Hey folks! I’ve been wanting to write about this for awhile as I see Canadians suffering every day over this issue and it has been affecting vulnerable Canadian consumers for far too long. Here’s why these practices are problematic and how they can be addressed:
Why It’s Problematic
Legal violations: Only Licensed Insolvency Trustees (LITs) are legally authorized under the Bankruptcy and Insolvency Act to administer consumer proposals. Companies charging fees to “prepare” consumers are operating outside their legal authority, charging for services they cannot legally complete and creating an unnecessary intermediary with extra fees attached in a process that is required to be direct
Financial harm to vulnerable consumers:
- These companies target people already in financial distress
- They charge upfront fees (often $500-$3,000+) for “consulting” or “preparation” which is not charged by LIT’s for the same process
- Consumers must then still pay the LIT to actually file the proposal
- This means double costs when people can access LITs directly with free initial consultations
Misleading practices:
- Many use names/marketing that sound official or government-affiliated
- They may not clearly disclose they aren’t LITs
- Consumers often don’t understand they’re paying for unnecessary services
- Some provide poor advice or cookie-cutter solutions
- Time spent with these companies delays consumers from getting actual help, allowing interest and penalties to accumulate.
How to Resolve This Epidemic
For Policymakers:
- Stronger enforcement: Provincial consumer protection agencies and the Office of the Superintendent of Bankruptcy need more resources to investigate and prosecute
- Clearer regulations: Explicit prohibitions on charging fees for consumer proposal “preparation” or “consulting”
- Mandatory disclosures: Require any debt relief company to clearly state in advertising:
- They are not Licensed Insolvency Trustees
- Consumers can contact LITs directly at no cost
- A list of fees they charge
- Advertising restrictions: Limit misleading terminology in company names and marketing
- Public awareness campaigns: Government-funded education about where to get legitimate help
For Consumers:
- Go directly to an LIT: Initial consultations are free. Find trustees at the OSB’s website or through provincial insolvency associations
- Warning signs of problematic companies:
- Charging upfront fees before filing anything
- High-pressure sales tactics
- Guarantees about debt elimination
- Not clearly stating they’re not an LIT
- Verify credentials: Ask “Are you a Licensed Insolvency Trustee?” If not, walk away
- Report violations: File complaints with:
- Office of the Superintendent of Bankruptcy (federal)
- Provincial consumer protection offices
- Better Business Bureau
- Competition Bureau for misleading advertising
For Industry Groups:
The Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and provincial law societies should actively:
- Public education campaigns
- Work with government on enforcement
- Clear the air about who can do what
In Summary
Licensed Insolvency Trustees provide free initial consultations. There is never a need to pay a third party to “prepare” you to see an LIT. Anyone in debt should contact an LIT directly as they’re the only ones who can actually file consumer proposals, and they’re required to explain all options, including alternatives to insolvency.
Debt Management Programs essentially a predatory industry preying on people’s lack of knowledge during their most financially vulnerable moments. Stronger enforcement and better public education are essential to protect consumers. We all need to be our own best advocate.
DGB
Legal disclaimer: The material provided on this web site is for general information purposes only. It is not intended to provide legal advice.
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