After a dozen years with collection agencies, lawyer Mark Silverthorn had reached his limit. “I think it’s important for people to enjoy what they do,” he says. “I really didn’t feel that I was leaving a mark on the world, that the world was a better place because of my existence.” Silverthorn has transformed himself into a consumer advocate for Canadians struggling with debt. His new book The Wolf At The Door arms its readers with inside information on how collection agencies work and the rights we have when they come calling.

Silverthorn and I spoke this week.

How does the collection process work?
When you look at the life cycle of debt, for the first three to six months that an account is in default, your original creditor is going to attempt to collect the debt. Large organizations will have in-house collection departments and they will attempt to collect the debt. Typically, after that initial period has gone by, then outstanding accounts will be farmed out to agencies. For a large credit granter like a bank, credit card company, department store or a utility, in a particular month they may send out 10,000 accounts to anywhere between five and 10 different agencies.

What are the most common misconceptions about the process?
The law is different in each province. British Columbia is probably the province that has the most pro-consumer legislation in the country. Then there are some jurisdictions that don’t have many rules, which would be the territories.

Most people have trouble understanding who is calling them to demand payment of a debt. In many cases, there are very few laws that protect consumers from abuses that are perpetrated by collectors who are employed by the original creditor. There are more laws protecting consumers from unprofessional conduct by third-party collection agencies.

Creditors, collection agencies and collection lawyers routinely threaten to sue consumers. In fact, usually when a consumer is being threatened with a law suit, the person making the threat is probably bluffing. Collection agencies, collectively across Canada, sue less than one out of 10,000 accounts.

What’s an example of unprofessional conduct?
One of the most common types of unprofessional behavior is where a collector makes what’s called a false or misleading statement. It’s very common for a collector at a collection agency to call a consumer and threaten that if they don’t pay their bill within a certain time period that the collector is going to arrange for a court official to show up at their residence and to seize personal property.

If a creditor or their collection agent were to actually sue someone and get a judgment against them then it is possible, in certain circumstances, for a court officer to come to a person’s residence and to seize certain goods. The person would have to be sued and served with legal documents and have an opportunity to file a defence. In many cases the creditors don’t have the paperwork to prove that a debt is owing, therefore, they’d be unsuccessful in getting a judgment.

Each province has laws that exempt certain personal property from seizure. Most provinces have an exemption of $3,000 to $5,000 for personal household items (e.g. clothing, furniture, dishes, etc.). Meaning, if a creditor did sue somebody and get a judgment against them, they can’t send a sheriff or a court officer to the person’s residence and just clean out their place. There are certain exemptions, property that is exempt from seizure.

It’s illegal for a collector to make a false or misleading statement. Collection agencies are licensed by their provincial or territorial government. Therefore, a person can make a complaint to the government body responsible for licensing collection agencies. They can also make a complaint to senior management at the creditor. In many cases the collection agency is more afraid of a complaint made to the senior management of the creditor than they are of a complaint being made to the government regulator. Canadian chartered banks, as a general rule, are very concerned about their reputations and they don’t look kindly on collection agencies that engage in unprofessional behavior.

How does the credit score system work?
There are two main credit reporting agencies in Canada: Equifax and TransUnion. These are for-profit companies and they’re regulated by the government. There are provisions where if a person complains that there’s an item on their credit report that shouldn’t be there, then the credit reporting agency has a statutory duty to investigate it and if it’s not warranted to be there then it should be removed.

Through both Equifax and TransUnion, it’s possible to obtain a copy of your credit report by making a credit card payment over the internet. I would recommend that people do that about once every six months. The big reason for this is identity theft. If someone has gone out and has obtained fraudulent credit cards in your name and is incurring expenses, they could run up tens of thousands of dollars and the only way you will know is if you start getting collection calls. If there’s strange activity happening, the first place it will show up is on your credit report.

You write about a debt settlement strategy.
It’s very difficult to negotiate with the government and difficult to use debt settlement on secured debt. But on unsecured consumer debt, as long as you are current with your creditor they are going to want you to pay 100% of the outstanding principle and interest. You’ll have to be in default for a minimum of six months before your creditor or their collection agent is willing to entertain the possibility of accepting a lump sum payment for significantly less than 100 cents on the dollar.

So the strategy is to stop making payments to selected unsecured creditors, and then to save money up during this period of time so that you’ve got monies available to make these lump sum settlements. The key thing is if you’re going to settle a debt, as a general rule, it will have to be by lump sum payment. In some circumstances the lump sum payment is a single payment. In some cases the creditor might let you make one or two payments over a period of 30 days or sometimes even 60 days. You are not going to be able to settle a debt for significant discounts using installment payments.

If you are negotiating a lump settlement with a creditor, it’s very important that you get a satisfactory settlement letter from the creditor or its collection agent prior to making the settlement. You can’t rely on any verbal statements made by your creditor or their collection agent.