What Debt Collectors Can And Cannot Do

Managing a spiraling debt load is stressful enough without a constant barrage of phone calls reminding you that you’re behind on your payments. It may start with inquires about your overdue balance, questioning when you expect to become current and warning of potential late fees. But that can quickly evolve into worrying threats – suggesting that your assets could be seized, your wages garnished or that you credit history could be ruined forever. You already feel overwhelmed by the weight of your delinquent credit cards and loans and now you fear the possibility of losing your car or your home or that you won’t be able to feed your family.

Knowing your rights as a consumer can protect you when dealing with creditors and collection agencies. It is important for you to understand how different types of debt work, how that influences the various collections mechanisms available to creditors, and what rules and regulations debt collectors are obliged to follow.

Secured Debt

Secured creditors lend money on the condition that they be given rights against assets that you own (e.g. your house or your car) – also known as collateral. If you fail to meet the terms of the security agreement (e.g. your payments are excessively late, not made in the full amount owed, or are not made at all), the creditor must give you written notice of the default and provide a specified amount of time to become current on your payments. If the formal notice period expires and the default has not been remedied, the creditor can begin collections activity by seize and selling the asset(s) you put up for collateral. If the proceeds from that sale are not sufficient to cover the loan balance, the creditor may be able to sue you for the difference.

Unsecured Debt

Unsecured creditors lend money to individuals without taking collateral. In the event you fall behind on your payments, they will not have rights to any assets you own. However, they do still have recourse to collect the outstanding balance. In most cases this take the form of the creditor suing you and obtaining a court judgment ordering you to repay the debt. Creditors can use that judgment to garnish wages and seize assets if you are not able to arrange a repayment plan with them. 

Collections Laws

Canadian debt collectors are provincially regulated. While collections laws vary across jurisdictions, many regulations are consistent across most provinces and territories. For example, debt collectors are required to notify you in writing before initiating action to collect a debt or starting legal action against you. They must also identify themselves as a collections agency, specify the creditor they represent and provide you with information about the amount of the debt owed. 

Moreover, debt collectors may only contact your friends, employer, relatives or neighbors to obtain contact information such as your telephone number and address. Unless the person they are contacting has guaranteed or co-signed the debt in question, they cannot ask for any additional information about you. The only other exception is if you have given the collector permission to discuss the debt with that particular person. Collectors can contact your employer, but only to confirm your employment, job title and work address.

Finally, a debt collector cannot lie or provide false information to you. At no time are they allowed to use threatening, intimidating or abusive language. They must not give false or misleading information. And under no circumstances is a debt collection agency allowed to add service fees, penalties or any other costs to the debt that you owe – the only exceptions being for legal fees and non-sufficient funds on any payments that you submit.

If you are dealing with a debt collector who is not respecting your rights, there are options available to you. If you are dealing with the collections department of a federally regulated financial institution (such as a bank) or a debt collection agency hired to collect on their behalf, you can contact the Financial Consumer Agency of Canada with your concerns. If your debt has been sold to a collection agency, you can raise your concerns with the consumer affairs office applicable to your province. In either case, the collector must disclose who they represent and what jurisdiction they report to.

If you are struggling with debt and are worried about potential collections action being taken, it might be time to learn whether a Consumer Proposal is a viable debt-relief solution for you. Contact a Licensed Insolvency Trustee at MNP Ltd. for a free, no-obligation consultation. Together we can discuss your options so you can make a fully informed decision as to what your best route to financial freedom may be.

Based out of Halifax, Tina Powell is an Licensed Insolvency Trustee and Vice President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 902.482.2000 or [email protected]