We reported in our blog of June 5, 2006 that Canada’s Office of Consumer Affairs was undertaking the funding of a study on Credit Counsellors in order to ensure that consumers are well served and to reduce the risk of fraud or conflict of interest. Consumer Affairs was prompted to take this step by the widespread abuses of the credit counselling industry in the United States.
The report on credit counsellors was issued on November 20, 2006 by L’Union des consommateurs. The report raises concerns about poorly trained credit counsellors and the conflict of interest “non profit” credit counsellors have because they are funded by credit grantors.
L”Union des consommateurs 257 page report was issued in French only on November 20, 2006. The report covers non profit and for profit credit counselling companies. The report notes that the Credit Counselling Industry is unregulated and raised concerns that there are no standards of expertise and experience required of the people counselling consumers. The report observes that 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 leaving consumers vulnerable.
The report was also very concerned with the conflict of interest that “non-profit” credit counsellors have since a significant part of their funding comes from creditors. The report recited the following warning on page 54 of its Conclusions:
Is Credit Counselling a Good Idea? Investigate BEFORE You Act:
Consider that the alternative, bankruptcy, may well permit you to recover a good credit rating much faster than credit counselling. Negative credit items remain on your credit report for up to seven years. This would include the records of your credit counselling and a list of your “bad debts.” Bankruptcy will also remain on your record for up to seven years, but you may well be able to reestablish credit after a couple years. Think about that.
You might consider a credit counselling program now which will stop creditors from harassing you. You can then investigate bankruptcy.
While credit counselling services are generally presented as not-for-profit, unbiased, consumer debt counselling services, they are also often franchises and collect a fee from your creditors for collecting your payments. Not-for-profit credit counselling services may be receiving secret commissions or generous financial support from creditors, the Government, United Way and industry at large. Not for profit does not mean that the employees and/or operators of many of these services are not collecting salaries and growing a business.
The report observed in its Executive Summary that 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 report’s conclusions include the following:
1. Lack of regulation of the industry make consumers vulnerable to receiving poor advice from untrained or poorly qualified counsellors; it seems obvious that, to work in this field, one requires appropriate training.
2. 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.
3. Some non-profits may advise only those solutions that bring in funding via commissions or donations from creditors;
4. Questions need to be clarified with respect to the nature and scope of the funding structures of organizations offering budget counselling.
5. Organizations offering budget counselling may face a difficult balancing act as they seek to maintain complete independence vis-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.
The 257 page report was completed on November 20, 2006. It is expected to be available on the L’Union des consommateurs website in January of 2007. We were issued a copy of the full report (in French) and an Executive Summary in English.
I have been looking for the French report on credit counselling for several months, but could never find it. Can you point me in the right direction?
Thank you.
Greg: I was told it would be posted but to my knowledge it hasn’t been yet. I got a copy of an English executive summary and the full French version.
You should be able to get a copy by contacting L’Union des consommateurs. Their website is referenced in the blog.
It’s interesting that the Canadian Bankers Association will only advocate the Not-For-Profit Credit counsellors and refuse to acknowledge the Independents. So much for an Unbiased oppinion.
To the “Credit Counsellor” … that would be because the counselling services that are not non-profit are in it for the money, not for actually providing info on ALL options available – including consumer proposals & bankruptcy.
p.s. nobody likes unnecessary capitals “Unbiased”
Non-profit credit counsellor: The “Non Profits” are not as Simon pure as you make out. Here is an excerpt from the Consumer Canada funded report above:
“While credit counselling services are generally presented as not-for-profit, unbiased, consumer debt counselling services, they are also often franchises and collect a fee from your creditors for collecting your payments. Not-for-profit credit counselling services may be receiving secret commissions or generous financial support from creditors, the Government, United Way and industry at large. Not for profit does not mean that the employees and/or operators of many of these services are not collecting salaries and growing a business.”
[...] We have information on our website to help debtors make an informed decision on whom to seek help from when facing a financial crisis: • Consumer Affairs Funded Report on the Study of the Credit Counselling Industry. [...]
So who do we trust or go to for crdit counselling help. I have tried different ones online and the last one ended up being from somewhere in Florida and I live in Nova Scotia. Go figure.
William: You should see a trustee in bankruptcy. They can do everything a credit counsellor can do and much much more. They are usually cheaper, are professional, highly trained, enable you to rebuild your credit more quickly and are regulated by the government:
http://www.bankruptcycanada.com/Credit-Counsellors.htm#b
Not true Trustee. William, a trustee cannot offer a debt repayment program where you repay 100% of your debts with reduced interest and negotiated payment amounts unless they are doing a Consumer Proposal, which has a lengthy impact on your credit. Many non-profit credit counselling agencies can do more than a trustee can do for less of a fee, and have less of an impact on your credit rating. If, overall, you are looking for someone who is a neutral party to help you explore any and all options that you have, I recommend a non-profit credit counselling agency. If you are in Nova Scotia, you can contact Credit Counselling Canada (an association of all non-profit credit counsellors) to find the best non-profit Credit Counsellor for you.
Christi: My answer to the the points you address are as follows:
1. You said: “Many non-profit credit counselling agencies can do more than a trustee can do for less of a fee, and have less of an impact on your credit rating.”
