Winnipeg Free Press, Sunday December 26, 2010. Reproduced with permission.
By: Joel Schlesinger
Better to call creditors than other way around.
Ouch! That pain in the midsection could be the result of a well-fed tummy seeking to expand its borders in an increasingly restrictive pair of slacks. Or, it could be your wallet, battered and bruised from more than a month of intense use.
Either way, a change in diet could be required. But for those with financial indigestion, it could be that the gorging has gone too far. Recent Statistics Canada figures show Canadians are among the world’s freest of spenders. While our neighbours to the south have been forced to belt-tighten in recent years, we have continued to burn through cash. Third-quarter data for 2010 show for every dollar a Canadian household earns, it owes $1.48 — a record high and also higher than in the United States.
Many Canadians can manage this, but what about those who can’t? Instead of the ring of the cash register, the only ring they hear is the phone. The creditors are calling and they want their money back.
But it’s not just overspending that gets people into this situation, says John Silver, executive director of Community Financial Counselling Services (CFCS), a United Way-funded charity that helps Manitobans manage their debts.
It’s people who have lost their jobs, had their work hours cut back or have fallen ill.
“A lot of people live from paycheque to paycheque and if you become disabled, the major breadwinner in the family falls ill and becomes disabled either permanently or even temporarily, even if you have insurance, your income goes down by at least a third,” says Silver.
And making up for a third less cash flow can be a tall order for families with only a couple of hundred additional dollars to spare every month.
If the finances should reach a breaking point, Silver says the best course of action is to be up front with creditors about the problem.
“If you can demonstrate to creditors that you’ve been hospitalized and not earning any money, some of them will have an understanding if you contact them directly.”
In other cases, in which the problem arose from overspending alone, they may be less sympathetic, but Silver says it’s still worth a try to get them to reduce the interest rate or payment.
“It’s best to start in writing and then to follow up with a telephone call,” he says. Often finding the right person to contact can be difficult. Silver says it’s like a maze, and if people find it too baffling, they can always contact agencies like CFCS for help.
“It’s better if the individuals can do it, but we will help provide you with the form letter and indicate the best way to contact the creditor.”
Usually, the best-case scenario is the creditor may forgo payments for a month or two and reduce the overall interest rate. While they may not even do that, it’s still worth trying rather than doing nothing and proceeding to the next plane of financial hell: calls from creditors.
Fortunately (or unfortunately for creditors), Manitoba has some of the strictest regulations for collection agencies in the country.
These include restricting phone calls to between 7 a.m. and 9 p.m. (Yes, some used to call in the middle of the night.) But they can call you at work.
“A common misconception is that they cannot call your employer,” says Jan Forster, director of the Manitoba government’s Consumer Protection Office.
But creditors cannot call your friends, neighbours and family to determine your whereabouts or find out any other personal information.
“They can send you letters and threaten to take you to court,” Silver says.
“They can report you to credit bureaus, and if it’s a secured debt, by whatever — a house or car — they can seize the property, and they can garnishee your wages, but they have to go to court to do that.”
Creditors have to take the proper legal avenues to seize your assets and encourage you to pay up. The bottom line is they can’t harass you.
And if you feel you’re being exposed to undue pressure, Forster says to contact the Consumer Protection Office, and they will investigate.
“Really collection agencies are bound by fairly strict parameters by what they can and can’t do,” she says. “It’s always good to call us if you want to double-check what you’re experiencing is legal and OK.”
Yet unless consumers are being harassed by creditors or were misled when entering into the agreement in the first place, they have little legal recourse, says Allan Fineblit, CEO of the Law Society of Manitoba, a self-regulating body for the province’s lawyers.
Fineblit says a lawyer’s services are limited when helping people deal with debt issues.
“Lawyers will explain some of the options available to people, the most extreme being bankruptcy, but there are less drastic options,” he says. “Sometimes, for example, lawyers will negotiate with creditors or put together a proposal for creditors.”
But most people are often better off seeking help from agencies like CFCS that provide services free of charge.
In rare cases, Fineblit says, individuals may have a legal leg to stand on if they believe the debt was incurred for goods or services that were unsatisfactory.
“Or they were promised something that they didn’t receive, or there were some kind of issues with the payment arrangements that weren’t properly explained to the person.”
Still, seeking legal help is a last resort after all other avenues have failed.
But those who do feel they need a lawyer can contact the Lawyer Referral Service, which will provide about a half-hour of free legal advice and refer those who need one on to a suitable lawyer.
Yet, for most individuals who find themselves in debt trouble solely because of their own actions, and a little or a lot of bad luck, they have few options other than to repay the debts in full or at least partially.
And the sooner they address the issue the better off they’ll be.
“It’s better not to try to avoid the problem, but many people do,” Silver says. That only makes the problem worse. The more creditors are ignored the harder they try, he says.
“And then your debt gets sold — and they get sold a lot — and the further down the line, the more pressure that gets applied.”
How do Canadians match up debt-wise?
A recent study by Certified General Accountants Association of Canada found Canadians carried the most credit card — or consumer debt — of any of the OECD (Organization for Economic Co-operation and Development) members. On average, Canadians’ consumer debt is about 10 per cent of the value of their total financial assets. In the United States, the number is closer to seven per cent.
Numbers to call
Community Financial Counselling Services This non-profit agency provides free financial advice for individuals with financial difficulties. 989-1900.
Consumer Protection Office of Manitoba The government watchdog that regulates collection agencies in Manitoba. 945-3800.
Lawyer Referral Service Funded by the Law Society of Manitoba and the Manitoba Law Foundation, the service provides general, free legal information over the phone and can refer callers to appropriate legal resources. 943-2305.
Recently had your finances laid low by illness or disability?
There will soon be some great resources available, thanks to a grant awarded to the Community Financial Counselling Agency. Social and Enterprise Development Innovations awarded the TD Financial Literacy Grant to CFCS, who has partnered with the Manitoba League of People with Disabilities to develop financial literacy resources and information for people with disabilities over a period of two years.
“There’s lots of financial literacy stuff out there, but not specifically that deals with people who are disabled,” says John Silver of CFCS about the reason for the project. And while many financial aid programs exist to help people with disabilities, they can be difficult to access.
Silver says this project will aim to bring all the information together in an understandable, accessible way.