Consumer Affairs Canada Funded Report by L’Union des consommateurson the Canadian Credit Counselling Industry

(The full 257 page report was presented in French on November 20, 2006. We were advised that the report will be published on L’Union des consommateurs website in French and English in January of 2007.)

Budget Counselling: Practice and Ethics - Executive Summary

Introduction

Budget counselling is extremely important for all consumers experiencing financial problems. In budget counselling, an expert may help a consumer assess his or her spending, income and debts and, based on the results, suggest solutions and provide advice on how the consumer might better control his or her personal finances.

Budget counselling is not necessarily limited to assistance in identifying the right tools to use. Depending on the organization and the type of experts involved, it can go as far as having representatives negotiate with creditors and even having the budget counselling organization manage a consumer’s debt repayment.

In Canada, various types of budget counselling are on offer. Some are provided by for-profit enterprises, others by non-profits. Surprisingly, in Canada there are no laws or regulations specifically designed to ensure consumer protection in the sphere of budget counselling. In other words, anyone can claim to be an expert, duly qualified to advise consumers—whatever the training and experience he or she may (or may not) possess. Thus, a vulnerable consumer could pay fees for services, which, at the end of the day, prove to be of no use to him or her.

With the disturbing rise in household debt seen in recent years, more and more persons or businesses are endeavouring to come to the assistance of indebted households… or to profit from their indebtedness and the attendant insecurity. As experience in the U.S. has shown, potential exists for grave abuses at the expense of consumers. Hence the importance and urgency of examining regulating the practices and ethics of budget counselling in Canada to ensure that consumers enjoy an adequate level of protection in this sector.

The first chapter of the report consists of a brief analysis of the situation in the U.S.

The second chapter examines the Canadian context, including:
Identification of the different actors offering budget counselling services
Analysis of the laws and regulations at the federal level and in five provinces
Analysis of the existing self-regulation mechanisms

The third chapter presents the results of a survey of organizations offering budget counselling services in the five provinces studied. Based on information gathered directly from budget counselling enterprises, our survey sought to better ascertain: the different practices in the industry, the type and scope of training required or provided by counsellors, the funding structures of such enterprises, and oversight of their professional ethics.

Conclusions

Our overview of federal and provincial legislation leads us to find that no oversight is in force that specifically regulates the practices and ethics of budget counselling. Certain consumers, made vulnerable by indebtedness, could be tempted to follow outlandish solutions proposed by persons with no relevant training.

While governments emphasize the importance of budget counselling and provide consumers with useful references, certain actors advise consumers to be very careful, particularly with respect to non-profit organizations. In effect, some non-profits may advise only those solutions that bring in funding via commissions or donations from creditors.

Such warnings are a good indication that certain questions need to be clarified with respect to the nature and scope of the funding structures of organizations offering budget counselling. The same holds for openness regarding the true interests pursued by the different actors offering such services to consumers.

Beyond the question of openness and that of balancing the different interests in play, the question of consultants’ training on budget counselling looms as a fundamental issue. Given the importance of budget counselling designed to help a consumer take control of his or her finances and the multitude of issues raised in the search for solutions to problems of indebtedness, it seems obvious that, to work in this field, one requires appropriate training.

Legislative guidelines on the training of certain consultants (e.g. financial advisors) and making it illegal for those without the required training to suggest that they are qualified to offer such services would certainly be steps in the right direction, if we are to provide the public with assurances that what assistance is on offer shall be provided by qualified actors.

It seems clear that budget counselling should be accessible to one and all. In an ideal world—one guaranteeing that such counselling is totally disinterested—it could seem problematic that the survival of organizations offering such consulting services be tied to funding that might directly depend on the sums apt to be paid to creditors via, for example, repayment management plans. Organizations offering budget counselling may face a difficult balancing act as they seek to maintain complete independence vis-à-vis creditors and the need for funding, which could quite logically come from creditors who benefit, directly and indirectly, from the results of effective budget counselling. The right balance remains to be found.

To this end, Union des consommateurs proposes recommendations intended as elements for solving the issue of funding, as well as others bearing on the regulating of budget counselling services and the training required before one may claim to be a budget counsellor.

L’Union des consommateurs 2005-2006 Report