We’ve noticed that a number of debt relief and debt consolidation companies are advertising that they offer a “government approved” credit card debt consolidation program. We think it’s important that you know what is misleading about this claim and what programs are available that have a connection to the government at some level.
Why the Claim “Government Approved” Debt Consolidation Program is Misleading
The first thing you should know is that no government in Canada – federal, provincial, or municipal – officially approves any debt consolidation program. Any company making this claim is embellishing what they are selling and are doing so using a misleading claim.
What these companies mean by claiming to be "government approved" is likely one of two things:
- They have obtained a debt pooler's license from the province or provinces in which they operate and this allows them to collect and pool money from their clients and apply the funds to the repayment of their clients’ debts. This service is usually called a Debt Management Program. Anyone who offers a Debt Management Program should have one of these licenses.
- They are offering a Consumer Proposal which is defined and governed by the Government of Canada’s Bankruptcy and Insolvency Act.
Just because a company is licensed by the government or offers a service that is regulated by government legislation does not mean that the company or their service is “approved” by the government. A local restaurant needs a government license to operate, but it would be misleading for them to advertise that their food or service is “government approved.” Banks are governed in Canada by the Bank Act, but that doesn’t mean it would be appropriate for them to start advertising that their services are “government approved.”
What Credit Card Debt Consolidation Programs Have a Government Connection
The following programs are often used for consolidating credit card debt that people can no longer manage to pay. The table below also shows the government connection that each program has.
|Debt Management Program||Any organization that provides this program must be licensed by the consumer protection authority in each province in which they offer the program.|
|Orderly Payment of Debts||This program used to be offered by many provincial governments across Canada. However, all have now abandoned it except for Alberta. In Alberta, Money Mentors, a non-profit credit counselling service, administers the program. Most provinces abandoned the Orderly Payment of Debts program because non-profit credit counselling organizations were doing a good job serving the public with their Debt Management Programs.|
|Debt Settlement||Many provinces have now updated their consumer protection laws to include debt settlements. Provinces now typically require organizations that offer this service to be licensed and to not charge their clients more than a nominal fee for this service until debts are settled.|
|Consumer Proposal||Consumer Proposals are governed by federal legislation called the Bankruptcy and Insolvency Act which states that only licensed Bankruptcy Trustees are allowed to offer and administer them. The administration of Consumer Proposals is a legal process which is overseen by the federally appointed Office of the Superintendent of Bankruptcy.|
|Bankruptcy||The same as Consumer Proposals mentioned above.|
Who the Government Refers People To
At times, various government agencies actually do refer people they come in contact with to different credit and debt counselling services. However, just because they refer to an organization or work with them on various projects to help Canadians doesn’t mean that a government officially approves or endorses any organization. In our experience, organizations that are held in high regard by Canadian government agencies don’t publicize the fact that the government trusts them.
We can’t speak for the government. So it wouldn’t be appropriate for us to publish a list of which debt consolidation agencies governments across Canada seem to trust. However, it would be accurate to say that they are typically the leading non-profit credit counselling organizations in their province.
What We Would Recommend
We have created a list of quality non-profits across Canada that can help you look at consolidating your credit card debt. Some organizations on our list are large and some are small, community based organizations. All of them are accredited by Credit Counselling Canada (who has the highest standard of accreditation in Canada), and all of them will help you take a look at all your options and see what will work best for you. If any one of the programs mentioned above makes sense for your situation, they can either help get you onto the program or they can refer you to a professional in your area who can.
Don’t be taken in by misleading talk of government approved credit card debt consolidation programs. Find a good non-profit Credit Counsellor near you who’s not selling anything, and only has your best interests at heart. They’ll help you find the right solution for your situation and help set you up for long-term success.