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The Ultimate Guide to Debt Collection Laws in Ontario

By Arthur Dubois | Published on 02 Sep 2023

a person holding a large ball of debt with a chain around his neck

    When you owe money, you feel the strain. Yet if your creditors turn to a debt collection agency, the pressure goes up significantly. Going through this process can bewilder you, unless you understand the legal projections put in place for you and creditors.

    This guide offers a detailed look at the regulations surrounding debt collection in Ontario. Overall, it provides you with the information you need to better manage challenging situations.

    Understanding Debt Collection in Ontario

    Before delving into the specifics of debt collection law in Ontario, it helps to grasp the basics of how debt collection works. This process allows creditors or debt collection agencies to recover unpaid debts from individuals or businesses.

    Debt collectors often operate on behalf of creditors, using various methods to recoup money owed. They may employ strategies such as phone calls, letters or emails to contact debtors and negotiate repayment plans. These collectors aim to reach a mutually beneficial agreement between debtors and creditors.

    However, debt collectors must adhere to specific rules and regulations in Ontario. These laws protect consumers from unfair and deceptive practices by outlining ethical and lawful debt collection procedures.

    The Basics of Debt Collection

    Debt collection begins when an individual or business becomes delinquent on repaying their financial obligations. The creditor – a credit card company, bank or other organization – sets out to collect the outstanding debt. This process typically begins by contacting the debtor to request payment.

    When a debtor fails to respond or make satisfactory payment arrangements, the creditor may escalate the collection efforts. This can involve hiring a debt collection agency to handle the recovery process while expertly navigating through legal complexities.

    Debt collection agencies employ various strategies to recover outstanding debts. They may conduct investigations to locate debtors who have changed their contact information or moved to a different address. By using skip tracing techniques, they can often find individuals who have intentionally evaded their debt obligations.

    Naturally, debtors need to understand their rights during the debt-collection process. They have the right to dispute inaccurate information and get treated with respect and fairness. Debtors should also know about time limits during which a creditor can legally pursue a debt.

    Key Terms to Know in Debt Collection

    Before we dive into the legal aspects of debt collection in Ontario, familiarize yourself with some key terms:

    1. Debtor: The individual or business who owes the debt.
    2. Creditor: The entity who is owed the debt and is seeking its repayment.
    3. Collection Agency: A business hired by creditors to collect unpaid debts on their behalf. These agencies are licensed and regulated by the Ontario government.
    4. Credit Report: A record of an individual’s borrowing and repayment activities used by creditors to assess creditworthiness. Credit bureaus maintain these reports with valuable information to creditors and debt collectors.

    Understanding these terms provides you with a solid foundation as we explore the legal framework of debt collection in Ontario. 

    When it comes to debt collection in Ontario, two key pieces of legislation lay out the legal framework for the process. Together, the Collection and Debt Settlement Services Act and the Consumer Protection Act, ensure fair and ethical practices.

    The Collection and Debt Settlement Services Act

    The Collection and Debt Settlement Services Act governs debt collection in Ontario. This act outlines the rights and responsibilities of both debtors and debt collectors. It sets standards for impartial and moral debt collection practices, so consumers get treated with dignity and respect throughout the process.

    Under its rules, licensed debt collectors follow specific rules and regulations. Furthermore, the Act establishes a complaint process for debtors who believe their rights have been violated. 

    The Consumer Protection Act

    Further, Consumer Protection Act plays a role in debt collection. It protects consumers from unfair practices, including deceptive collection tactics and harassment. Under this act, debt collectors must share accurate information and cannot engage in misleading conduct.

    Similarly, it establishes rules regarding the disclosure of certain information to debtors. For example, debt collectors must provide debtors with a detailed written notice. Moreover, the CPA prohibits debt collectors from making false statements about the consequences of not paying a debt.

    By having these two acts in place, Ontario aims to protect debtors from unfair and abusive debt-collection practices. When debtors familiarize themselves with their rights, they ensure they get treated fairly throughout the process.

    Rights and Responsibilities of the Debtor

    Understanding your rights and responsibilities helps debtors deal with debt collectors. By knowing what you can and cannot do, you can rebuild your credit faster.

