New debt settlement laws will protect consumers

VICTORIA – Enhanced protections for B.C. families, particularly those in financial distress, are at the heart of legislative changes introduced today by the B.C. government.

The Province is taking action to regulate the debt settlement industry with amendments to the Business Practices and Consumer Protection Act (BPCPA). If passed, these amendments will prohibit debt settlement companies from charging fees until both the debtor and creditor have approved a debt repayment agreement. These amendments will also lay the foundation for additional new rules to safeguard consumers which government aims to bring into effect in fall 2015.

In Canada, you are innocent until you’re proven guilty.  It would appear that our banking system has forgotten this simple fact.

Lyndsay Passmore (see story in The Province)  had 4 credit cards stolen.  When she noticed them missing, she contacted the appropriate banks.  In the interim between the cards being taken and her reporting them stolen, the thieves had taken approximately $15,000 in cash advances and charges.  Her bank, while absorbing some of the charges, tried to put Ms. Passmore on the hook for $4000, citing the fact that her Personal Identification Number (PIN) was inputted correctly the first time (which it seems meant to the bank that the person(s) who took her cards knew her PIN).  Ms. Passmore’s example raises so many interesting points, but also so many questions:

Attention to the student debt crisis in Canada received a headline today in the Vancouver Sun under the title of Growing Number of Students rely on Food Banks.

This is a special category of debt that highlights the financial struggle of those without wealthy parents or shall we say the overwhelming majority of students. It reminds me of the origins of student loan funding in the 1960s.

The student loan program originated in Canada partly because of the wave of social justice that swept through governments and society seeking out fairness and equality for all in the 1960s. It was noticed that only the wealthy were attending the publicly funded universities. The poor and  middle income families could not afford to attend.   

The early pioneers for a more just society, in many respects, embarrassed governments into realizing that publicly funded educational institutions should be affordable and available to basically everyone in society, not just the aristocracy. 

The birth of student loan program became a bit of a compromise between free post-secondary education for all and partially subsidized financial assistance by way of a student loan for the non-wealthy.

The compromise was this: the student loan was affordable, tuition was low and the cost of living was reasonable.

Bursaries and scholarships also played a significant role in the funding paradigm that helped so many attain a post-secondary education.

It wasn’t until the 1970s that the debtor-creditor relationship first began to sour. A few student loan debtors didn’t repay the student loans. This irked an emerging debt collection mentality that held the belief that if you didn’t pay your debts then maximum punishment should be inflicted upon the debtor. No mercy should be granted to the debtor. No review of the extenuating circumstances was necessary. Just punishment. Harsh, severe and unforgiving punishment.

This was a time, the 1970s, when the total consumer debt in Canada excluding mortgages totalled $20 billion. Today it’s over $530 billion.

The debt collection mentality never seemed to mellow with student loan debt while in the wider society, commercial creditors balanced their very miniscule losses to their enormous profits. In fact, the banks and governments in the 1990s preferred to outsource the nastier collection problems to collection agencies.

The Bankruptcy and Insolvency Act was reformed in 1992 to, in part, to remove the punitive element to debt problems and insolvency, streamline the discharge process for both debtors and creditors, and encourage settlements and proposals. By this time, the old school notion that debt and debtors were bad and needed to be punished if they defaulted on their debts had undergone a societal overhaul. We had become a credit society where debt was a normal and a socially accepted part of our lives.

To make a long story short, in 1997-1998 the student loan debtor was isolated from all other debtors in bankruptcy and received punishment more severe than any other debtor in bankruptcy except for those who committed serious offences. Student loan debtors were denied a discharge from a bankruptcy for 10 years.

The early efforts of governments to provide affordable funding for the poor and non-wealthy families for post-secondary education had long since left the building. The student loan debt along with consumer debt had grown to almost $200 billion in the 1990s. The attitudes towards debt and  debtors had indeed changed in bankruptcy, in borrowing and in lending. The amounts lent to students had long abandoned the principle of affordability.

In the Vancouver Sun article, a picture is painted about hundreds of UBC students attending food banks who cannot afford to buy food. A similar phenomena unfolds at Simon Fraser University.

The cost of living, especially high rents and high tuition fees are cited as the primary causes for the financial struggles for non-wealthy students.

This precedes the mountain of debt that awaits many after graduation.

