Canadian Collection Agencies: Time for a Shake-up?

Canadian collection agencies are licensed by provincial legislation to carry out their business in a lawful manner, to moderate their behaviour and to be truthful.

But as untold thousands of consumers can attest to, the collection agency industry seems to be seriously challenged by these simple guidelines.

A recent decision by the no less an organization than the U.S. Federal Trade Commission serves to highlight a troubling disregard for the rules. Allied Interstate, an American collection agency with a presence in Canada, has recently been found guilty of extensive violations of the U.S. Fair Debt Collection Practices Act as well as Section 5 of the U.S. Federal Trade Commission Act. The near-record fine of US$1.75 million was imposed for illegal acts of repeated harassment, continual pursuit of the wrong people, unlawful disclosures and threats, misleading and false statements and the use of obscene and profane language. These unlawful collection practices are also found in provincial legislation governing collection agencies across Canada.

Canadian consumer protection bodies may be lagging behind their U.S. counterparts in enforcing the rules and giving the collection agency industry in this country a good shake-up.   

One flagrant abuse that’s been going on unchecked for years is only just now being looked at by authorities. Collection agents are prohibited from sending a debtor anything that has the appearance of a court document. However, the same prohibition does not apply if they hire a lawyer to do precisely the same thing.

Every month, so-called ‘in-house’ lawyers send out pseudo Statements of Claims to thousands of debtors. These documents have every appearance of being the real thing but they are not. In reading all the legalese few consumers will notice the small disclaimer, which usually states ‘draft.’ The effect on the recipient is that he/she is being sued, period. Under legislation governing collection agencies, this is an illegal practice. But if the agency hires a lawyer to do the very same thing, it is apparently not illegal. It’s simply a way to defeat the purpose of the legislation, which is consumer protection, and is really nothing short of intimidation.

It may also be a way for some lawyers to be, in effect, collection agencies without actually identifying themselves as such or being required to be licensed as such.

In one recent instance this practice of sending out faux Claims has resulted in allegations of professional misconduct against at least one lawyer. The Law Society of Upper Canada has scheduled a disciplinary hearing for Nov. 16-17, 2010 against one such practitioner, Deanna Natale of Natale Law Offices of Markham, Ontario.

Agencies often hire lawyers to send out one page letters to debtors. A careful read reveals the careful and clever construct of their language: while there is sometimes the suggestion that there may be legal consequences – the clear implication being legal action – almost always it is a call to action on the debtor’s part to immediately rush in with a payment. However, for most people, a letter from a lawyer spells doom, which is exactly the effect the collection agency wants. It is still intimidation.

Another way of getting around the laws governing collection agencies is the practice of some creditors who pretend collection agency employees as their own. For example, a debtor may think he is speaking with a collector who is an employee of a credit card company, or bank or department store when in fact he/she is actually speaking with a third-party collector from a collection agency. Furthermore, the collector will only identify himself/herself as an employee of the creditor and not the agency.

In my own practice I first came across this tactic a few years ago. In bringing it to the attention of the Ontario licensing authorities I was informed there was nothing in their legislation to prevent this! Yet third-party collectors are licensed – and for very good reasons – while employees of creditors are not: this seems like nothing more than another method of defeating the purposes of consumer protection.

The threat of police action is a popular one. Recently a caller – an otherwise very bright and well-educated young fellow – was utterly fearful of returning home to Canada after attending university in Utah. The reason? A collection agent had told him the RCMP would pick him up at the border for not paying his debt – which, by the way, was something less than $5,000. It took some time to convince him that, unlike the Dark Ages or even Dickensian England, Canada does not throw people in jail for not paying their debts.

That threat goes hand-in-hand with accusations of fraud. Collectors are fond of accusing debtors that by not making payments on their debts they are committing fraud. Yes, there are fraudsters out there. But those who can’t pay because they’ve lost their jobs, or have suffered some medical calamity, or are experiencing a family tragedy or trying to get back on track due to a dependency issue, aren’t crooks. They’re otherwise law-abiding, tax-paying folks who deserve a lot better than to be told they are crooks.

I’ve also encountered collectors who get fees, or kickbacks, or whatever you want to call them, if the debtor will only go to a lender they recommend.

In what has to be one of the most outrageous examples of abuse, I’ve seen collectors push their demands to such unacceptable levels that the debtor has felt there was no option but to assign into bankruptcy. In every one of these instances there were viable solutions in place, accepted by the other creditors and collection agencies but rejected by one poorly-paid, reactionary and judgmental collector with little understanding of the process. This is simply an unacceptable abuse of what little authority a collector thinks he or she actually has. The result: the debtor loses everything, the creditor recovers nothing and the collection agency loses a commission (yes, collection agencies routinely retain between 25% and 50% of what they collect from a debtor).

Frankly, I don’t know why anyone chooses to talk with any third-party collection agent. There’s no law in Canada that compels anyone to talk to a collection agent. And why would you want to? I wouldn’t want someone yelling at me, or threatening me or questioning me. And who is the caller anyway? He/she says he/she is from such-and-such a collection agency and is phoning about your past-due loan or credit card bill. Really? This is the age of identity fraud. The caller could have just as easily got this same information about you from a dozen different sources. So you’re going to tell this stranger where you work, how much you make, where you bank, who else you owe, etc.?
I don’t think so.

You have every right under consumer legislation to demand that all such telephone contact cease immediately and that communication be limited to letters, which is the best way to resolve your debt issues. If the caller’s legitimate he/she will have to adhere to your demand: if not, phone your provincial consumer protection authority (and maybe the cops, if you believe it is an attempt at identity theft).

And hopefully the letters you get will not be of the phony Statements of Claim or equally silly ‘in-house lawyer letter’ variety.

Brian Pybus, CDA
November 2010


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