    To stop calls from debt collectors, you must pay off the debt or try to negotiate a payment plan. In this second option, you only pay off a portion of what you owe in agreement with your creditors. Once you settle a debt, the debt collector or creditor will report your account as “partially paid” or “account paid in full for less than the full balance.” This step also prevents any negative reporting of your account to the credit reporting bureaus so your credit score will begin to improve.

    Even after entering a debt-settlement agreement, you can withdraw within 10 days after receiving the written copy of the agreement without giving any explanation. However, this doesn’t absolve you of the money you owe. And your creditor can now sue you to get repaid, potentially pushing you closer to bankruptcy.

    Also, the collection agency must give you a copy of the agreement within a year. If they don’t, you can cancel the agreement without any legal consequences. Further, you can demand a refund of what you have paid so far and the return of any repossessed items.

    Impact of Debt Collection on Your Credit Score

    No matter how much you pay back, this black mark will stay on your credit report for seven years. During this time, it will limit your ability to apply for new credit and likely result in higher interest rates. As time goes on, it will affect your credit score less but it will still sting.

    Ideally, clearing the entire debt will improve your credit score and prevent any potential legal troubles. However, a settlement can protect you from a potential lawsuit if you cannot afford to pay off the debt. If you need help keeping pace with your debt, you can always contact Credit Counselling Canada.

    Rights and Responsibilities of the Debt Collector

    While debt collectors have the responsibility to pursue outstanding debts, they also have legal obligations and limitations to proper practices.

    What Debt Collectors Can and Cannot Do

    Debt collectors in Ontario must adhere to strict guidelines governing their conduct. Understanding what they can and cannot do helps you maintain control over your financial situation.

    Debt collectors can:

    • Contact you to request payment for outstanding debts.
    • Communicate with you via phone, email or regular mail.
    • Notify you of any legal action being taken against you.

    Debt collectors cannot:

    • Engage in harassing or abusive behaviour.
    • Threaten or intimidate you.
    • Pretend to be a government representative or law enforcement officer.

    Dealing with Harassment from Debt Collectors

    If you believe a debt collector has crossed the line and harasses you, you can take several steps to protect yourself:

    1. Keep a record of all communications, including dates, times and the nature of the conversations.
    2. Request that the debt collector communicate with you in writing only.
    3. File a complaint if the harassment continues.

    Any investigation into harassment will assess any letters, forms, form letters, notices, pamphlets, brochures, advertisements, contracts, agreements or other documents. No materials used by the collection agency should be harsh, false, misleading or deceptive, according to the Consumer Protection Act.

    By taking these steps and understanding your rights, you can combat harassment from debt collectors effectively. That way, you can focus on steps to repay your debts and end this process.

    Debt collectors in Ontario can use legal methods to collect outstanding debts. These methods include:

    • Communicating to request payment.
    • Providing accurate information about the debt owed.
    • Notifying the debtor of any legal action being taken.

    When a debt collector contacts you, asking them to validate the debt in writing. Request that they confirm the creditor’s name and the amount owed. Finally, check the calendar since they can only seek payment within two years from when you default on a payment.

    Debt collectors must also detail the effect a debt-settlement agreement will have on a person’s credit rating. They must also keep information about your debts strictly confidential, except to the creditors, provincial officials and credit bureaus. 

    If a debtor believes that a debt collector has violated the Collection and Debt Settlement Services Act, they have two courses of action. They can file an administrative complaint or take legal action against the debt collector. 

    If you believe that a debt collector has violated the rules and regulations, you can file an administrative complaint by:

    1. Gathering all relevant documentation, including records of communication.
    2. Contacting the Consumer Protection Branch of the Ministry of Government and Consumer Services for guidance.
    3. Filing a formal complaint, providing all necessary information and supporting documentation.

    Ultimately, the Consumer Minister can hit a collection agency with a $10,000 fine if they have contravened the law. 

    If you win a Superior Court of Justice case, the debt collection agency must give back any illegal payments and could face punitive damages. For instance, if a collection agency accepts an illegal payment, the debtor can demand a refund within one year of handing over that money. If a collection agency violates the Act or falsifies information, the person responsible could face a fine up to $50,000 or a jail term up to two years or both. If a corporation gets convicted, it could lead to a fine of up to $250,000. 

    In both cases, the process must begin within two years of the initial violation. By taking these proactive steps, you can address disputes and ensure compliance with debt collection laws in Ontario.

