Small claims cases raise questions about definition of collection agency

Registrar weighs in

Small claims cases raise questions about definition of collection agency

A recent Small Claims Court endorsement raises questions about the interpretation of the Collection and Debt Settlement Services Act, say lawyers who worked on the case.

On June 11, a Guelph Small Claims Court judge said that Canaccede Financial Group was operating as an unregistered collection agency and was not entitled to bring a lawsuit in Ontario Small Claims Court for two claims, numbered 397 and 398, says Mark Silverthorn, who practises at Mark Silverthorn, Barrister & Solicitor, PC in Kitchener, Ont. and represented clients on the claims.

But the registrar of collection agencies said on June 24 that Canaccede Credit LP is not a “collection agency” and is not required to be registered.

Canaccede, which says online it is “one of the largest consumer finance investment firms in the Canadian marketplace,” is “reviewing its options with respect to the court endorsement,” says Suzanne Larouche, general counsel at Canaccede Financial Group Ltd.

“It is Canaccede’s view that the June 11, 2019 Small Claims Court endorsement misinterprets the act.  Canaccede’s view is confirmed by the registrar,” Larouche says in an emailed statement to Law Times.

Silverthorn says the $43,000 disputes could have implications for other default judgments after January 2018 — when collection laws were updated to expand the definition of a “collection agency.”

Neil Abbott, a partner at Gowling WLG in Toronto, who was not involved in the case, says he has done work on behalf of clients that have gone through the registration process for collection agencies.

“Collection agencies are sometimes the first contact that a debtor has once it leaves the company. And the agencies are not lawyers. . . .  They don’t have the powers of the court,” says Abbott, chairman of Gowling’s Consumer Financial Services practice. “By licensing, you submit yourself to the jurisdiction of the province and inspectors and you maintain standards, you actually have to post a bond and you can be prosecuted and all that.”

Silverthorn says the claims also touched on if there was an established “absolute assignment” of the accounts from the bank to Canaccede Credit LP.

“There’s two things that have happened: You’ve had a consumer successfully defend a lawsuit brought by one of Canada’s largest debt buyers, and you’ve also had the Ontario registrar of collection agencies sort of inserting themselves into this,” says Silverthorn. “What I would say to lawyers out there is that what this case raises is the substantial difficulty that debt buyers find suing on purchased accounts. The legal and practical obstacles facing a debt buyer suing a consumer are much higher than the obstacles facing the original creditor.”

Silverthorn says the registrar’s decision doesn’t overturn the motion judge, but it is still open to appeal.

“The business model of the debt-buying industry is you buy a portfolio of hundreds or thousands of debts . . . you sue a bunch of them and you get default judgments,” says Silverthorn. “And most people who are sued don’t bother defending them. So, [as it stands after this case], lawyers may be more inclined to entertain the idea of defending a consumer who has been sued where the plaintiff is a debt buyer.”

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