Canadians in debt will often see ads offering to eliminate their debt for eighty percent of what is owed.
In 2021 the debt relief industry resembles the Wild West. Thousands of unregulated and unlicensed debt consultants run bait-and-switch ads. In these ads the debt consultants promise to eliminate eighty percent of what a consumer owes to their creditors.
These modern-day snake oil salesman often charge their clients thousands of dollars in fees. These debt consultants typically refer their clients to a Licensed Insolvency Trustee and it is very common to for these individuals to subsequently make a consumer proposal through the Licensed Insolvency Trustee.
I estimate that there may be as many as 1,000 to 3,000 debt consultants operating today in Canada. A recent federal study concluded that a significant percentage of Canadians making a consumer proposal first hired a debt consultant.
Licensed Insolvency Trustees do not advertise that they can eliminate an individual's debt for eighty percent of what they owe because it is unethical for a Licensed Insolvency Trustee to guarantee a result.
1. No educational or licensing requirements for debt consultants
In Canada a person holding himself out as providing debt-related advice does not require any educational requirements nor do they have to be licensed by the government.
Literally anyone can be a debt consultant.
Debt consultants typically run ads promising to eliminate eighty percent of an individual's debt.
Some debt consultants market their services to members of their ethnic community. Some industry observers would go so far as to suggest that these debt consultants are taking advantage of members of their community.
2. Some debt consultants are a marketing front for others
Some debt consultants simply refer their clients to debt relief service providers. In some instances, these debt relief service providers are Licensed Insolvency Trustees.
The vast majority of consumer Licensed Insolvency Trustees in Canada are honest and ethical individuals who comply with the Code of Ethics For Trustees. Unfortunately, there are a few unethical Licensed Insolvency Trustees who pay for referrals. This is a violation of the Code of Ethics For Trustees.
3. Emergence of debt consultants is corrupting the Canadian debt relief industry
One of the consequences of the emergence of debt consultants is that their presence is corrupting the Canadian debt relief industry. Ethical Licensed Insolvency Trustees who comply with the Code of Ethics For Trustees are at a competitive disadvantage with unethical Trustees who pay for referrals.
Some ethical Trustees might feel that in order to be competitive that it is necessary for them to pay for referrals. This trend risks corrupting the Canadian insolvency industry.
4. Emergence of debt consultants is not in the best interests of the consumer
The emergence of debt consultants is not in the best interests of a consumer.
If debt consultants are running bait-and-switch ads to acquire clients and subsequently referring them to Licensed Insolvency Trustees--and perhaps other debt relief service providers--who are paying them for referrals then do the debt consultants have any financial incentive to provide their clients with independent and unbiased advice?
5. Government action is required
Government action is required to protect the integrity of the federal insolvency system and to protect the public.
In a perfect world, the Office of the Superintendent of Bankruptcy would ferret out consumer Licensed Insolvency Trustees who pay for referrals and discipline them accordingly.
There is no place in Canada for Licensed Insolvency Trustees who pay for referrals.
Debt Coach Silverthorn recently published a YouTube video summarizing the dangers posed by unregulated and unlicensed debt consultants.
In this YouTube video former collection agency lawyer and author Mark Silverthorn warns about the danger posed by debt consultants.
Canadian consumers would be better served if those holding themselves out as providing advice to indebted consumers were regulated.
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