Answer – The impact on a person’s credit rating is the same whether there is a Credit Counselling plan is effect or a bankruptcy or consumer proposal. Here is what Equifax says about Credit Counselling plans:
“VOLUNTARY DEPOSIT – ORDERLY PAYMENT OF DEBTS, CREDIT COUNSELING: When voluntary deposit OPD credit counseling is paid, it will automatically purge from the system three (3) years from the date paid.
REGISTERED CONSUMER PROPOSAL: When a registered consumer proposal is paid, it will automatically purge three (3) years from the date paid or 6 years from the filed date.”
2. You said: “If, overall, you are looking for someone who is a neutral party to help you explore any and all options that you have, I recommend a non-profit credit counselling agency.”
Answer – This is what the Canadian Consumer Affairs funded report (See above) says about this:
“While credit counselling services are generally presented as not-for-profit, unbiased, consumer debt counselling services, they are also often franchises and collect a fee from your creditors for collecting your payments. Not-for-profit credit counselling services may be receiving secret commissions or generous financial support from creditors, the Government, United Way and industry at large. Not for profit does not mean that the employees and/or operators of many of these services are not collecting salaries and growing a business.”
Answer – The BC Credit Counselling Society, which claims to be “None Profit” and there to help consumers gets 73% of its funding from banks, financial companies and other creditors. Reference: Credit Counselling Society 2010 Annual Report. http://www.nomoredebts.org/_Library/docs/Credit_Counselling_Society-2010_Annual_Report.pdf
It is obvious that “Non Profit” Credit Counselling firms cannot be unbiased when they are taking kick backs from creditors of the very consumers they purport to help.
Its already been proven. Both independent and Non profits collect fees.
The Independents actually will work to reduce all creditors interest and act in the best interest of the client , not the creditor. Thats what they are getting paid for. On the other hand, the Non profits will only add a creditor that offers a kickback (Fair share donation) and will not add in many cases creditors like Payday loans as they do not participate in the Fair Share program, and now often requires a 10% mandatory membership fee. So what is difference? I would prefer to deal with an honest upfront company that actually discloses how they make money. Also always ask if they have there head office in Canada or US are licensed in Canada. Dont believe the hype that Non profit is better , they clearly are not.
I am at a total loss now. I am currently in a Consolidated Credit Counselling program for my debts and can barely make my payments. My monthly payments are as much as my monthly mortgage payments! I’m not employed, and have no income (except for federal child payments) and am at home with 3 kids. My husband works 2 jobs. I was considering filing for personal bankruptcy to ease some of the burden on my husband, however, we have a joint line of credit (which is in the credit counselling) and the house is under both names. If I do declare personal bankruptcy, will my husband be affected via the line of credit? Will we lose our home?
Yes, there is great debate as to what the difference between FOR PROFIT and NOT FOR PROFIT credit counselling agencies actually do. The reason why creditors donate (yes they donate) to Not for Profit agencies is because they also know that we EDUCATE, MEDIATE, ADVOCATE AND REHABILITATE. I would say that perhaps 20% of what we actually do for client is this payment program, the Debt Management Program. Our MANDATE is to educate the community, so that means going out to the public to deliver workshops free of charge. When we advocate on a client’s behalf there is no charge for that. There is NO charge to come in and go over the options. A good credit counsellor will ABSOLUTELY refer you to a Bankruptcy Trustee if they feel that those are the best options. We don’t sell anything. We help with money management, budgetting advice, seeing on-going clients until they have mastered their own finances, give out tools for them to learn on their own. We are here to help consumer HELP THEMSELVES. That is the difference. We absolutely do NOT just work for the creditors. All debts, including student loans, collections, etc are included except for secured debts such as mortgages, equity loans and vehicle loans. There is a need for Trustee’s for sure as they have viable options for the consumers that are insolvent. Not all consumers are completely INSOLVENT though. Trustee’s or For Profit agencies do not sit down face to face with you on a daily basis to help with your finances. They do not offer out tools to help you stick with a budget and learn about savings and investments. Both cannot easily MEDIATE between the creditor and consumer. Research research research who the company is. For a list of not-for-profit agencies in Ontario, anyone can visit http://www.oaccs.com. Good luck and if it doesn’t feel right, then it probably isn’t.
Johanna: You said: “All debts, including student loans, collections, etc are included except for secured debts such as mortgages, equity loans and vehicle loans.”
My understanding is that you cannot include CRA debt in your program because CRA will demand full payment.
Hi. Thanks for the reply. You are right, Canada Revenue Agency does not necessarily like working with third party agencies; however, since CRA took over collections of Student Loans, they almost always accept our payment arrangement with the client’s consent. They have even been known to stop legal proceedings also. As for personal income tax, any good credit counsellor will help the client to fill out disclosure and advocate for penalties and interest to be waived and they usually are quite cooperative. CRA’s mandate is usually that all personal income tax owing has to be paid within 12 months. But I am thankful to also see that they discharge in Bankruptcies and Consumer Proposals and are not treated as “preferred”. Through our agency, we now have to be Certified which is a 3 year course on Personal Finance and a separate course on Financial Counselling. All new Credit Counsellors have to enroll in this course and also enroll in their BIA as most of us do the BIA
[...] a large part of their funding was provided by credit grantors. I also referred the reporter to a report funded by Consumer Affairs Canada that called into question the credit counselling [...]
[...] For more information cautioning consumers please refer to this link. [...]
[...] Bankruptcy Canada’s views are supported by the Consumer Affair’s funded study of credit counsellors. [...]