‘I felt duped’: Some clients of this debt consultant say they paid high fees for little help — even some of the firm’s employees are concerned

Kandase Smith, a lab technician in Southampton, Ont., started losing her teeth during the pandemic. She had been suffering from gum disease for years, but with regular cleanings she kept the damage in check. “Then COVID hit and dental offices closed down,” she said, “people got sick and my care went downhill.”

Smith didn’t lose her front teeth. But she started dreaming that she had, and the impact on her confidence was severe. You could see it in the pictures she posts online. Click through her shots, and one thing stands out: she hasn’t shared a picture with her mouth open in years.

Smith had two choices to fix her teeth. She could get implants for more than $22,000 or dentures for about $10,000. The truth is, she couldn’t afford either one. A new grandmother, she was working two jobs but had no benefits and was already carrying significant debt. Still, she felt like she had to do something, soon. She cares about how she looks. She’s precise with her makeup. It’s part of who she is. “It was a self-esteem issue,” she said. “I wanted my smile back.”

What Smith did next is something financial experts say has become so common in Canada it’s basically ubiquitous. She went online to look for financial help. What she wanted was a little money, short-term, to consolidate her existing debts and leave enough cash left over to pay the $2,000 deposit on her denture surgery. What she got, she says, is a nightmare.

“You know, things are not easy for me,” she said. “All I wanted to do was fix my teeth.”

Canadian consumers like Smith have been slouching toward a debt crisis since the end of the pandemic. Since the middle of 2021, the cost of everyday essentials in this country, as measured by the Canadian Consumer Price Index, has soared at a rate unseen in decades. Grocery prices alone spiked almost 10 per cent last year, the fastest such climb in 41 years. At the same time, interest rates have ballooned, bringing higher monthly payments for bank loans, lines of credit, car payments, mortgages and more.

That means more working Canadians, like Smith, are closer to financial disaster than they have been in years. More than half of all Canadian consumers told accounting firm MNP last quarter they were within $200 of falling behind on their bills, according to a survey released in July. More than a third of those same respondents said they were already underwater. Insolvencies, meanwhile, have been mushrooming. Nationwide, they were up more than 30 per cent in May over the same period last year.

But not everyone sees that as a looming crisis. Debt is big business in Canada, and not just for banks. When Smith reached out for help, she ended up in a corner of the Canadian financial industry that views the deeply indebted not as a problem but as an opportunity for profit. It’s a sector experts warn is booming as more Canadians, struggling with their bills, start searching for a way out online. “How do you make money on broke people?” asked one former salesman in the industry. “That’s definitely a good question to ask.” And the answer, according to some insiders and critics, is that you do it by selling them a dream.

“If there’s money to be made, people will make money,” said Doug Hoyes, a licensed insolvency trustee based in Kitchener and Toronto. “It’s pretty much as simple as that.”

Growing desperation

Even now, after everything she’s gone through, Smith isn’t sure how she ended up where she did. She had just moved to southern Ontario when it started. Her partner, who had been planning to come with her, had been hospitalized. He couldn’t handle a move. So Smith was in her new home, alone, covering expenses for two people in two cities and struggling to come up with a way to pay for her dental work.

One day, Smith filled out an online form for what she thought was a consolidation loan. Soon afterward she got a call from a company called Cactus Debt Relief.

Cactus, which operates a sister company called Cactus Credit, is a private, for-profit debt consultancy. It’s part of an industry that has bloomed in Canada over the last 10 years, operating in a regulatory loophole between nationally licensed insolvency trustees, who manage bankruptcies and consumer proposals — as part of a kind of federally supervised debt reduction program — and provincially regulated non-profit credit counsellors.

Debt consultants say they provide a valuable service. They educate debtors on their options, for a fee, and, unlike other players, they have no obligation to any party but their clients.

But critics paint a far darker picture. Debt consultants, they argue, are inherently predatory. They suck in desperate clients with enticing online ads, touting slashed debts and “new” government programs, hook them with high-pressure sales tactics, then charge them high fees for a service that often amounts to little more than a referral to an actual trustee. “It is targeted at people at the lowest point in their lives,” said Colleen Craig, an insolvency trustee in Victoria. “It’s pretty much like kicking somebody when they’re down.”

Cactus is far from the only company operating in the for-profit debt consulting space. Last year, 4 Pillars, a national debt consulting franchisor with dozens of offices in Ontario, settled a class-action lawsuit over its practices in B.C. (The defendants did not admit liability as part of the settlement.) Social media platforms, like TikTok, Facebook and Instagram, meanwhile, are overflowing with ads for companies promising miracle fixes for the deeply in debt.

