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~Gayle - Victoria

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~Gord - Victoria

2014-03-10 23:15:10

Personal Financial Issues focusing on Canadian Consumer Debt.

 In the Canadian Context, what leads to the majority of personal financial issues on anecdotal basis?

As a Canadian Bankruptcy trustee dealing with both small business and personal insolvency issues, when we are approached to outline the personal options available to debtors either personal bankruptcy or settlement of debt proposal to creditors we find that:

-         -       The increase in personal debt levels in Canada is partially as a result of the over use of credit and in the increase in the ease of accessing these types of credit terms which allows debtors to spread out the nature of their debts over various debt vehicles

 -      -         Pervasive low interest rates thus somewhat making the overuse of debt for personal spending allowing debtors to use more debt that they have done historically in the past.

-       Consumers are fixated on having a “Good Credit Score” – over emphasis of this one measure of individual financial health or as the sole maker of financial stability.  Reliance solely on this measure is misleading as we have seen an increase in debtors who have had a “perfect credit score” just prior to assigning themselves into bankruptcy

 -          To illustrate this point, Transuion one of the credit reporting agencies in Canada report that there has been a marked increase in “surprise bankruptcies” in Canada and upwards of 17% of those debtors who file for personal bankruptcy have near perfect credit just prior to filing and assignment into bankruptcy.

 -         Individuals who file for personal bankruptcy also report the ease of obtaining credit.    Institutions routinely provide “pre-approved’ debt products to debtors even after they have filed either a consumer proposal or filed for personal bankruptcy.

Even outside of the bankruptcy context, debtors find that the competition between lending institutions means that a simple phone interview can lead to additional sources of debt or even automatic approval over the internet without the debtor even having to fill out a credit application disclosing personal data and financial health.

 -          Irresponsible lending may also play part of the rise of consumer debt in Canada.
Certainly the ease of credit over the Internet without a discussion with a live person may also be adding to the unsustainable levels of consumer debts.  We see today that there is no paper documentation available to review for some debtors when questioned by the trustee for application documents to review the disclosures made by debtors during the application process.  Applications are processed on line without any paper trail of the decisions to lend or transfer credit card balances between credit vehicles.

-          Some of the Canadian provinces have responded by legislating new rules and guidelines in hopes to provide some consumer protection from these types of debt poolers.  Most recently, Ontario has passed the Bill 55- Stronger Protection for Ontario Consumers Act that includes legislation to help ensure consumers’ rights are safeguarded.  Especially the financially vulnerable who are struggling with the burden of unsustainable debt. Similar legislation is already in place Alberta, Manitoba, PEI, and Nova Scotia while there is a promise of legislation for British Columbia.


-          Standing Committee on Legislative Changes in Ontario head from affected parties before Bill 55 was passed, and the debt-pooling companies had an opportunity to advance their positions that:

-    they are a necessary player in the market and that consumers benefit from their advice


-    that Debt Poolers in comparison to Credit Counsellors negotiate a reduction in the principle of the debt and not just reduce the interest rates charged.

-     that the Credit Counselling Associations and not-for profit Agencies are being dis-ingenious with their position that the are unbiased in the approach and as proof to this the debt-poolers point out that the Credit Counselling Associations do not offer bankruptcy alternatives themselves;  they only offer solutions where the debtors pay 100% on the debt because they are influenced by their funders to do so (i.e. banks, credit card companies etc.) and thus they are inherently conflicted as they can only offer settlements based on what is best for the creditor not what is best for the debtor.

-          Debt Poolers also point the makeup of the Board of Directors of the Credit Counselling Associations as flawed in that anyone who funds these associations gets a seat on the Board of these credit counselling entity.

Credit Consellors in their submission before the Ontario government maintain that they

             - provide a Net public good in that they do negotiate reduced interest payments for debtors but also

            - provide counselling throughout the process

            - provide seminars to debtors who don’t enter into a repayment process, indeed only a small percentage of debtors that they assist in their programs actually formally enter into their debt repayment program.

           - On a go forward basis, that they have changed their policies to no longer allow representation on their Boards of Directors based on who gives donations to the agencies.