A report released earlier this morning, by a national non-profit organization on the Canadian collection industry, while well-intentioned, misses the mark. One of the reasons for the release of the report is the growing level of consumer debt among Canadians. The report fails to identify the silver bullet for substantially reducing the level of illegal and socially unacceptable behavior by bill collectors. Only one of the report’s nine recommendations, if implemented, would be significant in terms of protecting consumers from abusive and overreaching behavior by debt collectors.
On March 30, 2015, the Public Interest Advocacy Centre (PIAC), an Ottawa-based, non-profit advocacy group for consumers, released a report titled “All Along The Watch Tower: A Review Of The Canadian Consumer Collection Industry”. The report makes nine recommendations for improving the playing field between debtors and creditors and their collection agents most of which involve provincial governments enacting additional consumer protection laws. Only one of these nine recommendations—the mandatory recording of telephone calls by debt collectors– would have a substantial impact in terms of protecting the public from illegal and unprofessional conduct by bill collectors.
The 96-page report not only describes Mark Silverthorn as a “debt collection expert”, refers to him by name 10 times, but also cites his book, The Wolf At The At The Door, 57 times as a source of information.
1. Advances national conversation on the Canadian collection industry
All Canadians should applaud the efforts and sincerity of The Public Interest Advocacy Centre in connection with the preparation of this report on the collection industry in Canada. One of the positive aspects of the PIAC report is that it provides an overview of the debt collection industry in Canada and it identifies some of the key concerns for both consumers and those engaged in the collection of consumer accounts. It also describes the amount of consumer debt in this country and the size and scope of the debt collection industry.
Accordingly, the report will play a very important role in advancing the national conversation about the debt collection industry in Canada. This report should also kickstart a national debate on how legislators in this country can better protect consumers who find themselves owing monies to creditors—balancing the legitimate interests of creditors seeking to recover unsecured consumer debt with reasonable protections afforded to those consumers who owe monies to creditors in a civilized society.
The report should receive its due for the following:
- Providing an overview of the life cycle of an unsecured consumer debt
- Describing the amount of unsecured consumer debt in Canada
- Describing the federal law regulating the conduct of those collecting monies owing to banks and the Financial Consumer Agency of Canada’s (FCAC) success, or lack thereof, enforcing these federal laws
- Describing the conflict between CRTC rules and provincial laws regulating collection agencies as relates to the use of automated dialers to phone consumers
- Offering two alternative narratives concering the conduct of large creditors and their collection agencies
Conflicting narratives of the conduct of large creditors and collection agencies
One of the highlights of the report is the comparison of two different narratives of the debt collection industry. The first narrative is referred to as “Maintaining a Healthy Image”. According to Peter Sorrentino, President of General Credit Services Inc., collection agencies strive very hard to comply with the law because of potential adverse reaction from their creditor-clients. The competing narrative is described as “A Race For Cash” as described in the book, The Wolf At The Door: What To Do When Collection Agencies Come Calling (2010), published by McClelland & Stewart. Under this narrative, large creditors in Canada create competitive races between a number of collection agencies to see which can collect the most monies and their respective performances dictate the distribution of future business and market share—a model which places tremendous pressure on collection agencies, and everyone in the organization including front-line collectors to break the law.
2. The report is hamstrung by inadequate research
This report, however, does have a number of deficiencies. Anyone who is knowledgeable about the collection industry reading the report will notice a number of glaring factual errors. The report inaccurately lists the statute of limitations for simple contract debt in New Brunswick as six years—in fact the correct period is two years!
A paragraph which appears on page 22 of the report will illustrate the limitations of the report’s understanding of the collection industry.
When debt collection agencies purchase the debt accounts themselves, they proceed to collect as much revenue as possible from the outstanding accounts that were purchased. The difference between what debt collection agencies collect from the outstanding accounts that were purchased and the amount collection agencies have paid representing the profit for debt collection agencies. Debt collection agencies acting under these “debt-buying” circumstances are sometimes referred to as third party collectors.
A third party collector is a collector employed by a collection agency that collects debts owned by others. If a collection agency purchases debt then this debt is referred to as “purchased debt”. The last sentence in the excerpt from the report—and the reference to “third party collectors”– is not only factually incorrect it simply does not make any sense!
The report lacks understanding of the Canadian debt collection industry
The report fail to adequately identify the dynamics of the relationship between large creditors in this country vis-a-vis their existing collection agencies, as well as those agencies which seek to one day to provide collection services for them. It is a relationship based on something approaching serfdom. When these large creditors say jump, the response from collection agencies is invariably “how high?”
An example from the PIAC report illustrates a disturbing level of naivete when it comes to understanding the relationship between creditors and collection agencies. The PIAC report is critical of the industry practice among Canada’s largest creditors involving competitive races among the various collection agencies doing work for them. The following sentence appears on page 53 of the report.
Secondly, we suggest debt collection agencies negotiate with large original creditors to adjust the manner in which debt collection efforts are analyzed and recorded in Canada.
Anyone working in the collection agency is going to have a hard time, upon reading this sentence in the report, to keep from falling off their chair. Collection agencies do not negotiate with large creditors. Collection agencies receive instructions from large creditors!
With few exceptions, traditional collection agencies are corporate entities where profitability is the number one factor motivating behavior. The following paragraph which can be found on page 53 of the report encourages collection agencies to voluntarily provide debtors with information about their rights—a suggestion, which if implemented—would result in substantial prejudice to their profitability.
We would also encourage debt collection agencies to provide information to their clients that is produced by provincial consumer affairs ministries or an agency such as the FCAC. This government-produced information, perhaps a 1-2 page document, would advise consumers what their rights are when involved in a debt collector-debtor relationship. Armed with this knowledge, consumers may be able to manage this relationship in a manner that will eventually benefit both themselves and the debt collection agency.
Make no mistake about it. The better informed consumers are about their rights in the context of debt collection—and their options for dealing with their debts, will have only one result—a massive loss in revenues for collection agencies. This suggestion in the report that collection agencies voluntarily provide debtors with information about their rights is from the realm of fantasy.
The report fails to adequately address the issue of enforcement of existing consumer protection laws in Canada in the context of debt collection
With one exception, the report fails to address the issue of the level of enforcement of existing laws in Canada designed to protect Canadian consumers dealing with illegal behavior by debt collectors. On January 1, 2010, the Federal Government enacted regulations under the federal Bank Act that applied to federally regulated financial institutions—Canada’s banks—creating a list of prohibited collection practices for those collecting monies owing to Canada’s banks, original creditors and their authorized collection agents, which might include collection agencies, lawyers or possibly paralegals.
According to the PIAC report between April 2011 and July 2013, the Financial Consumer Agency of Canada (FCAC), an agency of Industry Canada, received 776 complaints involving debt collection and 73 investigations were opened in 2013-2014. According to the PIAC report—which received financial support from Industry Canada—the Financial Consumer Agency of Canada would not appear to have disciplined any firm in connection with these 73 investigations. Some intrepid reporter might want to ask both the federal Industry Minister as well as senior management at FCAC for details regarding the enforcement of section 7 of the Credit Business Practices Regulations enacted pursuant to the federal Bank Act.
The report’s criticism of provincial law societies misses the point
The report is very critical of the role of provincial law societies concerning the regulation of lawyers engaged in debt collection. One of the report’s recommendations is that provincial laws regulating collection agencies be amended to strip lawyers of their exemption under these laws. In 2010 I wrote a 300-page book, The Wolf At The Door. Nowhere in that book did I criticize a provincial law society nor did I question the merits of having lawyers being regulated by self-governing law societies.
The report’s recommendation to eliminate the exemption in existing provincial statutes regulating collection agencies misses the point. From the consumer’s perspective, if they are the subject of abusive behavior by someone attempting to collect a debt it doesn’t matter if the collection efforts are made by persons employed by a third party collection agency, the original creditor, a debt buyer, or a law firm. In the context of consumer debt collection, consumers should be entitled to same level of protection regardless of who is attempting to collect the monies from them.
The report fails to make a distinction between two distinct regulatory regimes which are found in provincial and territorial statutes regulating collection agencies. Each of these laws has a licensing regime for licensing collection agencies—and in some cases, branch offices and even individual collectors employed by collection agencies. It would be silly to require lawyers to obtain a collection agency license to collect an outstanding account on behalf of a client.
The second part of provincial and territorial laws regulating collection agencies are what I would describe as a list of prohibited collection practices. I submit that these prohibited collection practices should apply to not only third party collection agencies, but also to original creditors, debt buyers, law firms, and their employees.
The report’s analysis of the regulation of U.S. debt collection industry is inadequate
The report contains a 2-page analysis of the regulation of debt collectors in the U.S. This section, which is very cursory in nature, contains a number of factual errors and is simply inadequate. It fails to identify the tremendous impact that the federal Fair Debt Collection Practices Act (FDCPA) has had in moderating the behavior of collection agencies and collection law firms in the U.S. Collection agencies and collection lawyers are better behaved in the U.S. than in Canada because of FDCPA lawsuits and the threat of FDCPA lawsuits!
The report fails to identify the silver bullet to eliminating abusive behavior by debt collectors
In its report on the Canadian collection industry the Public Interest Advocacy Centre (PIAC) fails to identify the silver bullet for eliminating abusive behavior by debt collectors in Canada. Debt collectors in Canada engage in abusive and overreaching behavior because it is profitable to do so. In order to stop abusive debt collection practices it is necessary for provincial governments, and to a limited extent the federal government, to effectively deter bad behavior using financial penalties for non-compliance—and lawsuits brought by consumers are much more effective than the actions of any government regulator!
The way to properly supervise the debt collection marketplace in Canada is not—as suggested in this report—by enacting a series of more laws, and then relying upon the efforts of government regulators to enforce them. The key to ensuring that debt collectors behave properly is passing laws that facilitate consumers—regardless of their financial situation—to successfully sue debt collectors in the courts where debt collectors have broken consumer protection laws in the context of debt collection.