But Cactus isn’t an exception, either. Its rise demonstrates both a broader trend — of growing desperation among Canadian consumers — and an underlying business theory: that all those desperate people can be a way to cash in.

According to some Cactus insiders, the company can also be unusually blatant, internally, about its real goals. “I would say it was a sales organization,” said a former employee who, like others quoted in this piece, was granted anonymity because they feared retribution from a current or former employer. “(The goal) was to hit those three sales a day, hit that quota. In my opinion, the priority was not helping people.”

David St. Germain, the founder and CEO of Cactus Debt Relief, told the Star his company provides a worthwhile product to struggling people. “We’re educating the customer on their options,” he said. “Without us, the customer would not know (about) and in many cases would not proceed (with a consumer proposal). Plus, we’re finding the customer when the customer is reaching out for help. So we need to be compensated for that.”

He also questioned his critics, suggesting some, including licensed trustees and non-profit credit counsellors, could be jealous competitors, and others, including former employees, were not representative of the “hundreds and hundreds” of other people who have worked, happily, for and with him over the past 10 to 12 years.

But in interviews, multiple current and former Cactus employees questioned the value of the debt relief packages they were selling. Several said they were trained in the sales tactics of Jordan Belfort, the real-life Wolf of Wall Street, who spent 22 months in federal prison after swindling clients out of more than $100 million (U.S.). (Belfort, who inspired the Oscar-winning film staring Leonardo DiCaprio, later launched a business teaching sales techniques.)

The emphasis at Cactus, some employees said, was not on finding solutions for struggling clients. It was on selling them packages that, despite different tiers and different price points, usually added up to the same thing: a delayed referral to an actual professional. “People just automatically say, ‘You’re a scam! You’re a scam!’ ” said a third former employee. “You brush it off at first, and then you kind of realize, are we actually? What services are we actually providing?”

St. Germain described Cactus as something like an insolvency butler, helping the consumer along every phase of a trying journey with debt. “We’re offering a service,” St. Germain said. “You could go to Walmart, get a case of oil, and prop up your car and change your oil for free. You could also cut your hair for free.”

But critics say what Cactus and other debt consultants do isn’t so much cut hair as it is charge for a barber’s phone number. As for the promises of education and hand-holding, those are a mirage, according to multiple Cactus customers who spoke to the Star, including Smith. “I feel taken advantage of, completely, and slightly embarrassed that I fell for it,” she said.

At one point, after Cactus took its fee out of her account, Smith had to move money in to avoid defaulting on her car payment. It was $196 she had been saving to fix her teeth.

Winnipeg’s Elvis, Jr.

Eleven years ago, St. Germain, who presents himself online as the ultimate entrepreneur — goatee, slick suits, fast cars — was an up-and-coming country music singer based in Winnipeg. His father, Ray St. Germain, nicknamed “Winnipeg’s Elvis,” had a decades-long career as a performer in the Prairies. But the younger St. Germain, who struggled with drugs and alcohol, never made it that far.

After quitting music, St. Germain started a small company in Winnipeg building websites and doing corporate social media. One day, he walked into a car dealership. “I was doing my pitch and they just stopped me and they said they don’t care about all that stuff,” he said. What they wanted was a “lead.”

As search engines and social media sites have increasingly come to swallow the advertising industry, a parallel sector, called “lead generation,” has grown up in their wake. Lead generators use flashy digital ads to suck in consumers who are looking for a product, like a used car. But they don’t sell cars themselves. Instead, they sell customers, or their data, to someone who does.

After that meeting, St. Germain launched his own lead generation company, called DSG Auto. The pivot to the debt industry, he said, came naturally from there. A lot of the leads he generated for used cars came from people who had bad credit, so he launched Cactus Credit, in Vancouver, to offer credit repair services. (The credit repair industry has been heavily criticized by, among others, the U.S. Consumer Financial Protection Bureau.) After Cactus Credit, he founded Cactus Debt Relief to capitalize on the increasing flood of Canadians he was seeing searching for debt help online.

The debt consultation business St. Germain was joining was the latest iteration of an idea that has been around for almost a century in North America. It relies on a counterintuitive reality: Many people who are deeply in debt aren’t broke in the traditional sense. They’re working. They have cash flow. They’re just desperate; they’re in over their heads and can’t keep up with their expenses and interest payments.

