Student Loan Collection Agency Dirty Trick

Over the last year a big bank in Canada (who shall remain nameless, since it’s not relevant to this story) have been sending collection letters to people who have student loan debt, and have filed a consumer proposal.

Douglas Hoyes, Consumer Proposal Administrator

Douglas Hoyes, Consumer Proposal Administrator

Here’s a typical story (a story I have heard many times):

Jane Smith (not her real name) had student loan debt, and other debts. She graduated from school, and therefore “ceased to be a student” in 2001. In 2010 she filed a consumer proposal, and since she had ceased to be a student for 9 years (which is more than 7 years), she naturally assumed her student loans would be discharged by her proposal. The proposal was accepted by the creditors.

Here’s where the story gets interesting. Two months after filing the proposal, and after the proposal was officially accepted by the creditors, Ms. Smith received a letter from Big Bank, that read, in part:

Big Bank has received notification that you have filed an assignment of Consumer Proposal. As of the date of your proposal, you had an outstanding student loan debt.

In accordance with the Bankruptcy & Insolvency Act (Canada), no active collection activity can occur between now and the date you are discharged….However, since June 18, 1998, student loans are not discharged through participation in consumer proposal. Therefore your student loan debt will survive the consumer proposal, and will not be released by an order of discharge.

Obviously this letter has numerous errors:

First, nice grammar, Big Bank! “…you have filed an assignment of Consumer Proposal” You file an assignment in bankruptcy, not an assignment of Consumer Proposal, since there are no assets to assign in a proposal. Obviously the bank is using the mail merge function in their word processing software to alternate “bankruptcy” and “consumer proposal” in their letter.

Second, the letter is incorrect. Student loan debts are discharged in a consumer proposal. Just like in a bankruptcy, if it’s more than 7 years since you ceased to be a student, they are discharged. That’s it. It doesn’t matter what Big Bank thinks; that’s the law.

Finally, in a proposal there is no such thing as an “order of discharge”. An “order” is made by the court, and does not occur in a consumer proposal. Instead, you receive a Certificate of Completion from your consumer proposal administrator.

I find it offensive that a big bank doesn’t know the rules, or chooses to ignore them. Even worse, innocent debtors get these letters, and don’t know if they should believe Big Bank, or their trustee! It’s very stressful for them.

I have reported this breach of the law to my contacts at the bank in question. They have agreed that the letter is being sent in error, and they have pledged to “get to the bottom of this”. I will be monitoring the situation, and will make more vociferous complaints, including publishing the name of the bank, if they continue to send these letters.

In the interim, if you have received letters like this after filing a consumer proposal, and if your student loans were older than 7 years when you filed the proposal, speak to your proposal administrator.

Published on Wednesday, February 2nd, 2011