The province is taking action to ensure that getting your finances back on track will not leave you penniless.
Consumers were often encouraged to stop paying their debt on the expectation of making a lump sum payment to their creditor, while paying negotiation fees to the debt settlement agent instead. This would cause some people to miss payments, further damaging their credit score.
When changes come into effect April 1, 2016, the province will restrict the fees debt settlers can charge. This means companies cannot charge those in debt for negotiating a settlement until the creditor and the debtor have agreed on the terms of repayment. Prior to this change, some companies would charge large, non-refundable fees up front in order to negotiate a lump-sum payment.
As of April 1, 2016, debt settlement companies will only have two options restricting how much they can charge for fees:
• If the debt will be repaid within 90 days, debt agents may only charge a fee of up to 10 per cent of the total amount of debt being repaid;
• If you need 90 days or longer to repay your debt, debt settlement companies may charge a fee of up to 15 per cent of the total amount repaid, plus a one-time service fee. The service fee can be no more than the cost of one average monthly payment. In addition, these companies will also have to be more transparent about the risks associated with debt settlement. All contracts will be required to contain a disclosure statement indicating that, while the debt may go away, the debt settlement process will not improve their credit rating.
British Columbians had an average of $99,834 in household debt in 2014, according to a survey by Pollara conducted for BMO’s annual debt report. That’s up more than 26 per cent from $79,089 in 2013.
According to the report, 58 per cent of B.C. households carry credit card debt despite the high interest rates they charge. That’s well above the national average of 52 per cent. It found 44 per cent in B.C. have mortgages and 10 per cent have student loans.
– With files from Jeff Nagel