Debt consultants make their money by tapping into both that desperation and that cash flow. That’s what Wendy Paynter said happened to her. Paynter, a civil servant in Prince Edward Island, had $50,000 in unsecured debt. She had a steady, well-paying job. But she couldn’t see how she was ever going to dig herself out from under her loans.

Paynter said she connected with Cactus after seeing an ad on social media touting a program for debt consolidation. She doesn’t know if it was an ad for Cactus directly or for a lead generation company. But on the phone with Cactus, she says she was talked into signing a contract she didn’t fully understand for what she believed was a consumer proposal. “It was the hardest sales tactic I’ve ever had in my life,” she said.

That’s no one-off. Cactus sales staff are trained in the Jordan Belfort method of keeping customers on the phone at all costs, and if they do hang up, to keep calling them back until they get “aggressive” or tell the company to “f— off,” according to one company veteran. “Did you ever watch Wolf of Wall Street?” the one-time employee said. “That’s how it is.”

St. Germain said clients are free to hang up at any point during a call. “I mean, we’re not holding a gun to their head,” he said. And in the end, Paynter did sign a contract with the company.

Paynter made her payments, more than $1,000 in total. During that time, she said, she heard little from the company. Eventually, she got an email, but not from Cactus. Instead it came from BDO Canada, a financial services firm with a consumer insolvency division. Cactus, BDO told Paynter, had sent the company her name. Would she like to set up a call with an insolvency trustee?

Paynter was flabbergasted. BDO told her they hadn’t received much from Cactus: just her name, copies of documents Paynter herself had provided to Cactus and an application. If that was the case, Paynter couldn’t understand what Cactus had done to earn the $1,048 she had paid them. “I was pretty friggin’ mad,” she said. “I felt duped. I remember at the time $1,000 was a lot. I thought, ‘That’s $1,000 I could have put toward my debt.’ ”

What happened to Paynter is what critics say companies like Cactus Debt Relief are doing all the time. They’re drawing in clients looking for debt relief, charging them unregulated fees, then farming them out to a licensed trustee. “It is a middleman, essentially,” said a former Cactus employee.

The problem, some critics argue, is that there’s no need for a middleman in the process. “By law, our consultations are free. There are no upfront fees,” said Hoyes. Many non-profit credit counsellors also offer free financial advice. “My advice to everyone would be number one, buyer beware. Number two, get a second opinion,” Hoyes said. “And obviously, the person I would recommend you talk to is a licensed insolvency trustee.”

This isn’t to say debt consultants don’t help some clients. One former Cactus employee said she had just as many happy customers as angry ones during her time at the company. It’s just that those customers, she said, could have had the same result for a lower price if they’d gone directly to a trustee.

There are also clients who end up paying fees to Cactus without going through a consumer proposal. They can end up even further in debt and more desperate than they were when they started. That’s what Kandase Smith said happened to her.

After her initial call, Smith agreed to a contract with Cactus. Smith says her Cactus representative told her on the phone to stop making payments on her other loans immediately and to use that money to pay her Cactus fees instead. (St. Germain did not respond to questions about that practice.) She assumed that if she did that, Cactus would contact her creditors right away and start the process of a consumer proposal.

But that’s not what happened. After she stopped paying her loans, Smith’s creditors started contacting her, repeatedly. One even called her daughter, who had recently given birth. “A couple of weeks go by. I’m still deferring these payments. I now have letters from these companies saying they’re going to garnish my wages,” Smith said.

According to multiple current and former employees, it is standard practice at Cactus to tell customers to stop paying their creditors once they sign up with the company. What’s more, Cactus won’t refer a client’s file to a trustee until after that client has already paid a significant portion of their Cactus fees, according to multiple employees.

That’s especially galling to some critics because they don’t see any need for a referral at all, let alone a delayed one. The initial consult with a trustee is always free, said Stacy Yanchuk Oleksy, the CEO of Credit Counselling Canada. “The consumer hopefully sleeps on it, decides whether they want to pursue it or not. And if they do, then they sign the paperwork, and now they’re into the insolvency process. There’s no need for a middle person in that.”

St. Germain said his company provides a host of services, beyond just the referral to a trustee: from education, to organizing documents, to ongoing support. “We’re making sure that we leave (clients) in a better place so that they don’t have to go through a consumer proposal again,” he said.

But critics say that even if Cactus is providing those services, they are, in most cases, redundant. By law, licensed trustees have to provide essentially everything Cactus claims to offer to anyone going through a consumer proposal or a bankruptcy. “Failure to meet these obligations by a (licensed insolvency trustee) is, in my opinion, a failure to meet our legislative duties,” said Colleen Craig.

