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 are the key laws impacting a Canadian struggling with debt?
Canadians who are receiving collection calls are not only overwhelmed but also they are often confused. Your rights as someone owing monies to creditors will often depend upon the province in which you live, the type of debt that you owe, and your bill collector’s employer.
PART ONE: INTRODUCTION
i. Who is the employer of the collector calling demanding payment of an unpaid account?
The answer to this question can often be straightforward. In some instances, however, the answer can be quite complex.
Your unpaid account may be owned by either your original creditor or it may be owned by a debt buyer. Your original creditor is the company that provided you with goods, services, or credit. Some original creditors will sell their portfolio of unpaid accounts to another firm. These purchasers of unpaid accounts are known as debt buyers.
To make matters more complicated, there are two distinct categories of debt buyers. Traditional collection agencies will purchase debt. As far as traditional collection agencies are concerned, their primary revenue source is collecting debts owed to others on a commission basis, and collecting accounts it owns is a secondary source of revenue. The second category of debt buyer is the pure debt buyer. The pure debt buyer does not collect accounts owed to others on a commission basis.
Some original creditors never sell their unpaid accounts to debt buyers. There are a handful of Canadian firms that sell their unpaid accounts when they have been unpaid for as little as six months. It is more common, however, for Canadian firms to sell their portfolio of bad debts when the date of last payment is at least two to six years in the past.
ii. Collection calls when the date of your last payment is less than six months ago
Original creditors and debt buyers employ their own collectors. These are often referred to as a firm’s inhouse collection department. Regardless of whether your unpaid account is owned by your original creditor or a debt buyer for the first six months your account remains unpaid the odds are very high that you are receiving collection calls from collectors employed by your creditor.
As a general rule, provincial governments do not regulate the conduct of creditors who are collecting their own debts. This means that if you are receiving abusive phone calls from a collector employed by your creditor you will be wasting your time filing a complaint with the government body regulating collection agencies in your province.
The federal government has enacted some legislation that provides some protection to consumers who are receiving collection calls where the debt is owed to a federally regulated financial institution. This means that if you are receiving collection calls in connection with monies owing to a bank or a credit card company—regardless of the employer of the collector—then you can file a complaint with a federal regulator.
iii. What is a collection agency?
Your creditor—regardless of whether your debt is owned by your original creditor or a debt buyer—may decide to hire a collection agent to collect your unpaid account. A collection agent is a firm authorized by a creditor to collect monies owing to the creditor. There are two types of collection agents, collection agencies and collection lawyers. Over ninety-five percent of all the collection agent work in Canada is carried out by collection agencies.
Collection agencies communicate with those owing monies—in writing and via telephone—demanding payment on behalf of their creditor-clients. The flashpoint for unpleasant interactions between bill collectors and consumers arise where collectors are phoning a consumer at home or at their workplace.
Collection agencies are firms that are not only licensed in each province and territory where they make collection calls but also they are subject to a code of conduct that imposes certain duties upon them and prohibits certain conduct. Canada has a total of 10 provinces and three territories and the code of conduct imposed on collection agencies varies tremendously from one province to the next.
There are two issues with respect to provincial laws regulating the conduct of collection agencies. Firstly, what amount of protection is afforded to consumers under the province’s law regulating collection agencies? Secondly, how effective—or ineffective—are the senior civil servants in a particular province enforcing laws regulating collection agencies?
Some provincial laws regulating collection agencies, including Ontario, British Columbia, and Alberta, provide much greater protections to consumers than laws in other provinces. It may not matter how much protection is afforded to a consumer under a province’s law regulating the conduct of collection agencies if those responsible for administering the law fail to adequately enforce it.
iv. It is illegal for you to be receiving collection calls from two different collection agencies simultaneously
Canadians receiving collection calls will often complain that they are receiving calls from multiple collection agencies with respect to the same debt. In fact, this rarely happens. Firstly, it is illegal for a creditor to place an account for collection with more than one collection agency at the same time. Secondly, a collection agency has no interest in attempting to collect an account for which it will not be compensated.
Creditors typically place an account for collections with a specific collection agency for a pre-determined length of time; usually somewhere between six to 12 months. At some point, if an account has not been paid the creditor will recall the account and place it with a second collection agency. Accordingly, a consumer might be receiving calls from ABC collection agency one week and then it could be receiving calls from XYZ collection agency the following week.
v. What are the odds that I will be sued over an unpaid account?
It is important to understand that collection agencies are compensated on a commission basis. Accordingly, given the significant costs associated with litigation, the odds of a collection agency suing a consumer on behalf of a creditor are quite remote. If you are to be sued then you are much more likely to be sued by your original creditor or a debt buyer. Debt buyers often sue files because they may have only paid pennies on the dollar to purchase an unpaid account. Furthermore, creditors are much more likely to sue an individual in circumstances where a person owns real property in his or her name.
PART II: STATUTE OF LIMITATIONS
Depending upon the type of debt that you owe and the length of time since your last payment you may be in a position to avoid paying a debt. This can be a complex topic and anyone who wishes to avoid paying a debt due to the expiry of a limitation period is advised to speak with a lawyer licensed to practice law in their province.
With respect to unsecured consumer debt, each province and territory in Canada has enacted a law that might permit a consumer to avoid paying a debt after the expiry of a certain amount of time. These laws are referred to as a Statute of Limitations. The public policy rationale for a Statute of Limitations is to facilitate commerce and bring certainty to the marketplace.
ii. Limitation periods across Canada
The length of a limitation period varies significantly from one province to another. The majority of Canadians, however, live in a province where the Statute of Limitations is 2 years. In Quebec it is three years. In Manitoba, New Brunswick, Newfoundland, Prince Edward Island, and the three territories the limitation period is six years.
The Statute of Limitations will be of no assistance, whatsoever, to those with certain types of debts:
- Secured debt (ie., mortgages and car loans)
- Unsecured debt where the creditor has obtained a judgment against the consumer
- Unsecured debt where the creditor has commenced a lawsuit against the consumer before the expiry of the relevant limitation period
- Child support or spousal support
- Debts arising from fraud
- Court fines
- Monies owing to the government
- Student loans
iii. Five key facts about limitation periods
- The relevant limitation period is the province or territory in which you live
- The clock begins to run on the limitation period on your unpaid account sometime in the six-month period after the date of your last payment
- You can restart the clock on a limitation period—before the expiry of a limitation period–by (a) making a written acknowledgement of the debt, or (b) making a partial payment
- Some provinces put a pause on the running of the limitation periods during certain time periods during the Covid-19 pandemic
- The expiry of a limitation period does not mean that an unpaid account is forgiven, it simply provides the consumer with a powerful defence that can be used when defending a lawsuit in court
PART III: PROVINCIAL LAWS REGULATING CREDIT REPORTING AGENCIES
Creditors use credit reports to decide whether or not to extend credit to an individual and at what rate of interest. Credit reporting agencies assign a credit score to a particular individual. The higher a person’s credit score, the easier it is to obtain credit and the less expensive the interest rate obtaining credit.
Credit reports also contain details about an individual’s credit history including unpaid accounts, court judgments, enrolment in credit counselling programs or filings under federal bankruptcy legislation.
Credit reports may also be used by employers when deciding whether or not to hire someone. Furthermore, landlords may refer to credit reports when making a decision whether or not to rent a residential unit to an applicant.
Credit reporting agencies are regulated by provincial governments in Canada. There are two major credit reporting agencies in Canada, Equifax Canada and TransUnion.
Under Ontario law, an unpaid account must be removed from a consumer’s credit report seven years from the date of last payment. In every other province, an unpaid account must fall off a consumer’s credit report six years from the date of last payment. It is Equifax Canada’s policy to remove unpaid accounts from the credit reports of Ontario residents six years after the date of last payment.
Some unethical collection agencies and debt buyers may act to have an account appear on a person’s credit report after the date when it should legally drop off their credit report. This practice is illegal and constitutes defamation.
Navigating the Process
If you are receiving communications from a bill collector then it is helpful to make some notes so that you are aware of the alleged debt, the name of the creditor, the amount owing, and the bill collector’s contact information. It is also useful to know if your creditor has obtained a judgment against you in connection with this alleged debt.
It is important to understand that you are under no legal obligation to speak with a bill collector. Furthermore, it is illegal for a bill collector to disclose the existence of a debt to anyone other than the person who is legally responsible for the debt. Bill collectors are, however, entitled to speak to anyone for the purposes of attempting to obtain contact information for the person who owes money on an account.
If you are receiving collection calls then you may want to contact a Licensed Insolvency Trustee to discuss some of your various options for dealing with your current debt situation.
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