Fraud Prevention Month Case #5: Megan had always prided herself on her strong work ethic and stellar credit rating. A proud person, she never thought she would see the day when debt collectors would be calling her. That happened to other people, not her. But that day had arrived almost four months to the day after she was laid off.

Deeply in debt, unable to find full-time work, and a young child to care for, Megan did not know where to turn.  She decided to seek professional help and quickly found a debt settlement company that promised to help rid her of all her debt for pennies on the dollar for a small fee. Her prayers had been answered! Opting not to look at any other available debt solution options, Megan signed the contract right away.

Megan slept much better that night, unaware of the impact of her decision.

WHAT WOULD YOU DO?

Consumer Protection BC regulates one segment of the debt solution industry in BC by licensing debt poolers.  A debt pooler is a person who accepts and distributes your money to your creditors through an agreed upon repayment program.  This activity is what triggers the requirement to be licensed with us.

The terms being used and the options available to consumers today can be confusing.  Whether it’s called debt counselling, debt management, debt pooling or debt settlement, it is important for consumers to understand the difference in the services being provided.

Some of the risks for not doing your research can include outrageous fees, escalation by creditors, and high dropout rates. Let’s a take a closer look:

• High fees: The fee structures vary widely from one company to another. Some charge a percentage of the total debt (typically 15% or 18%). Others charge a percentage of the total debt savings (typically 25%). Such fees are often on top of initial sign up fees and monthly service charges. The total fee can be prohibitively expensive.
• Escalation by creditors: Once creditors know that you are working with a debt pooler, many will escalate matters- either send your account to a collections agency sooner or sue you. If you are sued, the debt pooler will drop the account since they are not qualified to provide legal advice or represent you in court; and
• High drop-out rates: Many consumers drop out before the debt poolers reach a settlement with the creditors and wind up even worse off.

We recommend that you shop around!  These types of agreements may take a few years to complete and therefore it is important that you choose a company you feel comfortable with.  Select a debt solution option that you know will work with your new reduced budget.

TIPS:  Consider negotiating directly with your creditors first. If you do decide to sign a contract with a debt solution company, read the fine print and understand the services you will be receiving.  It’s also always a good idea to get everything in writing. If you choose to proceed with a debt pooler, ensure that they are licensed with Consumer Protection BC by visiting www.debtrightsbc.ca.

March is Fraud Prevention Month - know your rights! If you have questions about your rights and responsibilities as a consumer in British Columbia, please contact Consumer Protection BC toll free at 1-888-564-9963, or visit or corporate website at www.consumerprotectionbc.ca. You can also follow Consumer Protection BC on Twitter @ConsumerProBC, like us on Facebook and read our blog for valuable consumer tips. The “What Would You Do?” columns are presented by Consumer Protection BC to raise consumer awareness during Fraud Prevention Month.

Links to all Fraud Prevention Month "Cases":
The Case of the Sweet Talking Swindler
The Case of the Greedy Grandson
The Case of the Loan Shark Lender
The Case of the Fraudulent Furnace Installer
The Case of the Desperate Debtor