For her part, Smith got fed up long before her file went to a trustee. After several weeks of angry creditor calls, she emailed Cactus and told them she wanted to cancel her plan. Smith said she couldn’t find any evidence the company had done any work for her. But she said Cactus told her she still had to pay part of the fee she had agreed to. Smith refused, saying she had cancelled the deal per the terms of her contract. Nonetheless, she said, Cactus still took another $196 out of her chequing account, money that was earmarked for her car payment.

The contract Smith signed did authorize Cactus to take payments directly from her account. It also didn’t make any promises, beyond vague language about budgeting and education. Even still, St. Germain said, Cactus has a 10-day, no-questions-asked cancellation policy. He added that the company has “never once gone after any customer for payment. We don’t send these contracts to collections. We don’t sell the debt. We just let them go. So we feel that that’s pretty compassionate.”

As of late June, Smith said, Cactus was still contacting her at least twice a week saying she owed the company money.

Coming crackdown?

Because debt consultants are unregulated, it can be hard to say for sure how large the sector is in Canada. The Office of the Superintendent of Bankruptcy, the federal body that oversees insolvency in Canada, has been tracking debt consultants since at least 2016. But by its own admission, the statistics it has are imperfect.

In 2021, for example, almost 60,000 Canadians filed for a consumer proposal. Of those, more than 12,000, or about in one in every five, reported that they had paid someone other than a trustee for financial advice — on average between $2,500 and $4,500, according to another OSB report — on how to handle their debt in the previous six months. That’s a significant share, but even the OSB doesn’t believe it provides a full picture of the industry.

“Unregulated debt advisers, they’ve been prevalent for a number of years, and they’ve been on the rise,” said André Bolduc, the vice-chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP).

Last month, after the Star reached out to the OSB about this story, the office issued a rare public bulletin hinting at significant regulatory action to come. “We can’t speak to ongoing professional conduct investigations,” the bulletin read, “but you should see the results of some of the OSB’s work in that regard soon.” At the same time, not everyone believes the OSB alone has the tools, or the jurisdiction, it needs to fully regulate the sector.

Still, there is precedent for a crackdown. The current model of debt consultation grew out of the ashes of something called debt settlement, the most predatory versions of which were largely regulated out of business in Ontario about 10 years ago. A similar shift today would likely take co-ordinated action from the OSB and the federal and provincial governments on issues like regulation, advertising and the relationships some licensed trustees have with debt consultants. (BDO, Cactus’s partner of choice according to insiders, would not comment for this story.)

For academics who study the sector globally, the best solution long-term would be something like the U.K. model, which pairs robust regulation and oversight with a national, publicly funded consumer advisory service, called Citizens Advice.

In Canada, in the shorter term, a top priority for some critics is a new set of rules on advertising for all debt services online. “Every day I see new promises coming up on the internet,” said Craig. “And I feel bad for consumers, because really, it’s just overwhelming … people are just desperate. And when they’re searching the internet, and something pops up in front of them, offering to save them, they’re going to grab at anything.”

Unpaid bills

Last year, St. Germain published a book about his story and life philosophy. Titled “Zero to Hero,” it details his climb from broke, cocaine-loving singer to Jaguar-driving, world-travelling millionaire. It hasn’t all been smooth sailing for St. Germain. He’s been sued multiple times in recent years. Just this spring American Express took him to court twice in Vancouver, claiming he had failed to pay more than $460,000 in corporate credit card bills. Last year, Cactus also fired the majority of its North American sales staff and replaced them with a call centre in the Philippines.

Last week, days before this story was scheduled to run, the Star reached out to St. Germain again, offering him the opportunity to clarify or add to the comments he made in an earlier interview.

“It’s unfortunate to hear some of the criticism about the company and I have taken it to heart,” he replied. “I’ve spent some time after our call working on a plan to make our customer experience much better and will be actively working to become a better version of our company in the months to come.”

That evolution likely comes too late for Kandase Smith. She eventually put a stop payment on her account preventing Cactus from taking any more of her money. She’s still battling the company over what they say she owes.

It’s been six months since Smith first started looking for help online. She’s still working two jobs, at the hospital and at McDonald’s. She still doesn’t have benefits. She doesn’t have the money to fix her teeth.

In her most recent Facebook profile picture, Smith has her makeup done. She’s wearing full coverage foundation and smoky eyeshadow. But her lips — precisely lined in dusty rose lipstick — are sealed shut in a half smile, hiding the damage she’s still hoping to repair.

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