    Debt Collection Laws in Ontario: The Bottom Line

    By understanding debt collection laws in Ontario, debtors can settle their accounts with creditors without any drama. By familiarizing yourself with the legal framework, your rights and methods for addressing disputes, you can navigate the process confidently.

    Remember, if you encounter difficulties or believe that a collector violates your rights, seek legal guidance and consult with the proper authorities. Armed with knowledge, you can protect yourself and ensure fair treatment throughout the debt collection process in Ontario.

    FAQs About Debt Collection Laws in Ontario

    How long can a debt be collected in Ontario?

    In Ontario, the limitation period for collecting a debt is generally two years from the date of default. However, this doesn’t mean the debt disappears; it just means that the creditor can’t take legal action to collect it after this period.

    How do you dispute a debt amount with a collection agency in Ontario?

    If you believe that the amount claimed by a collection agency in Ontario is incorrect, you should communicate your dispute in writing as soon as possible. Send them a letter that outlines the reasons for your dispute and any evidence you have to support your claim. This could include bank statements or other records. Once you’ve sent the letter, the agency is required to stop collection efforts until they have adequately addressed your dispute.

    Does debt in collections affect my credit score in Ontario?

    Yes, having a debt in collections can negatively impact your credit score in Ontario. The collection account will remain on your credit report for seven years. Overall, it affects your ability to secure loans or get favourable interest rates.

    Can a collection agency remove debt from a credit report in Ontario?

    In Ontario, a collection agency cannot remove a debt from your credit report. After all, credit bureaus update and maintain your credit report. A collection account will usually remain on your report for seven years, regardless of whether you’ve paid or not. However, you can ask the agency to mark the debt as “settled” or “paid,” which could make it somewhat less damaging to your credit score.

    Can a collection agency add interest to a debt in Ontario?

    In Ontario, a collection agency can add interest to the principal amount of the debt but the rate of interest must be explicitly stated in the original credit agreement. If it’s not, the agency cannot charge interest over and above the principal amount owed.

    Can a debt be sold to multiple collection agencies in Ontario?

    Yes, in Ontario, a debt can be sold by one collection agency to another. However, this does not change the terms of the original debt or your legal obligations. Each time a debt is sold, the new agency must provide you with notice and relevant information about the debt and your rights.

    Can a debt collection agency garnish your wages in Ontario?

    Yes, a debt collection agency can garnish your wages in Ontario, but they must first obtain a court judgment against you. With that in place, the agency can seek a garnishment order that directs your employer to withhold a portion of your income to repay the debt.

    Can a debt collection agency sue you in Ontario?

    Yes, a debt collection agency can sue you in Ontario to recover the debt. However, they must start the process to take you to court within two years, starting from the date of default. Winning the lawsuit would allow the agency to take various measures, such as garnishing your wages or seizing assets.

    Can I buy a house with debt in collections in Ontario?

    Yes, you can technically buy a house in Ontario even if you have debt in collections. However, having a debt in collections will likely lower your credit score, which can make it more difficult to secure a mortgage. Mortgage lenders will consider you a higher risk, and you might not be able to get a mortgage at a traditional bank

    Can I sue for false debt collection in Ontario?

    Yes, if a collection agency tries to collect a debt that you do not owe, you can sue them. Ontario law protects consumers from false or misleading representations from collection agencies. Consult with a legal advisor to explore your options. However, first try filing a complaint with Ontario’s consumer watchdog.

    Do collection agencies have to provide proof of debt in Ontario?

    Yes, under Ontario law, a collection agency must provide written proof of the debt if you request it. They are obligated to stop collection activities until they have supplied the documentation validating the debt. This allows you to verify the accuracy of the amount being claimed and the legitimacy of the debt itself.

    How long can credit card debt be collected in Ontario?

    In Ontario, debt collection laws limit the collection of credit card debt to two years from default. This means that a creditor or collection agency has two years to take legal action to collect the debt. However, this doesn’t mean the debt disappears; it remains on your credit report and can continue to affect your credit score.

    Does collection debt ever go away in Ontario?

    In Ontario, a debt does not automatically “go away” or get written off. While creditors have two years to collect a debt, the black mark from a collection can remain on your credit report for seven years. Even afterward, the debt still exists, but may become more difficult for creditors or collection agencies to enforce collection. Always consult with a legal advisor for advice tailored to your specific circumstances.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications