Monday, September 28, 2009

Consumer Proposals

Many Canadians have never heard of an alternative to bankruptcy called a consumer proposal. If you have a steady income and can’t pay all of your bills, but don’t qualify for a consolidation loan, you may be able to enter into a consumer proposal rather than go into bankruptcy. However, consumer proposals are still a serious matter as one lady found out.

In a consumer proposal, you are essentially telling your creditors than you can’t pay all you owe them but can pay back a lesser amount. Your creditors may agree to this if they think that bankruptcy is the only other option because creditors usually get more money in the case of a consumer proposal.

However, once you’re in a consumer proposal, you can’t expect new creditors to be excited about lending you money. The second comment in this Ellen Roseman blog entry is from a “Frustrated” lady who was turned down for a lease on a new Ford vehicle because she and her husband had filed a consumer proposal that was accepted by her creditors.

This lady is very unhappy and thinks that because she is a loyal customer of Ford’s she should be able to lease another vehicle. It doesn’t take too long in thinking about this from Ford’s point of view to see why she was turned down. Her other creditors won’t get all of their money back; why should Ford expect to get all of its money back?

In the end she had to resort to private financing at nearly 30% interest, which she describes as “usurious.” However, the lender has to be compensated for the extra risk of lending to a couple who can’t always pay back their loans. I have no idea whether 30% is appropriate in this case, but a higher than normal rate is in order.


  1. Interesting story. The tone of the letter implies that Ford is the bad party, but as you imply, Ford is acting rationally.

  2. Gene: Yes, Ford is acting rationally. This can be infuriating for people who hope that a business will act like a friend.

  3. What is this world coming to? Aren't we all entitled to lease cars at a reasonable rate? Shame on Ford for focusing on money instead of customers!

  4. Patrick: Your tongue is planted firmly in your cheek I'm sure! The most recent era where lenders focused on giving money to people who couldn't pay it back ended earlier this year. I wouldn't be surprised to see it again in another decade or two, though.

  5. Actually I find it a little galling that someone who needed to wriggle out of their obligations with a Proposal thinks it's a good idea to go buy a new car in the first place.

  6. Mark: I don't know enough about this person's circumstances to make comments about her intelligence or whether she truly needs a new car, but many people want a new car. I know a few people who have been fooled by the lower monthly payments in leases to think that leasing a new car is better than buying a used car. However, this is rarely true.