Fee restrictions for debt settlers coming, says Ministry of Justice

Restrictions on the fees debt settlement companies can charge their clients will come into effect this spring.

As of April 1, 2016, debt settlers will be subject to two options limiting how much they can charge: • If the debt will be repaid within 90 days, agents may only charge a fee of up to 10 per cent of the total amount of debt being repaid. • If 90 days or longer is needed, the fee rises to 15 per cent of the total amount repaid, plus a onetime service fee that can be no more than the cost of one average monthly payment.

As it stands, companies can charge large, non-refundable fees up front in order to negotiate a lump-sum payment.

“Consumers were often encouraged to stop paying their debt on the expectation of making a lump sum payment to their creditor, while paying negotiation fees to the debt settlement agent instead,” the Ministry of Justice said in a press release.

“This would cause some people to miss payments, further damaging their credit score.”

Also as of April 1, 2016, all contracts will have to include a disclosure statement stating that, while the debt may go away, the debt settlement process will not improve their credit rating.

“Under the old system, some companies would counsel customers to avoid calls from creditors,” the Ministry said.

“This can make the situation much worse and debt settling agents will be prohibited from providing this advice.”

B.C. Credit Counselling Society president Scott Hannah endorsed the changes.

“The new rules mean families and individuals facing financial strain are able to make informed choices about their money and debt repayment,” Hannah said in the Ministry’s press release.

More information on the changes can be found through the Consumer Protection B.C. website: www.consumerprotectionbc.ca.

Under the old system, some companies would counsel customers to avoid calls from creditors. This can make the situation much worse... — Ministry of Justice

press release