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How do I get out of an agreement I signed with a debt settlement company or a credit counsellor?
Clear language definitions to common legal terms.
Debt settlement companies and credit counsellors have to follow the same rules. These companies may help you plan how to manage your debt, and may be able to give financial counselling. There are also two types of credit counsellors: for profit, and non-profit.
The main difference is that non-profit credit counsellors aren’t making a profit from helping you, and they have to follow a code of ethics. For-profit credit counsellors are like debt settlement businesses, which means they are trying to make money from you.
There are also more risks when you use a debt settlement company. They may:
- advertise that they can ‘get rid of’ your debts, but it’s not a guarantee
- not tell all your creditors about the payment plan, so your creditors might keep calling you
- only pay one bill at a time, which means creditors may try to sue you
- be working for your creditor, which means they may not be thinking about what is best for you.
You can find out more about how debt settlement companies work in Step 2.
Debt settlement services are sometimes advertised as "debt settlement", "debt management", "debt arrangement", "debt reduction", or "debt consolidation".
The rules for cancelling contracts with these companies are the same:
- You can cancel the contract at any time within 10 days after you receive a copy of it. You do not have to give a reason for cancelling.This is called the “cooling off” period.
- You can cancel the contract within one year of signing it if:
- they didn’t give you a copy, or
- the contract does not include the information required by law.
You must cancel the agreement in writing. If you cancel, they must give you back any money you paid them.
If you have a complaint about a non-profit credit counsellor or debt settlement company, or about an agreement you signed with one, you can complain to the Ministry of Government and Consumer Services. The Ministry has a complaint form that you can fill out and email.
Understand the rules that debt settlement companies and credit counsellors must follow
Debt settlement companies and credit counsellors must follow certain rules. These rules are found in Ontario’s Collection and Debt Settlement Services Act. The Act helps protect consumers from bad business practices.
These rules say that credit counselling services and debt settlement companies:
- can’t charge up-front fees for repayment plans, except for a $50 set-up charge
- can charge you a maximum of 15% of any payments you make to your debt settlement plan (for example, if you make payments of $100 each, they can’t charge more than $15 for each payment)
- can’t begin collecting fees until they have an agreement with your creditors, and have made payments to them
- must give you 10 days to cancel the contract for any reason, including if you change your mind. This is called a cooling-off period.
It is important to understand your contract and to talk to your creditors. Although the rules give you some protection, some companies might still try to take advantage of you.
Other rules non-profit credit counsellors must follow
Non-profit credit counsellors are always listed as a member of Credit Counselling Canada or the Ontario Association of Credit Counselling Services. If they are not listed on one of these sites, they are most likely not a non-profit credit counsellor.
Non-profit credit counsellors have to follow a code of ethics. This means that there are rules they have to follow in order to keep your best interests in mind. For example, non-profit credit counsellors can’t have a conflict of interest when helping you.
A conflict of interest is when a person or company gets a benefit from helping both sides. For example, if a debt settlement company is acting for you and your creditor, both you and the creditor may be paying them a fee to settle the same debt.
Non-profit credit counsellors also can’t make a profit from helping you. They can charge a fee for their services in order to cover their costs. Most non-profit credit counsellors get donations from community organizations and credit card companies to help fund them.
Learn how debt settlement companies work
Debt settlement companies can give you the same services as a non-profit credit counsellor. But they are for-profit businesses. This means they make a profit from helping you. There are other differences that are important.
When you use debt settlement companies, there are some extra risks. For example, they may:
- not tell all your creditors about your repayment, so your creditors may keep calling you
- pay one bill at a time, so creditors may sue you to try to collect their money
- represent both you and your creditor, which is a conflict of interest
Debt repayment plans
Both non-profit counsellors and debt settlement companies can set up a debt repayment plan for you, and negotiate with your creditors. They may be able to get your creditors to agree to:
- accept less money as full payment for their bills
- lower the interest rate you’re paying
- give you more time to repay your debt
A debt repayment account is set up that you pay into each month.
A non-profit counsellor will usually pay off a portion of each debt each month until the agreed amount is paid off. It is better to have a plan that takes account of all your bills.
Often debt settlement companies will pay one bill at a time, without contacting all of your creditors. This means that you will still have creditors calling you about your debt.
Make sure you understand how your repayment plan works before signing any agreement. For example, you should know whether your bills are being paid off one-by-one, or whether part of each bill is being paid each month.
You should also talk to your creditors to make sure they know you are entering a debt repayment plan. But, you should be careful. Many companies will tell you not to contact your creditors.
You also need to know whether all your creditors will accept the repayment plan. If your creditors don’t like your debt repayment plan or if the debt settlement business doesn’t contact them, they may sue you for the money.
Many debt settlement companies advertise that they can “get rid of” your debts. However, this is not a guarantee.
Conflict of interest
Sometimes debt settlement companies also act for creditors. This means that there may be a conflict of interest because they get money from you and the people you owe money to by collecting for the same bill. They may not be thinking about what is best for you.
Debt settlement companies often focus on arranging a debt settlement plan because this is how they make money. They may not offer financial advice that will help you keep out of debt in the future.
Understand the contract
Debt settlement companies and credit counsellors must give you a written contract that includes:
- the company’s name and address
- the agreement’s date
- a complete list of the services they will provide
- an outline of when you will make payments, or a one-time payment
- the dates they will contact your creditors to talk about the plan
- whether or not the collection agency will be paid by your creditor for settling your debt
- the date they will complete their services, which can’t be more than 18 months
- how much they will charge you, which can’t be more than 10% of the total debt you are settling
It is important to understand your contract. Although the rules give you some protection, some agencies might still try to take advantage of you. Ask questions if there is something you don’t understand.
Tell them you want to cancel your agreement
If you received a copy of your agreement within the last 10 days, you have the right to cancel it. You do not have to give a reason. This is called a 10-day cooling off period. If you cancel the contract, they must give you back any money you gave them.
You can still cancel it within one year of signing it if:
- the debt settlement company or credit counsellor didn’t give you a copy of the agreement, or
- the agreement does not include the information required by law.
You must send a letter to the debt settlement company or credit counsellor if you want to cancel the agreement within one year. In your letter, include:
- your name and address
- the date
- the name of the company
- their address
- the date of your contract
- other important details
- the fact that you want to cancel, and what else you want to them to do
Clearly tell the company how you want to resolve the problem. For example, ask for your money back. Be sure to include:
- your contact information
- the date by which you want to hear from them (3 weeks is reasonable)
- copies (keep the originals) of receipts, invoices, contracts, or other important documents
Make sure you sign and date your letter. Keep a copy of it, and write down the date you sent it, and whether you mailed, emailed, or faxed it.
If you do not write a letter, it can be difficult to prove that you cancelled the contract. Make sure you have a copy of the letter, in case the company says you did not cancel the contract.
Make a complaint
You can also make a complaint if the company used unfair business practices. These include:
- pressuring you to use their services
- threatening you if you do not use their services
- giving you false or incomplete information about their services
The Ministry has a complaint form that you can fill out and email. You can also print and mail or fax it to the Ministry at this address:
Ministry of Government and Consumer Services
Consumer Protection Branch
1201 Wilson Ave Building A
North York ON
The Ministry can order the credit reporting company to cancel your contract or give your money back. The Ministry can also fine the company or stop it from doing business. If needed, the Ministry may suggest that you go to Small Claims Court to sue the company.