When you’re getting calls from collection agencies or companies that you owe money to, it’s important that you understand your rights and how Ontario debt collection laws apply to your situation.
Collection laws are not uniform across Canada. How it works depends on which province you live in. In this article, we’re going to take a look at debt collection laws in Ontario, including the rules debt collectors must follow when they contact you and whether or not you should pay a debt collector.
Ontario Debt Collection Laws
The rules around debt settlement in Ontario are laid out by the Collection and Debt Settlement Services Act, a piece of provincial legislation introduced in 2015 to curb predatory practices from debt settlement companies and provide more financial protections to consumers.
Debt collection laws in Ontario give collection agencies certain rights and responsibilities while balancing protections for those who owe them. These rules do not apply to the original companies or service providers that you owe, only third-party agencies.
When you owe money for an extended period of time, what often happens is that the original company, whether it’s a credit card company or a utility provider, sells the debt to a collection agency or hires a third-party agency to collect in exchange for a commission. Collection agencies can collect any type of debt, including credit card debt, cellphone or utility bills, auto loans, payday loans, or accounts payable to a small business (i.e., a wedding caterer or a local plumber you have yet to pay). They can only be assigned to a collection agency once your payments are past due.
These agencies must be registered and follow certain rules.
When the Debt Collector First Contacts You
Debt collection agencies must inform you in writing before they can start calling you. They must give you certain information in print or by email:
- The original creditor who assigned them the debt
- The amount of money that you owe
- The type of debt that you owe
- Confirmation that the debt collection agency is registered
- The amount of the debt on its first due date and the current amount that you owe
- Information about your rights and how you can file a complaint if you feel that the debt collection agency has broken the law
- A statement saying that they will provide a detailed explanation of your debt if requested
If you’re confident that you have not received their letter or email, it may be in your best interest not to contact the agency right away. There is a 6-day waiting period after the letter has been mailed during which they can take no further actions. If you have not yet received written notice, they will have to send it again.
When and How Often Can the Debt Collector Call You?
Getting collection calls is a very stressful experience. It interrupts your day, it can distract you from your work, and it keeps your debt constantly on the top of your mind.
Who Can the Collection Agency Call?
When debt collection agencies first start calling, many people worry that they’ll start to call their family, friends, colleagues, or boss. Many people are embarrassed by debt, and they don’t want the people in their lives to find out.
While it’s important to not let embarrassment stand in the way of getting debt relief, there are limits to what a debt collector can ask other people in your life. They are allowed to contact family, friends, and neighbours but may only ask for your contact information.
They can also reach out to employers to confirm your employment or ask about the status of a wage garnishment on your paycheque.
How Much Can They Ask You to Pay?
Debt collection agencies are only permitted to ask you to pay the amount you owed to the original company, not any extra charges or fees unless the money owing is a Provincial Offences fine owed to a municipality. For example, the city may send the amount you owe from tickets or fines to a third-party debt collection agency, which can then charge fees if the municipality permits.
Otherwise, you are only responsible for the original amount, and the debt collection agency must provide you with a detailed breakdown of that debt if you request it. This information includes the original loan amount, interest charges, and how much of the balance is interest, penalties, and costs.
How long can debt collectors try to collect in Canada?
There are limits for how long a collection agency can collect debt in Canada through certain actions. Your debt will not disappear until you repay it or go through insolvency, and a debt collection agency can call you in an attempt to collect until you do.
However, there is a limited time period in which they can get a court judgement against you.
These court judgements can be used for a wage garnishment or bank account garnishment. With a wage garnishment, they collect directly from your paycheque. The judgement requires your employer to take money off your paycheque and send it to the collection agency instead.
With a bank account garnishment, the court orders your bank to withdraw funds in your possession to satisfy a debt. Whereas a bank account garnishment can be used if you have savings that you are not using to repay your debt, a wage garnishment is an effective tool if you don’t have savings.
According to Ontario debt collection laws, agencies must pursue a court judgement within a 2-year period from the date of your last payment. Sometimes debt collection agencies may ask you to make a token payment in good faith. This is a tactic to get you to reset the clock on the time period they have to pursue a court judgement.
When Is Debt Considered Statute Barred?
The Statute of Limitations applies to debt two years after your last charge, payment or written acknowledgement of the debt. The clock on the Statute of Limitations begins when you miss a payment. The two-year timeframe resets if you make another payment or acknowledge the debt before the two-year timeframe expires.
The Statute of Limitations applies to a debt permanently once the two-year period has expired with no payment or written acknowledgement of the debt. There are ways to re-age debt, and debt collectors will try to persuade you into giving them more time to collect. But once the statute of limitations period of two-years (in Ontario) has passed, the legal enforcement of the debt cannot be revived. At this point, your debt is considered statute barred.
Debt collectors may try to convince you to make a token payment as a sign of good faith. This will reset the clock and open the door for them to take legal action if done within two-years from the last default, payment or written acknowledgement.
To obtain written acknowledgement of the debt, Collectors may try to convince you to send a letter or email explaining your financial circumstances and requesting more time to pay the debt.
If debt collectors are contacting you about an old debt, they may be attempting to reopen the window of opportunity for legal action. Before you respond to these calls, you should check your records to see when you last made a payment.
How to Deal with Debt Collection Agencies
If you’re receiving collection calls, wage garnishments, or legal actions from debt collection agencies, you can no longer afford to ignore your debt. Book a free consultation with David Sklar & Associates to discuss your options for getting out of debt.
When you speak with a Licensed Insolvency Trustee, they will want you to explain the details of your financial situation. Everyone’s personal finances, debts, and overall situation are unique, and it’s important that they know your story before they inform you of your debt relief options. A Licensed Insolvency Trustee may also be able to help you understand Ontario debt collection laws to make sure the collection agency is acting according to the rules.
Before you deal with a debt collection agency, you should have a plan. Do you intend on paying the debt back in full? Can you afford to make a partial payment if you can get the agency to agree to one? If you speak with a debt collection agency, you should only offer what you are able to afford. If you cannot afford to make repayments of any kind, it is better to act now before the problem gets worse. A wage garnishment or bank account garnishment takes financial control away from you, and you can wind up falling behind on other expenses, such as rent or mortgage payments.
Be Careful with Debt Settlement
Debt settlement is another area curbed by the Collection and Debt Settlement Services Act, providing consumers several key protections from debt settlement companies that seem to offer a quick way out of debt but usually come with hidden penalties and fees. Debt settlement companies must register as debt collectors in Ontario and follow certain rules that protect consumers.
One such protection is the 10-day cooling-off period given to consumers who have signed a contract with a debt settlement company. Consumers can back out of the contract and cancel within that period without having to give any reason. The Act also curtails the fees debt settlement companies can charge, though there are still hidden penalties and fees to using a debt settlement company.
There are other debt relief options you can pursue that are more tightly regulated by the government, and that will likely cost you less.
Debt Relief Options
Licensed Insolvency Trustees perform a very different role than debt settlement companies and are regulated by the Office of the Superintendent of Bankruptcy.
Licensed Insolvency Trustees are the only professionals who can administer insolvency proceedings, such as a consumer proposal or bankruptcy in Ontario. Both of these proceedings will force debt collection agencies to stop their collection efforts and calls immediately.
When you file a consumer proposal in Ontario, you propose a fixed monthly payment to your unsecured creditors with no interest, often with a significant sum dropped from your debt. With bankruptcy, you liquidate certain unexempt assets with the proceedings going to unsecured creditors while forgiving the remainder. Both processes help you get out of debt and stop debt collection agencies from bothering you anymore.