This solution has been incredibly effective in the United States where there is a cottage industry of lawyers who routinely sue collection agencies and their creditor-clients for virtually any and all violations of U.S. law regulating the conduct of debt collectors. In the United States these lawsuits are often settled out of court after a collection agency receives a single letter from a consumer lawyer threatening a lawsuit on behalf of a consumer.
In order to eliminate overreaching and abusive behavior by debt collectors provincial governments in Canada need to take a page from the playbook of the federal Fair Debt Collection Practices Act (FDCPA) in the U.S. and provide consumers—regardless of their financial situation—with the ability to successfully sue “debt collectors” and their creditor-clients for violations of consumer protection laws.
3. The report’s nine recommendations
The PIAC’s report contains nine recommendations, virtually all of which call for provincial governments’ to amend existing laws regulations regulating collection agencies. The following table summarizes not only these recommendations but also my comments regarding the value of these recommendations.
| PIAC report Recommendations
|| Mark Silverthorn’s Reaction to Recommendations
|Amending provincial laws to ensure a collection agency includes a 1-2 page memo to explain consumers their rights in the context of debt collection.
||Preferable to require require mandatory language on all collection notices with a link to provincial regulator’s website containing information about debtor’s rights
|Amending provincial laws so collection agencies must provide written notice before collection calls commence in every Canadian jurisdiction
||Many, but not all, provincial laws regulating collection agencies, currently contain such a provision
|Amending provincial laws so that once collection agency learns a consumer is not the debtor all collection efforts must stop
||Most, if not all, provincial laws regulating collection agencies, contain a law to this effect
|Amending provincial laws so consumers in every province have the right to stop collection calls and request communications by some other means
||Some, but not all, provinces have laws, granting this right to consumers
|Every call between debt collector and creditor should be recorded
||Preferable if provincial laws were amended to require that all calls from a debt collector (1) to a consumer, or (2) for a purpose in furtherance of collecting a debt must be recorded by debt collector and be available to both government regulators and consumers upon request
|Provincial and territorial regulators should do “spot checks” on collection agency telephone conversations by obtaining recordings from agencies. Any tampering would result in large administrative monetary penalties up to an immediate license suspension.
||This recommendation would be a postitve step.
|Provincial governments should consider amending debt collection laws and regulations to amend or remove the exemption now enjoyed by lawyers
||Provincial governments should enact laws imposing a code of conduct on all those engaged in the collection of debts.
|Provincial governments should amend provincial law to require annual transparency reports related to debt collector complaints
||This would be a waste of time and money. It is based on the unstated assumption that complaints are a good yardstick for measuring collection agency misconduct.
|Provincial government’s should consider permitting collection agencies to contact debtor’s via e-mail
||Might not be practical because it is contrary to the internal policies of Canada’s major banks—and their unsecured consumer debt comprises more than 50 percent of Canada’s total unsecured debt
The problem with the PIAC report’s recommendations is that none of them—with the exception of the requirement to record collection calls—would be particularly effective in terms of reducing illegal behavior by debt collectors. Even that recommendation is flawed. Not only should calls between a debt collector and the debtor be recorded but also phone calls between a debt collector and anyone other than the debtor made in furtherance of the collection of a debt. Collectors often break the law when they speak to a member of the debtor’s household, a family member, or someone at the debtor’s workplace. Finally, consumers should be able to access these recorded phone calls—not just government regulators!
4. Mark Silverthorn’s recommendations for improving debt collection industry
The following three recommendations would go a long way towards reducing or eliminating illegal and social unacceptable behavior by debtor collectors in Canada.
(i) Statutory right to sue debt collectors for violation of debt collection laws
Governments should enact laws which give consumers the statutory right to sue debt collectors for violations of federal or provincial law in the context of debt collection.
This initiative would take advantage of the success American society has enjoyed moderating the behavior of debt collectors under the federal Fair Debt Collection Practices Act (FDCPA).
(ii) All debt collectors should be subject to uniform conduct of behavior
Provincial laws regulating the conduct of collection agencies should be amended to provide a code of prohibited practices for all debt collectors.
As noted earlier, debt collectors come in four flavours—original creditors, debt buyers, third party collection agencies and lawyers. A consumer who is subject to collection efforts should be entitled to the same rights and protections regardless of which of category of debt collector is attempting to collect the debt.
At the present time provincial laws regulating the conduct of collection agencies have two distinct components, a licensing regime, and a list of prohibited collection practices and/or mandatory obligations—which are often a mirror image of one another. Provincial governments across Canada should enact laws requiring that anyone engaged in the collection of a debt be subject to a uniform set of prohibited collection practices in that jurisdiction.
(iii) Mandatory for “collection calls” to be recorded
Each province should pass a law requiring that debt collectors be required to record all their collection calls (1) with debtors, and (2) those calls with persons other than debtors made for the purpose of collecting a specific debt. It should be possible for not only government regulators but also individual consumers to access audio recordings with respect to their particular account.