Canadian Debt Collection Laws

For many Canadians, having their debt turned over to a collection agency is an absolute worst-case scenario. These fearsome businesses have earned a reputation for being persistent, difficult to work with and almost impossible to shake.

Although most collection agencies work within the professional and ethical bounds of their industry, there have been numerous cases when deceitful, harassing and otherwise threatening or unsavoury practices have violated consumer rights and stirred the need for stricter regulation.

While broader government oversight has achieved much to reign in collection practices across Canada, it’s important for consumers to understand the debt collection laws agents must follow, their rights when dealing with a collection agent what they can do when either of these are being violated.

What is a Collection Agency?

A collection agency is a third-party business that exists for the sole purpose of recovering overdue or defaulted debts. When a debtor ceases making payment and the creditor does not believe there is a reasonable likelihood the debtor will bring their accounts current, they will turn that file over to a collection agency. The agency takes over the legwork of calling the debtor and attempting to make and enforce payment arrangements.

Common tactics and techniques collection agencies will employ include:

  • Sending letters in the mail informing (and reminding) the debtor their debt has gone into collections and the outstanding amount
  • Frequently calling the debtor to inform them of the outstanding debt and request payment
  • Offering to make payment arrangements for the outstanding debt
  • Attempting to enforce payment arrangements for outstanding debt

Collections agencies rely on pressure and the anxiety of debtors to be effective. By keeping the outstanding debt and the consequences of non-payment top of mind, they effectively attempt to corner a debtor into a scenario where simply paying the outstanding balance appears the least painful option.

This, however, has also lead to some scrupulous practices by some agents – including misrepresenting themselves, making false claims or unsubstantiated threats and violating debtors’ privacy rights – which governments are increasingly cracking down on.

Collection Agency Rules

Because debt collection is provincially regulated, debt collectors must obtain a license from the Office of Consumer Affairs in each province they operate in and conduct themselves according to federal and provincial debt collection laws and principles of conduct.

Across the country, there are explicit guidelines governing what debt collectors can (and cannot) do to recover a debt. However, the following rules apply universally under to federal law:

Contact:

  • Debt collectors must make a reasonable attempt to notify a debtor in writing that a creditor has turned their account over to a collection agency.
  • Debt collectors may contact a debtor Monday – Saturday between 7:00 a.m. and 9:00 p.m. and on Sundays between 1:00 p.m. and 5:00 p.m.
  • Debt collectors may contact friends, family, neighbours or employer, but only to request a debtor’s telephone number and current mailing address.
  • Debt collectors may not contact debtors on statutory holidays.
  • Debt collectors may not disclose personal or financial information to friends, family, neighbours or employers – nor may they suggest those individuals pay the outstanding debt if they have not co-signed for them.

Conduct:

  • Debt collectors must identify themselves as such at the outset of any communication
  • Debt collectors must conduct themselves ethically, honestly and professionally.
  • Debt collectors may not use threatening, intimidating or abusive language
  • Debt collectors may not apply excessive or unreasonable pressure to repay the debt

Fees and Legal Action

  • Debt collectors may not recommend legal or court action without first informing the debtor
  • Debt collectors may not add any collection-related costs to the outstanding debt other than legal fees and fees for insufficient funds from payment

If a debtor feels like a collections agent is violating any of these rights, they may report the agency to their provincial Office of Consumer Affairs. If the debt in question is from a federally legislated institution such as a bank, they may escalate their concern the Financial Consumer Agency of Canada.

Statute of Limitations

Statutes of limitations govern the timeframe in which one party may exercise legal action against another. They exist primarily to expedite due process, preserve evidence and protect equity and fairness for the defendant. In the case of debt collection, statutes of limitations protect debtors from civil lawsuits and court judgements long after the debt has gone into default.

In Canada, the statute of limitations for collections action is six years from the time the debtor has defaulted on the debt in question. However, this timeframe resets whenever the debtor makes payment towards or otherwise formally acknowledges the debt in question.

Each province and territory also has their own statutes of limitations, which are as follows:

  • B.C.: Six years
  • Alberta: Two years*
  • Saskatchewan: Two years
  • Manitoba: Six years
  • Ontario: Two years**
  • Quebec: Three years
  • New Brunswick: Six years
  • Nova Scotia: Six years
  • P.E.I.: Six years
  • Newfoundland and Labrador: Two years
  • Yukon: Six years
  • Northwest Territories: Six years
  • Nunavut: Six years

Because of the jurisdictional crossover and potential confusion over whether a debt applies to provincial or federal regulations, consumers need to be conscious of what legislation applies to their individual debts and the applicable statues of legislation. Some common examples include provincial / federal student debt and income tax debt.

*In the event of a court judgement prior to the original statute of limitations expiring, the creditor has 10 years to collect.

**This statue of limitation resets whenever a debtor acknowledges or makes a payment toward their outstanding debt within that two-year window.

Credit Report Regulations

Canada has two major credit bureaus, Equifax and TransUnion, which collect, analyze and report information about consumers and their financial history. Lenders will generally purchase a credit report from one, or often both, of these bureaus to determine the creditworthiness of a consumer prior to issuing new or additional debt.

A consumer’s credit report includes details obtained from several sources – including credit applications, creditor records and public records – such as their:

  • Name, address and employer
  • Any bankruptcies, court judgements, foreclosures or payment agreements
  • Account numbers and outstanding balances of current debts
  • Any closed, inactive or defaulted credit accounts within the past six years
  • Nine-point rating reflecting their payment history for each of the above debts
0Debt not yet rated
1Pays on time – usually within 30 days of billing.
2One payment past due – usually between 30-60 days.
3Two payments past due – usually between 60-90 days.
4Three or more payments past due – usually between 90-120 days.
5At least four months past due (not yet considered bad debt).
7Under payment arrangements or consolidation order (and making regular payments).
8Repossession
9Written off as bad debt (including bankruptcy).

Consumers have the right to know the information documented in their credit report, as well as its source. The details and ratings within their credit report can have significant implications for their ability to secure new credit – along with the credit limits and interest rates they qualify for, down payments required and whether they require a co-signer. Consistently late payments, collections action and bad debt all significantly reduce a consumer’s ability to obtain new credit.

Importantly, creditors, debt collectors and other third parties may not view a consumer’s credit report without a consumer’s express written consent – generally in the form of a signed waiver. In the case of debt collectors who are acting on behalf of a creditor which has obtained consent, permission also extends to them within the scope of that purpose.

Navigating the Process

Debt collectors have numerous advantages and techniques at their disposal to recover outstanding debts for creditors, which can cause a great deal of stress and make them difficult to work with. For debtors in the unfortunate position of having debts in collections, it is essential to understand their rights and be aware of collectors can and cannot do – as well as the consequences of having debts in the collection process.

Primarily, it is imperative for debtors to get the collection action in writing. Also, to confirm the debt in question is correct and that it has not passed the statute of limitation in their province. They should ensure the collector is acting within their professional boundaries and entitled to any personal or credit record information they have accessed.

If a debt collector violates any of these regulations, debtors should contact the appropriate consumer affairs office in their province, or the Financial Consumer Agency of Canada to report their concerns.

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