An urgent matter of consumer protection: Canadian lawmakers must address the growing controversy surrounding "debt settlement services."

TORONTO, April 19, 2012 /CNW/ - Trouble is brewing within the debt services sector of Canada's financial industry. Behind the image of Canadian actor Alan Thicke selling debt settlement services on TV, controversy is mounting around the acceptability of the business model upon which such services are based, and what far-reaching impact these services may be having on a growing number of Canadian families and individuals who are struggling to free themselves from troublesome debt.

Significantly, in the wake of regulatory activities in the United States and some parts of Canada - and in light of concerns raised by leading figures in Canada's debt services industry - questions are being raised about what lawmakers in many parts of the country are doing to investigate and address debt settlement practices, also often referred to as processes involving "debt reduction," "debt relief," "debt negotiation," or "consumer debt relief" in advertising sales pitches.

This is not to single out and deprecate the company for which Mr. Thicke acts as a spokesperson. It is simply to say that debt settlement practices now being carried out throughout much of Canada have already been outlawed in the United States, and through new legislation they have been highly regulated - with certain practices banned outright - in Alberta and Manitoba. Meanwhile, Nova Scotia lawmakers are on their way to enacting legislation that would similarly curtail these practices.

At issue are services that promise savings of up to 90 per cent on unsecured (principally credit card) debt of $10,000 or more. This translates to paying creditors as little as 10 cents per dollar owed, a preposterous expectation in most consumer debt cases, according to many experts in the field.

At its core, the debt settlement process requires that consumers withhold payments from creditors and instead grow personal savings for a lump-sum offer of settlement somewhere down the road.  Meanwhile, all or a majority of service fees - often amounting to thousands of dollars - are paid to the debt settlement company before it reaches deals with creditors, or perhaps even before it contacts creditors. Critics maintain that through this process unsuspecting consumers can be left with more debt, less money, and a bad credit rating as debt settlement companies obfuscate around issues and fail to negotiate settlements while pocketing up-front fees.

As one investigative news report pointed out recently, while statistics concerning the efficacy of debt settlement services are not available in Canada, statistics relied upon by the Federal Trade Commission (FTC) and state regulators in America found that less than 10 per cent of consumers typically completed debt settlement programs. The FTC characterized the core element of the debt settlement service process as "an abusive practice."

Unsurprisingly, debt settlement companies are receiving heavy fire from various fronts in Canada, with the federal government itself discharging major salvos. Though it is not within the purview of federal lawmakers to regulate debt settlement services (that is a provincial matter), Ottawa nonetheless is free to voice its opinion of such services, and it has done so frankly.

Earlier this year the Financial Consumer Agency of Canada (FCAC) issued a consumer alert about debt settlement companies that are scurrying to new markets with suspect claims of easy, big money-saving solutions for people mired in debt. These "too-good-to-be-true-claims", as the FCAC put it, are coming from companies that  - unlike the not-for-profit member agencies of the Canadian Association of Credit Counselling Services (CACCS) - are not recognized for exemptions under provincial laws.

As Canada's financial hub and most populous region, Ontario is taking centre stage in the imbroglio. Here, debt settlement services with roots in the United States have entrenched themselves since 2010, now freely partaking of business practices the companies cannot legally pursue in the very places where they are, or were once, headquartered.

Now reports are surfacing that a growing number of notable, upstanding credit counselling agencies, trustees, and financial advisory firms in Ontario are receiving consumer complaints about debt settlement services. There also is growing concern within Ontario that the provincial government is not taking the issue seriously in hand.

Earlier this year, CACCS, along with its counter part, the Ontario Association of Credit Counselling Services (OACCS), announced that the matter urgently needs attention. Red flags in Ontario also have been raised by the highly reputable debt counselling agency, Credit Canada Debt Solutions, as well as BDO Canada, one of the country's leading accounting and advisory firms. As yet, the Ontario Government has remained quiet about the matter, even as lawsuits and threats of lawsuits involving debt settlement companies themselves and at least one leading bankruptcy trustee in the province proceed apace.

Considering all the controversy - and given an economic climate where the Bank of Canada is ringing alarm bells about the country's unprecedented level of consumer debt  - we feel it is our responsibility at CACCS to respectfully but urgently encourage lawmakers in Ontario and elsewhere to take action on debt settlement services, with close consideration of business practices that protect consumers from possible abuses.

As we at CACCS and OACCS have pointed out, crippling and even moderately stressful personal debt problems require sober thinking, honest analysis, and objective planning best driven by accredited professionals who give more than lip service to their claims about debt assistance. Above all, in matters of personal finance where the entire security of families and individuals often is at stake, integrity and respect for the well being of others is essential among those who would call themselves professionals in the debt services field.

About Canadian Association of Credit Counselling Services:

The Canadian Association of Credit Counselling Services (CACCS) represents a Canada-wide network of accredited, not-for-profit agencies and affiliates offering preventative education and confidential services to clients experiencing financial difficulties. With a focus on financial counselling education, accreditation of agencies and certification of Financial Counsellors, CACCS is also committed to national research and policy initiatives concerning personal finance and industry advocacy. To find a certified Credit Counsellor and qualified Financial Coach at an accredited Member Agency, call the CACCS central referral service at 1-800-263-0260 or visit www.caccs.ca for more information.

Henrietta Ross, CEO, Canadian Association of Credit Counselling Services

905 945-5644 ext. 222 - [email protected]