Despite the many differing opinions on student loan debtors, for sure, the pioneers of social justice in the 1960s did not foresee this outcome.

Starving students are a few good reasons to go back to our roots and rethink the costs of post-secondary education.  The mountain of debt that follows is another.

Nothing like waking up on a Friday morning to find out that the Bank of Canada governor says house prices are overvalued by 30 %.  As reported in the Vancouver Sun, Stephen Poloz, the Bank of Canada Governor said, “The vulnerability associated with household indebtedness is edging higher and the overall risk to financial stability in Canada is slightly higher…..house prices overvalued 30%”

Yikes.

Hidden behind the carefully worded text is another warning. As reported, “The bank continues to expect a constructive evolution of imbalances in the household and housing sectors as the economy improves and interest rates begin to normalize.”

I am quite bewildered at why there has been no comments from the media or anywhere else at the impossible task for a debtor (Greece) to successfully negotiate a fair settlement with their creditors (European Union). I mean, the last time the debtor (Greece) had difficulty paying its creditors (the EU), the entire country (Greece) was in turmoil as a direct result of the harsh repayment terms from the previous loan.

This time, the President of Greece was brought before what looked like a gladiator arena lined with angry creditors yelling, belittling, humiliating and demanding what probably will turn out to be a pound of flesh.

This behaviour reminded me of the creditor meetings in a bankruptcy in the past where the debtor and their assets would be carved up into little pieces and punished to the full extent of the bankruptcy law. Sometimes it would be a single mother on social assistance or a student loan debtor being subjected to angry creditors who wanted to inflict pain and suffering onto the debtor. That ultimately, was more important to some creditors, more satisfying, than a realistic repayment plan that would help both the insolvent debtor and the creditors avoid a bankruptcy.

The difference in the comparison between individuals and an insolvent country above is that the insolvent person was shielded by a mediator like a bankruptcy trustee who had the authority to broker a fair and realistic deal to keep both the debtor and creditor out of bankruptcy, or pull the plug and end the negotiations for everyone if no agreement could be reached.

I don’t know why the European Union countries do not understood the rules of bankruptcy and the prudence of having a neutral third party – some agent from a country like the US or Canada skilled in corporate insolvencies – to review the circumstances and make recommendations that would benefit both the debtor and the creditors.

After subjecting Greece to angry and at times insulting reprimand by some creditors, an announcement was made today that harsh new conditions would be imposed on Athens in return for it to be allowed to keep the euro as its currency and avoid total economic collapse.

It looks like the irresponsible debtor has been blamed for all of the economic ills and the creditor has done nothing wrong. It even appears that the creditors are doing a big favour for the debtor by lending a further 86 billion euros in fresh loans on top of the 323 billion euros it has received from two previous bailouts.

What hasn’t been mentioned is how realistic the new reforms for debt repayment are and how a nation of individuals and families are being punished for everything that has gone wrong in the past. What hasn’t been mentioned is that both the debtor and creditor benefit from a solution outside of a bankruptcy, not just the debtor.

Essentially, it looks like Greece will be treated like a company in receivership. Assets will be sold for the benefit of creditors to pay down debt - Greece will be required to sell off public companies and property worth 50 billion euros. What could be labeled the creditor appointed receiver, Eurocrats and IMF officials, will be put into a position to ensure compliance with the creditor’s demands.

What troubles me is how creditors’ rights from foreign countries can transcend democratically elected parliaments and how the creditor can seize public property for the repayment of creditors.

As mentioned above, the debtor was all alone in a colosseum full of angry creditors, some wanting to punish the debtor, some wanting an economic death penalty-all creditors acting in the best interest of themselves without any consideration for the debtor, the individuals and families, the historical circumstances that caused the economic crisis or the viability of the demands being made for repayment.

The debtor had no chance. The debtor was outnumbered. As reported in the Vancouver Sun, one Greek businessman lamented, “Basically, we’re being told to sign everything. Whether we agree or not, I only know that I will be paying for this today, tomorrow and for many years. I don’t know whether to laugh or cry.”

It seems to me that the cure may kill the patient. Perhaps more troubling. Nobody sees anything wrong with a creditor doing whatever it has to do to collect its debts. That is a big step back in history. Debtor’s prisons are not far behind.

This certainly qualifies as a Greek tragedy.

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