Published August 6, 2024 • 6 Min Read
TLDR
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Canadian consumer debt is on the rise — and so are debt relief scams promising quick and easy fixes to alleviate the stresses of debt.
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Scammers often charge upfront fees and use unrealistic promises and high-pressure tactics to get your business.
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If you’re struggling to manage your debt, your bank can offer solutions, such as debt consolidation loans, to help.
Managing debt can be stressful at the best of times — and if you’re struggling, you’re not alone. Canadians’ total consumer debt load reached $2.45 trillion in the last quarter of 2023, according to research conducted by Equifax, and the average Canadian carries $21,296 in consumer debt.
As debt levels continue to rise, more and more Canadians find themselves targeted by debt relief scams carried out by unlicensed debt advisory firms. The scammers often promise a “quick fix” for debt through insolvency solutions, like bankruptcies. But, in reality, they’re not licensed to provide these services — and they’re pressuring Canadians into paying hundreds or thousands of dollars in fees.
If you need help managing your debt, there are trustworthy places to turn for assistance. Here’s how to distinguish a debt relief scam from a legitimate solution, how your bank can help you pay down your debt and how to protect yourself from scammers.
What is a debt relief scam?
In a nutshell, a debt relief scam involves an unlicensed debt consultant promising to help you manage your debt. It’s concerning because they will typically promise to negotiate with creditors on your behalf — and may claim you’ll only have to pay pennies on the dollar. In exchange, they’ll charge hundreds or thousands of dollars in administrative or referral fees for services they are not licensed to provide.
Signs of a debt relief scam
While no two scams are exactly alike, there are several red flags that indicate that someone identifying themselves as a debt relief consultant may not be legitimate.
1. They charge fees upfront
Legitimate debt relief starts with an honest conversation about your financial situation, your options and your goals. In contrast, debt relief scams may demand payment upfront or require you to pay administration or referral fees for unnecessary services — even if they have yet to provide any services.
2. They promise unrealistic results — without being transparent about how they’ll achieve them
Many debt relief scams promise a quick and easy fix for your debt. They may tell you to stop talking to your creditors, allow them to negotiate on your behalf and promise to erase nearly all your debt. A legitimate provider, in contrast, will outline the pros and cons of each option and give you a sense of the results you can realistically expect.
Pro tip: The average consumer proposal typically settles for between 30 to 40 cents on the dollar. Be cautious of agents promising significantly better results.
3. You feel pressured to make a decision
Debt relief firms play on your fear and stress — and they lay on the pressure to work with them to manage your debt ASAP. Legitimate consultants offer no-pressure, no-commitment consultations, and they’ll allow you to make decisions at your own pace.
Pro tip: Beware of debt relief consultancy firms that promise you a “better deal” if you agree to work with them now. The fees charged by debt relief consultants are regulated by the federal government.
4. They have a limited offline presence
Offering virtual consultations isn’t a red flag in itself because legitimate debt consultants may offer the option to access services online. However, you should be cautious of firms that only offer online services and don’t provide a legitimate physical address in Canada.
How to protect yourself from debt relief scams
Three steps to take to protect your financial well-being.
1. Stay informed about the latest cyber scams
Unfortunately, scammers get smarter and change their tactics regularly — and up-to-date information is your first line of defense against fraud. Keep on top of cyber fraud tactics with RBC scam alerts, so you’re more likely to identify a scammer if they contact you.
2. Talk to your bank about debt management
Managing debt can be stressful, but talking to your bank can help. A financial advisor can help you make sense of your debt and help you create a plan to pay it off. Your bank can also offer solutions to help you pay down your debt, such as:
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Debt consolidation loans or lines of credit, which allow you to pay off your outstanding balance and repay the loan on an agreed-upon schedule.
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Home equity lines of credit (HELOCs), which uses the equity in your home to pay down your debt.
If you need to consider other options, such as a consumer proposal or bankruptcy, to relieve your debt, your bank may be able to help you access a licensed professional to help.
3. Do your research
If you’re considering working with a debt relief consultant for a specialized service, such as bankruptcy, use the Government of Canada’s directory to find an active Licensed Insolvency Trustee (LIT) near you. LITs are licensed professionals able to offer debt relief services, and their business practices and fees are regulated by the government.
In addition, familiarized yourself with the acceptable conduct for LITs, so you can spot potential red flags. LITs in Canada must offer the option to receive services in person at any point in your journey, do not charge fees upfront, and provide unbiased insight into the results you can realistically expect.
How to report debt relief scams
If you’ve been contacted by someone you suspect is a debt relief scammer, report it to the Canadian Anti-Fraud Center. To learn how to make a report online or over the phone, click here.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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