Blair DeMarco-Wettlaufer is the managing partner and COO of Kingston Data and Credit Inc., in Waterloo Region. He has been following the province’s plans to update the Collection Agencies Act and other consumer protection-related acts, through the former Bill 55.
When the legislation, the Stronger Protection for Ontario Consumers Act 2013, passed third reading Nov. 27, DeMarco-Wettlaufer looked at the sections that affect debt collection, and in particular, what this Act may mean for paralegals.
Blair DeMarco-Wettlaufer shares his take on the new legislation, the process paralegals can use to register to do more collections work for clients — with or without established collectors — and how we can continue to comply with the Act.
I believe that registered collection agencies and paralegals can and should build bridges — we really aren’t in direct competition, and I believe there is more than enough business for everyone.
With the enactment of this law, a number of things will happen. First and foremost, through the requirements for handling funds in trust, licensing individual “collection/debt” agents, and the background screening that the Ontario Ministry conducts on those applicants, a number of existing debt settlement companies will either close up shop, or will fail to meet the provincial requirements. This will reduce the number of players in this field.
Paralegal professionals and business entities will need to decide if registration is necessary for them.
How to Register as a Debt Collector or Agency
The process to register under the Collection Agencies Act is far simpler than the process to become a registered paralegal. Businesses and individuals may apply to the Ministry of Consumer Services. The ministry maintains a registry of registrants.
My recollection of registration is a few years old and the Ministry may change their process to adapt to paralegals registering, but the steps I have followed in the past included:
- Send a written request to the Ministry which includes the resumes of all majority shareholders showing 5+ years’ experience in the credit industry
- All majority shareholders must write an exam on the Collection Agencies Act, with 80% being a passing mark
- The agency must acquire an initial $5,000 surety bond (which can increase with renewals up to $25,000, based on volume of funds received)
- The agency must open a designated Collection Agencies Act trust account
- The agency must operate from a place of business open to the public
- The agency must provide the Ministry with all copies of contracts, sales material, and form letters
- Filing the agency application form involves a background check by the Ministry and a $290 application fee for the company
- Filing the application form involves a background check by the Ministry and a $190 application fee for each employee
There could be hiccups in this normally simple process for paralegals. For example, if they work from home, they will need to acquire an official business location, and if they want to maintain more than one trust account, they need the written permission of the registrar. They must also disclose on their application what other business practices they are involved in, and the Ministry will not want to see a conflict of interest in those separate activities.
Indirect Fallout for Paralegals and Collection Agencies
In addition, there are other, indirect, consequences which may not be obvious in the legislation. Most importantly, the fee structure and competitive landscape will change significantly, with plain language contracts and the requirement that an agency not take their fee before services are rendered.
I believe this revised Act may have a significant impact on the paralegal industry. Over the past several years, the interaction between collection agencies and paralegals has become strained. Several gray areas mean that both groups are involved, as a normal part of business, in procedures such as initiating legal action, and negotiating settlement prior to a judgment action. Both fields must tread carefully, to stay within the relevant laws.
This new legislative revision complicates matters. Specifically, the definition of an “agency” is now to include:
“… offering or undertaking to act for a debtor in arrangements or negotiations with the debtor’s creditors or receiving money from a debtor for distribution to the debtor’s creditors, where the services are provided in consideration of a fee, commission or other remuneration that is payable by the debtor.”
Paralegals are not specifically named exempt from this section, although lawyers are. While there are several divided viewpoints on the fallout from Bill 55, I believe paralegals may need to register if they act as agent for a plaintiff or defendant in a civil action on a contingency basis, charge a fee for demand letters, or if they act in advance of a judgment, through settlement, on behalf of a client on a contingency basis.
Protecting Consumers and Clients
It is understandable that a number of people in the paralegal community are not pleased. Remember, though — collection agencies in Ontario need P1 license holders to initiate small claims court actions on their behalf. Paralegals may now, in turn, need collection agencies to cover new requirements for settlement negotiation.
This legislation is designed to help consumers, who will be protected from complex and unfair service agreements from debt settlement companies. I believe that is a good thing.
However, there’s a major change beyond that: registered collection agencies in Ontario just became the consumer’s new best friend. Rather than acting solely on behalf of a creditor to collect funds, agencies are now allowed to act on behalf of consumers.
Ultimately, consumers struggling with debt are going to benefit. But I think the biggest changes to come will be from the unintended side-effects of Bill 55.
Note: The collection industry is represented by several organizations including the Ontario Society of Collection Agencies (OSCA), and the Receivables Management Association of Canada (RMA). While OSCA is geared specifically to collection agency interests, members of the RMA cover a broader scope, including creditors, law firms, debt buyers, bankruptcy trustees, credit counselling firms, and collection agencies.
DeMarco-Wettlaufer has been involved in the credit and collections industry for the past 25 years.
He works with a number of paralegals in small claims court matters.
Contact Blair DeMarco-Wettlaufer: