At our DebtCare Canada offices last week, we had two different clients showing us loans they had taken where the companies giving them these loans should go to jail. When people are stuck in a situation when they have no choice to take on a loan with an extremely high rate of interest is simply preying on someone who is without options.

The laws in Canada states a lender cannot charge more than a 60% annual interest rate. This would simply be a case of loan sharking. One client was in a contract paying 58.9% annual interest, on top of administration fees and charges. He had paid close to $8,000 of interest on a $15,000 loan. Companies offering services like these should be shut down.

Another client had taken a second mortgage on her home for $50,000 and the interest payments alone giving no reduction to principle was over $9,000 per year. When a pensioner takes on a loan like this they never pay it off and are simply losing any equity they have built up in their home over their lifetime.

In both cases, I wished we had consulted with these clients prior to taking these loans. Better late than never I suppose.

Here are some warning signs of fraudulent loan companies looking to take advantage of people.

Bad Credit Loans – Tips on How to Spot Scams

One of the fastest growing scams in North America is the “bad credit loan” scam. In these scams a legitimate appearing financial company offers individuals with bad credit history a loan, often these loans are “guaranteed” regardless of the client’s credit history, even if they have a bad credit or no credit they will get the loan. All they will have to do is pay an upfront “security deposit” for the loan because of their bad credit history, the problem is that the loan will never arrive and the security deposit will be lost.

Consumers who have lost their jobs are left with bills to pay and have no access to credit, in desperation they turn to alternative ways for credit. Many feel relieved when they find “financial companies” who give them a loan with “bad credit history” or “regardless of past credit history” the excitement quickly turns into frustration when they come to realize that they have been a victim of fraud and will not only not get the loan they were promised, but have also lost their “fee” or “security deposit”.

Sometimes it can be hard to detect these companies, here are some tips to help you differentiate between legitimate financial companies and fraudsters.

Tips To Detect Loan Fraud

• The company asks for an upfront payment. This payment can be disguised as a premium, insurance, collateral payments or a security deposit. It is ILLEGAL to ask for upfront payment for a loan in US and Canada.
• Don’t give out your personal or financial information over the phone or the Internet unless you’re familiar with the company. This includes bank account information, SIN, date of birth, etc. This information could also be used for Identity Theft.
• Legitimate lenders never guarantee or say that you will receive a loan before you apply, or before they have checked out your credit status or contacted your references, especially if you have bad credit or no credit record.
• Do your Research! Type the name of the company into a search engine along with the word scam. The results may reveal a history you didn’t expect. Try to visit their office, if it is local.
• Verify the company – Get the company’s number in the phone book or from directory assistance, and call it to make sure you’re dealing with the company you think you are. Check with the Better Business Bureau to see the company’s record.

What If Fallen Victim to Bad Loan Scams?

• In Canada, call Project Phonebusters in Canada toll-free at 1-888-495-8501.
• In Canada you can also call the Competition Bureau at 1-800-348-5358.
• Contact local Policy as well as Federal Policy (RCMP and FBI)
• File a complaint at ICCC and FTC

On a daily basis the consultants at DebtCare Canada receive interest from clients who believe what they require is a debt consolidation plan. In most cases, after going through their budget we can demonstrate that their issue has not been remembering to pay six creditors at the end of every month, but more a case of not having enough money to pay all their creditors each month. Many debtors feel if they had only one payment to make this would solve their problem, but when you have a shortfall in your budget it doesn’t matter whether you pay one creditor or six. You cannot pay them all. This is when a consumer proposal, a program offered by the federal government provides a significant reduction of debt. Your debts can be reduced to as low as 70% of what you owe. This reduced debt is now interest free, and offered over a five year repayment plan.

Consumer Proposals

It’s the end of the month and the bills are due. You’ve got a good job. You can afford to pay, just not as much as everyone wants. What do you do? If you find yourself in this situation month after month then you might want to consider debt negotiation and settlement by making a consumer proposal to your creditors.

What is a Consumer Proposal?

Debt negotiation and settlement through a proposal to creditors is similar in concept to a Debt Management Plan: you can afford to repay a portion (or all) of your debts; you simply need more time to pay.

In general, a Consumer Proposal is an appropriate form of debt negotiation and settlement in situations when:

• a person’s debts exceed $5,000, to a maximum of $250,000;
• the debtor has the ability to repay a portion of their debt;
• and the debtor is looking for a bankruptcy alternative (rather than a personal bankruptcy) that can solve their problems.

What is Credit Counseling?

Credit counseling is a service which can help you place your financial affairs under control. It is also known as debt counseling and consumer credit counseling. In Canada, credit counseling services are provided by credit counselors – the accredited debt management consultants.

Credit counseling includes help with personal budgeting to help you understand and control your finances to avoid future problems. It also includes possible debt negotiation and settlement with your creditors, through a Debt Management Plan.

What are your rights and responsibilities when dealing with collection agencies?

You’re behind in your payments. Debt collectors are calling. What are your rights? How do you stop collection calls? What are your responsibilities? How should you be dealing with collection agencies?

First and foremost, DON’T GET EXCITED.

The people that you owe money to, your “creditors”, have a right to try and collect that money. If they don’t talk to you, how can they know your situation?

That being said, there are definite rules that collection agencies need to follow.

Collection agencies rules: how can you stop collection calls?

Get familiar with the collection agencies rules. Knowing what debt collectors can and can’t do and what you can and should do will help you deal with collection agencies. Below we provide a partial list of the rules for Ontario. The legislation is similar (not identical) in other provinces and territories.

Collection agencies may not harass you or your family. Calling you once or twice a day is acceptable. Calling you and your family ten times a day is harassment. If you believe a collection agency is harassing you, keep a record of the time, date and frequency of the calls. If you decide to make a formal complaint against the collection agency you will require this information.

Collection agencies may not call you on a statutory holiday, on a Sunday before 1 pm or after 5 pm, or on any day before 7 am or after 9 p.m.

Collection agencies may not contact you (by phone, voicemail, or e-mail) more than three times in any seven-day period on behalf of the same creditor.

Collection agencies may not contact your friends, relatives, neighbors or employer for any information other than your address or telephone number, with limited exceptions. These involve special cases, when, for example, someone has co-signed for a good or service you have purchased.

Ignoring collection agencies’ attempts to contact you will not help you solve your problems: it might stop the collection calls – true, but beware that if they cannot reach you, they may simply proceed with the legal action.

How should you deal with collection agents?

First, don’t ignore them. They won’t just go away. Talk to them, and explain your situation. If you are not working, or can’t pay them, tell them that. Don’t have a long discussion with them. They want to keep you on the phone and upset you so you will pay them money. Don’t play that game. Tell them your situation, and then hang up.

If you can’t pay them, it’s time to consider your options. Debt problems will not simply go away on their own. Bill collectors are calling because you owe money. If you eliminate the debt, you eliminate the phone calls.

Bankruptcy rate drops in January
4/28/2010
Reference : http://www.thestar.com/business/recession/article/794316–bankruptcy-rate-drops-in-january

Madhavi Acharya-Tom Yew Business Reporter

Bankruptcies fell in January from the month before, a surprising decline – and the biggest in two decades – that experts said is a positive sign for the economy.

There were 7,352 personal and business bankruptcy filings in January, down 9.4 per cent from 8,112 in December. That’s also a decline of 12.4 per cent from January, 2009.

As usual, the vast majority were consumer bankruptcies, according to the data released Monday by the Office of the Superintendent of Bankruptcy Canada.

“The number of insolvencies has shown a decreasing trend over the next last few months and I think it’s a positive thing,” said Andy Fisher, trustee with A. Farber & Partners. “But we’re coming back down from pretty high levels so it’s going to take awhile to come back down to pre-recession levels.”

Bankruptcies tend to decline in December as consumers try to forget their troubles over the holidays, Fisher said. “It’s the holiday season and people are trying to put off the decision and start fresh in the new year with these issues. Also, because of the holidays there’s probably fewer collection agencies calling. They don’t want to be calling someone on Christmas Eve.”

Insolvencies in January have topped December for the last 10 years, the superintendent noted in the report. “The decrease in insolvencies in January 2010 was the largest decrease recorded for January in 20 years.”

In Ontario, which has been particularly hard-hit by the recession, consumer bankruptcies fell 24.5 per cent in January to 2,443. That’s also down 17.2 per cent from 2,952 in January, 2009.

Across the country, proposals, where creditors agree to settle for a portion of the outstanding debt, rose slightly in January to 3,128, up 0.3 per cent from December. That’s up 31.3 per cent from the previous year.

The jump can be attributed to a change in legislation last September that made proposals a more attractive option for many consumers, as well as an improving economy, Fisher said. “You’re probably seeing more people in a better financial situation so a proposal becomes a more attractive option to them.”

The Bank of Canada has, so far, made good on a conditional pledge to keep interest at record low levels to help the recovery take root in the economy.

However, with the housing market, employment and economic growth coming in much stronger than expected in recent months, the central bank is likely to raise rates this summer in order to keep inflation within its target range.

Fisher expects insolvencies to keep declining even as higher interest rates take effect. “I don’t think we’ll get an increase in insolvencies, but I think the decreasing trend will be mitigated,” he said.

Across the country, business insolvencies for the 12-month period ending January 31, 2010, fell by 10.3 percent compared with the 12-month period ending January 31, 2009.

A drop in insolvencies in the agriculture, forestry, fishing and hunting; construction; transportation and warehousing; and information and cultural sectors contributed to the decrease.

Insolvency Statistics in Canada — January 2010

4/9/2010
Reference: http://www.ic.gc.ca/eic/site/bsf-osb.nsf/eng/br02391.html

The total number of insolvencies (bankruptcies and proposals) in Canada decreased by 6.7 percent in January 2010 from the previous month. Bankruptcies decreased by 9.4 percent whereas proposals increased by 0.3 percent. Over the last 10 years, the number of insolvencies in January has usually been higher than the number in December. The decrease in insolvencies in January 2010 was the largest decrease recorded for January in 20 years.

The total number of insolvencies in January 2010 was 2.7 percent lower than the total number of insolvencies in January 2009. Consumer insolvencies have decreased by 1.9 percent while business insolvencies have decreased by 18.5 percent.

For the 12-month period ending January 31, 2010, total insolvencies increased by 26.4 percent compared with the 12-month period ending January 31, 2009. This is entirely due to an increase in consumer insolvencies.

Business insolvencies for the 12-month period ending January 31, 2010, fell by 10.3 percent compared with the 12-month period ending January 31, 2009. A reduction in insolvencies in the agriculture, forestry, fishing and hunting; construction; transportation and warehousing; and information and cultural sectors contributed to this decrease.

In January 2010, five Companies’ Creditors Arrangement Act (CCAA) proceedings were filed. For additional details, refer to CCAA Records. Note: Insolvency Statistics in Canada — January 2010, which pertains to bankruptcies and proposals filed under the Bankruptcy and Insolvency Act, does not include CCAA filings.

Read the report Insolvency Statistics in Canada — January 2010

Four-in-ten Canadians retiring with debt, says RBC Poll
4/29/2010
Reference:http://www.google.com/hostednews/canadianpress/article/ALeqM5jF-Qv71o7xoPnzz5QAmaw4EQ8nng

TORONTO — A survey by the Royal Bank suggests four-in-10 Canadians over the age of 50, who have assets of at least $100,000, have retired with some form of debt

And, one-quarter entered retirement with a mortgage on their primary residence.

The survey also notes that 70 per cent of retirees feel it is still important to be able to save part of their income, yet more than one-quarter have acquired new credit products since they retired.

Inflation and taxes are a major concern of retirees, with more than one-third of those surveyed saying they are worried that inflation will negatively impact their retirement income.

The figure rises to 43 per cent among pre-retirees surveyed.

Six-in-ten retirees say they worry about taxes on their income, with two-thirds believe the percentage of their income required for taxes will rise in the next 10 years.

“It’s not uncommon to be concerned about maintaining a sustainable level of income in retirement, but costs you never counted on may also arise,” said Lee Anne Davies, the RBC head of retirement strategies.

Copyright © 2010 The Canadian Press. All rights reserved.

Canada’s brewing debt storm
4/16/2010

Reference: http://www.theglobeandmail.com/globe-investor/personal-finance/canadas-brewing-debt-storm/article1537623/

Paul Waldie and Steve Ladurantaye
From Saturday’s Globe and Mail Published on Friday, Apr. 16, 2010 10:00PM EDT

Canadian borrowers are fast approaching a day of reckoning.

Lured by cheap money to buy up, buy in, expand and make over, families have pushed credit levels to a record high.

Now, mortgage rates are beginning to creep up and the Bank of Canada is poised to retreat from the record-low interest rates it adopted to fight the recession and spur recovery.

The end of the free-money era has left consumers more vulnerable than ever, and those who threw caution to the wind could soon face costs they can’t handle.

Household debt has surged three time faster than income in recent years and now stands at a record high of more than $1-trillion. Put another way, Canadians owe about $1.47 for every dollar of disposable income. Even more remarkably, they took on more debt during the slump – a first for a recession – because borrowing was so cheap.

With debt levels this high, even a small hike in interest rates will be ugly for those whose incomes aren’t rising fast enough to meet their day-to-day expenses.

Their woes could have a snowball effect: As debt-strapped consumers pull back, their credit woes spill over into the broader economy and risk putting a damper on the recovery.

For some, the trouble has already begun. John Silver, who runs Community Financial Counselling Services in Winnipeg, has seen his caseload increase 20 per cent from last year. “We re seeing more people coming in with more stress with regard to their debt,” he said.

Much of the recent rise in debt in Canada has been due to low interest rates, generally easier credit terms and fierce competition among lenders. Even when the recession hit in late 2008, Canadians remained far more confident than Americans in part because of a better housing market and stronger financial institutions. Consumer confidence in Canada is only about 20 per cent below where it was in 2007 whereas it’s 60 per cent lower in the U.S.

The higher confidence level and stronger banks meant Canadians were far more eager to borrow during the recession than Americans, said Benjamin Tal, senior economist at CIBC World Markets.

“I can offer you a very low mortgage in the United States and you won’t take it,” he said. “In Canada you jump on it, because confidence is high.”

Now though, “what I’m seeing is a consumer that is more sensitive to higher interest rates,” he added.

Most of the increased debt, roughly 70 per cent, has been in mortgages, reflecting the still hot housing market in much of the country. That has left many households struggling to meet monthly payments on hefty mortgages and more susceptible to rising rates. Families in Vancouver, for example, spend about 68 per cent of their disposable income on the cost of maintaining their house, compared to less than 40 per cent 10 years ago.

“There’s been a real frenzy just to get in [to a house] at all cost, because if you don’t get in you may never get in,” said Scott Hanah chief executive of the Credit Counselling Society, a non-profit group based in Vancouver that helps people sort out their debts.

His organization is fielding about 4,000 calls a month and has seen a 10-per-cent increase this year in the number of people seeking help.

“Last year we saw an increase in activity of over 50 per cent. So to have a further 10 per cent increase on top of that is significant,” he added.

There are many people in the same position as James Laidlaw and his young family, who borrowed to build onto their Toronto home, adding construction costs on to a mortgage to help finance $250,000 in renovations and an expansion of 600 square feet.

