts debt settlement companies can offer, effectively outlawing the business model most popular with, among others, Cambridge Life Solutions, a company Matt McClearn and I wrote about in this magazine last fall.
The new regulations would bring Ontario into line with other Canadian provinces, like Alberta and Manitoba, and the United States, where debt settlement ran wild for years before sparking a huge federal crackdown in 2010. The new rules would also, interestingly, restrict the kinds of advertising debt settlement companies can use:
It is proposed that in addition to the general misrepresentations of material facts, misrepresenting any of the following would be prohibited:
a) whether the operator is providing the services on a non-profit basis;
b) whether the operator is approved, licensed or registered or its operations are regulated by the Government of Canada, the Government of Ontario or the government of any other province or territory of Canada;
c) the amount of money that the consumer must owe or the percentage of each of the consumer’s debts that must be outstanding before the operator will initiate attempts with the creditors of the consumer or their debt collectors to negotiate, settle or modify the terms of the consumer’s debts;
d) the amount of time necessary to achieve the results represented by the operator;
e) the amount of money or the percentage of the consumer’s debts that the consumer may save by using the services;
f) the percentage or number of consumers for whom the operator attains the results represented by the operator;
g) the effect of the services on the consumer’s creditworthiness; and
h) the effect of the services on collection efforts of the creditors of the consumer or their debt collectors.
Those proposals speak less to debt settlement companies themselves, in most cases, than they do to so-called “lead generators”—companies that advertise debt settlement, sign-up potential clients and then sell their information to back-end service providers.
Most debt settlement ads you see online are from lead generators, not the companies providing the actual debt services. The website Canadadebtsupport.com, for example, is run by a company called Seevian Media, which is part of Seevian Solutions, a company headquartered in the U.S. with a “primary contact centre” in Tijuana, Mexico.
The Canada Debt Support landing page is pretty standard for the industry. It offers help eliminating collections calls and reducing credit card debt by 40-70% in 12 to 36 months. The splash page you end up at through its Google search ad also plays with high-pressure sales tactics like claiming the “offer ends in 3 days” and “accepting only 8 more Canadians today!” (Trust me when I tell you this: the offer will still be there in three days. More than 8 Canadians will be accepted today or any other day.)
If you read the fine print, you can usually tell a lead generator from an actual debt settlement company. For example, on Canadadebtsupport.com, there’s a small text box below the sign up field that reads: “By submitting this information you agree to be contacted by email or phone by one of our approved debt settlement companies,” a dead giveaway that Canada Debt Support is hoping to sell your information to one its “approved” partners, not to offer you a service itself.
For now, Ontario’s proposed debt settlement crackdown is just that, a proposal. There’s no guarantee the new Premier, Kathleen Wynne, considers debt settlement a priority, even if she supports the new regulations in principle. What’s more, there’s always the chance the minority Liberal government could fall before the new rules are enshrined in law.
Even if the proposal passes, debt settlement will likely continue, in one way or another. After the FTC banned the up-front fee model in the U.S., some firms folded, but many changed names and tactics and found ways to work around the new rules. In fact, according to a report by the New York City Bar Association, complaints to the Attorney General in that state about debt settlement actually went up in 2011, after the new regulations came into force. No matter the rules, “the tremendous profit motive remains,” the authors of the report wrote, “and many will skirt the law to profit from the most vulnerable and economically distressed.”