How to Tell if a Canadian Debt Settlement Company is Trying to Help You or Just Make Money Off of You
A Guide to Review Debt Settlement Companies Yourself
In Canada it's unfortunate that not all provinces have updated their consumer protection laws to protect Canadians from the unethical debt settlement practices that ravaged the United States until October of 2010 when the government cracked down on these companies. Tragically some of these American companies continue to operate call centres in the U.S. and now target Canadians instead of Americans. Alberta and Manitoba have enacted legislation to clamp down on these companies, but unscrupulous companies are free to go after consumers in other provinces. If you want to keep from getting ripped off or scammed, here are some of the red flags we would suggest that you look out for when reviewing a debt settlement company:
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1. The Debt Settlement Company Charges Substantial Fees Before Providing Service
In the financial world, reputable professionals usually don't charge their clients fees until after they have provided a service. Unfortunately many debt settlement companies exist only to make as much money as they possibly can. They do this by charging people significant monthly fees before they successfully negotiate the settlement of any of the client's debts. The problem with this is that most debt settlement companies who charge monthly fees before providing a service never end up negotiating settlements for the vast majority of their clients. So in the end their clients are left with more debt and less money. We would recommend that you only consider working with a debt settlement company that only charges fees after they have successfully negotiated the settlement of your debt.
2. The Debt Settlement Company Advertises Reducing Your Debt by 40% to 70%
Some debt settlement companies claim in their advertising that they may be able to reduce your debt by up to 70%. According to the U.S. government, “the methodology used to calculate these percentages is fundamentally flawed” (Federal Trade Commission Report, page 59).According to the Canadian government, “many companies will claim they can work with your creditors to reduce your debts by a large percentage—maybe 60 percent or even more. However, there is no guarantee that your creditors will agree to reduce your debts. In fact, they may not even agree to participate in debt negotiations. You could end up paying fees for nothing” (FCAC Consumer Alert - January 10, 2012).
3. They Claim to Be Part of a Government Approved Program
The Canadian government has warned consumers that “Some debt reduction companies may try to give the impression that they are approved by the Canadian government or that their services are part of a government program. This is not true” (FCAC Consumer Alert - January 10, 2012).
4. They Don't Have Real Offices in Canada
Before working with a debt settlement company check out their mailing address, and see if it is a real office where they have real employees. Many companies simply rent a Canadian mail box (or "virtual office") so that they can look like a Canadian company. You can do an internet search for any company address to see if you are able to rent a mail box at the same address.
Canadian financial services companies that truly care about their clients typically have a real Canadian office somewhere in Canada where you could go and speak with a company representative face to face if you had a problem.
5. They Claim that All Your Creditors will Work with Them
With most debt settlement companies this is simply not true. Call your creditors. Ask them if they work with the debt settlement company you are considering using.
6. Call the Better Business Bureau or Check Their Website
You can search for any company by name on the Better Business Bureau's website and see how many complaints have been filed against them. Good companies will have no complaints. However, if the Better Business Bureau's page about the company shows that they have been active in Canada for less than two years, then complaints may not have had enough time yet to catch up with the company.
You can also call the Better Business Bureau and see what they think of a debt settlement company. You can also ask them what debt settlement company they would recommend. The Better Business Bureau gets thousands of calls about debt settlement companies, they will definitely be able to point you in the right direction.
7. Call Your Province's Consumer Protection Authority
Contact your province's consumer protection authority and tell them about the debt settlement company that you are investigating. Ask them what they know about this company and who they would recommend you contact. Consumer protection authorities exist to protect consumers and keep them from getting ripped off. They can be a great resource.
What to Do if You have been Ripped Off or Scammed by a Debt Settlement Company
Where to File a Complaint and Report the Company
1. Contact the Debt Settlement Company and Demand a Refund
If a debt settlement company has charged you fees and hasn't negotiated any debt settlements for you, then they haven't done anything for you, and you should demand a full refund regardless of any fine print that's contained in their contract. Don't settle for anything less than a full refund if they didn't settle any debts for you.
2. File a Complaint with the Better Business Bureau
If you believe that a debt settlement company has ripped you off, then consider filing a formal complaint with the Better Business Bureau. It seems that for every thousand people who are upset with the service they receive from a debt settlement company only one files a formal complaint with the Better Business Bureau. It seems as though the embarrassment and shame of being duped hinders people from taking action. Filing a complaint against an unethical company is very important because it is recorded on the Better Business Bureau's website and helps to warn other consumers.
3. File a Complaint with Your Provincial Consumer Protection Authority
Provincial consumer protection authorities exist to protect consumers and enforce consumer protection laws. If you think that a debt settlement company has taken advantage of you or possibly broken the law, contact your consumer protection authority, speak with them, and consider filing a formal complaint if necessary.
4. Contact your MLA
If you have been ripped off by a debt settlement company, then your local MLA needs to hear about it. If enough people complain to their local MLAs, then provincial governments will realize that there is a need to clamp down on unethical debt settlement companies and update their consumer protection laws.