More Globe stories on debt:

How to avoid filing for bankruptcy
Canadians unprepared for the Takeaway Decade
Tax tips: Pay down mortgage or make RRSP contribution?
Family finances: Flying solo or with a co-pilot?
Many homeowners should have rented
Debt will bite consumers: report
A plan to cope with a debt cloud
Spring clean your finances
Improve your money skills

Even a jump in mortgage rates of just half a percentage point will mean an extra $1,700 a year for Mr. Laidlaw, his wife and two children.

“Every dollar counts and I’m already thinking about the other things that may suffer,” he said. “Maybe we’ll have to lose the vacation, or scale back Christmas.”

Canadians used to be big savers and cautious borrowers. In 1982, Canadians socked away 20 per cent of their disposable income and per capita debt stood at about $5,500, according to Statistics Canada. By contrast, Americans were saving just 7.5 per cent of their disposable income at that time and borrowed $6,500 per capita.

Savings and borrowing soon went in opposite directions in both countries and by 2002 debt levels surpassed disposable income for the first time. In 2005, the savings rate in Canada fell to 1.2 per cent, about the same as in the U.S. Meanwhile, per capital borrowing jumped to $28,390 in Canada and $48,700 in the U.S.

Consumers are feeling the pinch. A survey last year by the Certified General Accountants Association of Canada showed 21 per cent of respondents could barely meet the interest payments on their loans. The group is about to release a similar survey this year and, said the group’s chief executive Anthony Ariganello, the level of those struggling to cope has climbed to about 23 per cent.

“We may be back into a recession [next year] because, remember, part of what has helped us get out of this recession was spending and consumer spending at that, and if people don’t have money to spend we could be rapidly back in to where we started,” he added.

And while consumer spending and confidence have increased recently, both may be short lived, said CIBC’s Mr. Tal.

“There is a gap between confidence and ability,” he said. “It’s a gap between what’s in your head and what’s in your pocket. And this gap is, of course, a matter of concern because consumer confidence is high due to the fact that interest rates have been extremely low and people are able to finance those mortgages and those loans.”

In a recent report, Mr. Tal concluded that “Canadian consumer fundamentals are weaker than they have been in almost 15 years.”

That’s something that concerns officials at the Bank of Canada. If consumers run into trouble with their mortgage payments, that in turn can lead to “wider problems with other consumer loans, such as credit card debt,” David Wolf, a Bank of Canada economist, said in a speech in January. “Consumers may also have to curtail other spending to cope with their debt burdens, creating adverse spillovers to the real economy.”

Michael Hammond has already scaled back his plans. The Ottawa resident has a pre-approved mortgage of $220,000 and has been looking for a house. He nearly bought a $214,000 townhouse last week, but backed off because he’s still considering the effect of eventual higher rates.

“I am mulling over mortgage scenarios in my head like crazy right now,” he says. “It’s a scary time to be looking for a house. I’m looking at three cheaper homes today because I am so worried about overextending myself and getting caught five years from now.”

Neil Bigelow and his partner Tina Boudreau are also running over financial calculations as they prepare to buy their first home. The couple has been planning to buy a piece of land in Halifax and build their own home. But the prospect of rising rates has them worried about how much to borrow.

“Right now I could probably get $200,000 mortgage,” said Mr. Bigelow. “But what’s going to happen down the road because interest rates are not going to stay where they are at.”

By the numbers

68%: Average amount of disposable income households in Vancouver spend on the cost of a home
44%: Average in Toronto
35%: Average in Calgary
36%: Average in Montreal
30%: Average in Ottawa
21%: Percentage of Canadians who say they can’t manage their debt load
147%: Debt-to-income ratio in Canada, a record high
157%: Debt-to-income ratio in the United States
70%: Percentage of debt held in mortgages in Canada

Certified General Accountants Association of Canada, CIBC Economics, National Bank economics and Statistics Canada