CLA urges bankruptcy superintendent to standardize disclosures in advertising
The Canadian Lenders Association has called for the correction and clarification of false or misleading advertising that they say may encourage consumers to file for bankruptcy as the first resort.
Certain insolvency trustees have made public statements that the CLA said encourage “consumers to consider bankruptcy as a first course of action – rather than as a necessary last course of action after fully exhausting all other available avenues.” These advertisements may lead consumers to avoid paying their creditors at first instance, said the CLA.
The CLA, citing a survey which found that more than 70 per cent of non-prime Canadians lacked knowledge regarding bankruptcy and consumer proposals, said that a careful explanation of benefits and risks is needed to address this gap in knowledge.
The CLA thus called upon the Superintendent of Bankruptcy to deal with the allegedly erroneous or misleading advertisements, to urge consumers to communicate with their creditors prior to visiting insolvency trustees and to standardize the advertising disclosures of insolvency trustees related to the direct and indirect costs of bankruptcy, which may include a credit drop score, lack of access to credit for up to six years, seized assets and trustee fees.
The CLA believes that “an insolvency trustee is required, by law, to first explain all debt relief options available to consumers and to uphold the Code of Ethics as mandated by the Office of the Superintendent of Bankruptcy Canada.”
The CLA then said that, aside from disclosing the known implications of bankruptcy in advertisements, insolvency trustees should also qualify that consumer proposals are often rejected by creditors and that consumers have the right to negotiate a repayment plan directly with their creditors, without the intervention of insolvency trustees.
Responding to the CLA’s press release, Bromwich+Smith, a provider of licensed insolvency trustee services and debt relief services, emphasized that consumers seeking debt assistance have the right to communicate with licensed insolvency trustees regarding the available options so that they can make an informed decision.
Shawn Stack, vice-president at Bromwich+Smith said that the CLA was brave to speak up about this issue and to push for educating Canadians about their right to restructure under insolvency legislation. “However, we strongly disagree that a person should be refused information on their legal rights to pay back debts,” said Stack.
