On February 15, 2012, Manitoba amended its consumer protection legislation to provide for new limits on the amount debtors may pay in connection with debt repayment agreements or to persons who are acting for the debtor in arrangements or negotiations with creditors. Further, the new amendment provides that fees may not be charged to a debtor prior to the successful arrangement or negotiation of a settlement acceptable to the debtor.
The Manitoba Consumer Protection Act (the CPA) limits the amount that a person may collect from a debtor for making arrangements or negotiating with credit grantors on behalf of the debtor or for receiving money from the debtor for distribution to his or her creditors. Under the amendment, this limit is set at the greater of (i) 15% of the money actually collected from the debtor for distribution to his or her creditors and (ii) $20, in the case of a debt repayment agreement that includes a schedule of payments. Where there is a one-time payment to a credit grantor or an agreement to make arrangements or negotiate on the debtor’s behalf with a credit grantor identified in a debt repayment agreement, the limit is set at 10% of the debt owing. This 10% maximum fee may now only be charged after a settlement acceptable to the debtor has been successfully negotiated or arranged. Pursuant to a news release by the Manitoba government, the policy reason for this new provision is to ensure that people struggling with debt do not pay large fees upfront with no guarantee that the services provided will actually reduce their debt.
Previously, the legislation provided that collection agents were permitted to charge a fee which was no more than 15% of the money actually collected from the debtor for distribution to his or her creditors, with a permitted minimum charge of $20.
It is interesting to note that under the Manitoba CPA, a “collection agent” is defined to exclude: persons who accept payment of account on behalf of creditors but who do not otherwise negotiate with or attempt to obtain payment from debtors, banks, credit unions, trustees in bankruptcy, court officers, lawyers licensed in Manitoba, trust companies, real estate brokers, insurance agents, and liquidators appointed under the CPA. In contrast, “person” is vaguely defined in the CPA as being inclusive of a partnership and an unincorporated association. By broadening the wording of the legislation from “collection agents” to “persons”, the fee limits set in the amendment are being extended to include creditors as well as collection agencies. This change is consistent with the prohibitions on debt collection practices set out in the CPA, which apply equally to collection agencies and creditors.
This amendment comes as part of a broader five-year Manitoba government plan for stronger consumer protection called “Let’s Make a Better Deal”, which was launched in May 2010. This plan includes proposals for new legislation, such as this recent amendment, as well as a consumer rights awareness strategy for Manitobans. It is likely that additional amendments to Manitoba’s consumer protection legislation will be forthcoming.
In announcing the amendments, the government noted the amendments bring Manitoba in line with similar provisions in Alberta’s consumer protection legislation that have been in force for some time. However, we note that the applicable Alberta legislation applies only to debt repayment agencies and not to creditors, in contrast to the broader wording of the Manitoba legislation as noted above.
Despite the similarities between the Manitoba and Alberta provisions, it is clear that there is still no consistent approach in Canada with respect to the fees which may be charged by these entities, known variously as debt repayment agencies, debt poolers, credit counsellors or, under certain laws, included under a broad definition of collection agencies. Businesses that engage in debt collection or provide debt repayment services across Canada should monitor and review their practices to ensure that they are compliant with not only these new amendments in Manitoba but also with Canada’s patchwork of debt collection legislation.