As consumer debt has grown over the past generation, so too has
the debt settlement industry. In return for a fee for their
services, debt settlement companies offer to negotiate a settlement
of consumers' debts at a reduced amount on the debt owed.
Significant concerns have been raised as to how some of these
companies have conducted their businesses and the fees they have
charged their clients. There have been many incidents of companies
charging clients an up-front fee but providing the client with no
tangible results. The indebted client is then further in debt. On
January 4, 2013, the Ontario Ministry of Consumer Services
announced that Ontario intends to regulate debt settlement
companies to protect consumers.
The proposed regulation is modelled after measures taken to
regulate the debt settlement industry in the United States as well
as in other provinces such as Alberta, Manitoba and Nova Scotia.
i. prohibiting the advance payment of fees for debt settlement
ii. limiting fees which may be charged for debt settlement
services – in the case of for-profit companies the limit
proposed is 10% of the consumer debt owed;
iii. requiring that any consumer funds which are deposited for
the purpose of debt settlement remain under consumer control;
iv. granting consumers a 10 day "cooling off"
v. disclosure requirements to ensure consumers entering these
types of agreements are aware of their rights; and
vi. advertising regulations for debt settlement companies.
Similar legislation in other provinces provides for the
licensing of debt settlement companies, regulation of trust
accounts, required record-keeping and the prohibition of certain
practices by debt settlement companies related to fee-collection,
bringing actions for breach of contract against consumers, and
lending money to debtors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The recent decision of the Ontario Court of Appeal in BMW Financial Services Canada, a Division of BMW Canada Inc. v. McLean provides some useful insight into the relationship between automobile dealers and the financing arms of the manufacturers for whom those dealers are franchisees.
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