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We need to protect debtors in distress

debt-settlementThe stress and worry from not being able to make ends meet can be toxic and sometimes even causes physical and mental illness. A few stick their head in the sand and hope the phone won’t ring, and the collectors will disappear.

Eventually most  people over their heads in debt do decide to take affirmative action.  But they do not often ask friends and family for advice. They feel shame and stigma, so they do their own research.

Some have it in their heads that bankruptcy is a BAD thing, so they  dismiss this option upfront. (It’s NOT a bad thing. If your circumstances suit, you will be very pleased it’s an available option)

And it’s unlikely they have even heard of or understand what a consumer proposal  is, so they are not going to research that option either.  Thus, the two best solutions for most people’s situations are not what many people are familiar with or seek knowledge about.

The fastest way to access information these days is from the car radio, or to fire up Google or YouTube and search terms like settle debts, manage debts, eliminate debts, too much credit etc.

Most such searches lead to a number of debt-settlement companies. Click on their link, and you arrive at a very compelling website explaining why that company’s solution is so great. The info touches on all your weak spots, and sounds like you’ve struck gold. Contact is made, and you are now caught up in a process which quite possibly do you more harm than good.

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Some of the information cited on these websites is laughable. For example, Debt Free Services has a banner graphic on their home page which states that if you have $20,000 in debt today and you enter into a consumer proposal, you would have to pay back $34,200 over 60 months. This is WRONG and completely misleading.

Cambridge Life Solutions seems to be shelling out big bucks to Canadian actor Alan Thicke to be the face of their business. Alan tells us authoritatively in a 2012 McLeans article that  he has done his homework and “my due diligence clearly supports Cambridge as a leader in the field (of debt relief)”.

Um Alan, what exactly was your due diligence??

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Related Article: debt consultants too shady

In September 2012, Canadian Business magazine published an informative article on this burgeoning problem, and in it they stated the Federal Trade Commission in the USA reports many instances where debt-settlement companies routinely have completion rates of less than ten percent!

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We need to protect consumers from such predatory forces, and we need to find a better way to inform and educate them as to who really are mandated to act in their best interests at all times, and who they should shy away from.

Significant money should be committed to radio, television, and internet advertising, providing public service announcements over and over again.

Yes, there have been good articles in McLeans and Canadian Business magazines last year, but their target audience likely does not overlap the overwhelmed debtor demographic.

Since 2010, the number of debt-settlement businesses in Canada has proliferated; there are roughly 20 in Ontario alone. This is causing much anguish for highly trained, licensed and bonded professionals such as trustees in bankruptcy and registered credit counselors.They have protested to the Ontario government, asking for tough legislation to be imposed on these debt-settlement companies.

Some might argue they should be banned from doing business, but if that is not possible, then their business model must radically change to be more consumer friendly, and there must be far more disclosure about what they do. Alberta, Manitoba, and recently Nova Scotia have already implemented tough rules.

The good news is Ontario’s Minister of Consumer Services, led by Margaret Best, is proposing a ban against debt management and settlement firms from charging upfront fees, limiting the fees consumers can be charged and requiring clearly worded contracts. A ten day cooling off period for debtors to change their minds is also being proposed.

Industry professionals such as myself have been invited to comment and provide feedback to her proposal before February 25, 2013. Coincidentally, The Toronto Star featured this same topic in their January 20th, 2013 edition. And earlier last week, the Star also published another article which presented healthy alternatives to the type of debt-settlement companies the Ontario Government is concerned about.

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Ross Taylor is a full-time mortgage agent and credit specialist who blogs frequently at ASKROSS

If you have any questions about anything financial, please contact Ross, he answers everyone personally.