The Financial Consumer Agency of Canada (FCAC) is committed to educating consumers about financial products and services, and to protecting consumers in the federally regulated financial sector. Every year, FCAC receives thousands of calls, letters, and emails from consumers on a wide range of financial topics. In the six months from April 1st to September 30th, 2011, consumers contacted FCAC 5,433 times. This report will highlight and summarize a few notable observations made while reviewing consumer contacts during this six-month period.
*While numerical data is important, the purpose of this paper is to highlight noteworthy observations and emerging issues and trends. As a result, issues explored in this report will not necessarily reflect the most frequent topics of inquiry identified in the statistical summaries of inquiries.
From April 1st to September 30th 2011, FCAC's Consumer Services Centre received 212 inquiries and complaints on the subject of credit reports and credit scores, of which 89 were complaints and inquiries relating to errors and having errors corrected.
Among those 89, a notable number were consumers who had already contacted a credit reporting agency (either Equifax or TransUnion) and were having difficulty having a perceived error corrected. Difficulty in having errors corrected has been an ongoing consumer issue; the number of complaints and inquiries relating to errors and having errors corrected has increased steadily over the past several years.
Overall, there appears to be a certain level of frustration and confusion on the part of consumers with respect to the credit reporting system in general. And although the number of inquiries into how and where to obtain a credit report has been declining over the past few years, there are still a significant number of consumers who do not know where or how to obtain a copy of their credit report or score. And several of those consumers who noticed potential errors in their credit report and score have found it difficult to have those errors corrected. With that in mind, FCAC is currently updating its information on credit reports and credit scores to make the issue of correcting those errors more prominent.
For more information on credit reports and credit scores, see FCAC's section Credit Report and Credit Score.
From April 1st to September 30th, 2011, FCAC's Consumer Services Centre received 34 complaints and 25 inquiries relating to mortgage prepayment charges. Mortgage prepayment charges have been an issue for several years.
A large number of the complaints have come from consumers unhappy about the amount of the prepayment charges they have had to pay. A smaller but still significant number of complaints came from consumers who were dissatisfied with the clarity of how financial institutions actually calculate prepayment charges.
For more information about mortgage prepayment charges and some tips on how to reduce them, see Renewing and Renegotiating Your Mortgage on FCAC's website.
Prepaid cards are becoming increasingly popular. In recent years, FCAC has seen a notable increase in the number of complaints and inquiries relating to prepaid cards. While the number of complaints and inquiries related to prepaid cards is still modest compared to the total number of complaints and inquiries the Agencies receives, the increase over the past few years makes prepaid cards an issue worth monitoring.
A recurring complaint from consumers has been the various fees associated with prepaid cards, such as inactive fees and card activation fees. These complaints highlight the importance of clearly understanding the terms and conditions of a product before committing to it. In the case of prepaid cards, the various fees associated with their use (or non-use) are not always immediately obvious.
There were also several inquiries into whether prepaid cards are regulated by any level of government.
When one credit card company buys the "portfolio" (credit card accounts) of another credit card company, what are the implications for consumers who hold the credit cards?
Recently, there have been three such acquisitions. FCAC has received a large number of calls from consumers seeking to cancel their credit card as a result of this kind of acquisition, but who also want to know what happens to any rewards and insurance associated with their cards. Many want to know whether the card's original terms and conditions continue to apply, and what happens to any rewards (points) that have already been accumulated.
More information on these questions is in development and will be available soon in the FAQ section of FCAC's website.
From April 1st to September 30th, 2011 FCAC received a significant number of calls from consumers looking for information on where and how they could get help managing their debts. Of these, there were a notable number of inquiries into the legitimacy of certain debt settlement organizations. In some cases, consumers had been contacted directly by a debt settlement company.
Over the past few years, more and more debt settlement organizations (DSOs) have begun offering services in Canada. The services offered by DSOs differ significantly from those offered by traditional debt management and repayment organizations, such as credit counselling agencies (which offer debt management plans or DMPs) and trustees in bankruptcy (which arrange consumer proposals and bankruptcies). DSOs mainly focus on negotiating with creditors in an attempt to reduce the overall principal owing. Generally, DSOs do not provide credit counselling, budgeting or other financial literacy education. They are usually for-profit companies that generate revenue from fees charged to consumers.
Concerns for consumers include the unrealistic and misleading promises made by some DSOs regarding what they can provide to consumers.
This apparent misrepresentation takes a number of forms:
In reality, DSOs cannot guarantee that they will be able to achieve a reduction in the amount owed, or that creditors will even agree to negotiate. They have no way to prevent creditors and collection agencies from contacting debtors, or to block garnishments and legal actions (unlike other measures such as consumer proposals, which do prevent these actions). DSOs are not approved or endorsed by the government.
Another significant problem for is that many DSOs charge large upfront or advance fees (a typical amount is $1,200 to $1,500) that must be paid before any funds are disbursed to creditors. Some DSOs also intentionally delay payment to creditors for a number of months to give the impression that a debtor is unable to make payments. This is done in the hopes of improving their bargaining position with creditors during debt reduction negotiations. The consequence for consumers is that their credit report and score can suffer as a result of missed payments.
FCAC's consumer information on dealing with debt has, to date, been limited to information on strategies for dealing with debt and information on credit counselling agencies. To address this emerging issue, we are reviewing our information on dealing with debt with a view to including more detailed information on the various debt management services and strategies available to consumers, specifically on debt settlement.
For more information on dealing with debt, visit FCAC's section Budgeting and Money Management.