“The opportunity to seek legislative change on the subject of permitted fees that can be charged by mortgage brokers will arise when the government proceeds with its review of the Mortgage Brokers Act,” says Samantha Gale
, CEO of the Mortgage Brokers Association of British Columbia. “In December, we received advice that the review was likely to commence sometime in early 2016.”
Brokers in British Columbia are prohibited from charging advance fees, including cancellation fees. As the discussion – and debate – around cancellation fees has grown, the MBABC has renewed its effort to lobby the provincial government to update its policy on these and other advance fees.
“The MBABC is continuing its efforts to seek legislative change to an outdated mortgage broker licensing statute in BC [that prohibits advance fees],” Gale told CMP late last year. “The Mortgage Brokers Act is still on the BC legislative agenda.”
The association also shared with CMP a letter previously sent to the Financial and Corporate Sector Policy Branch of the Ministry of Finance, arguing in favour of reforming Section 5 of the Business Practices and Consumer Protection Act, which prohibits the use of advance fees.
In it, the MBABC argues that brokers could be reluctant to take on difficult residential mortgage clients when their fee is contingent on the application actually being approved and funded.
“Often mortgage files require many hours of preparation, document management and negotiation,” the association writes. “Sometimes mortgage commitments are obtained by mortgage brokers after they have invested significant amounts of time into the file, but the client will eventually opt for alternative financing or decline the offered financing – this can happen even at the last minute, just prior to closing.”
Under the current legislation, the MBABC argues, brokers have no way of collecting compensation for work already done.
But, of course, there are two sides to the debate. Many brokers refuse to charge cancellation fees because they believe in acting in the client’s best interest, which is something many players point to the fee-free model currently in use throughout the country as evidence of – clients should be free to choose the broker or lending specialist of their choice.
However, there are many who agree with the MBABC that cancellation fees are a way to ensure that brokers receive payment for work they’ve already done – even if a mortgage isn’t originated.
“Imagine a prospect who shops around and calls you on weekends and nights – because he works during the day – and you give him all the best advice in the world,” says Walid Hammami, a broker with Dominion Lending Centres
in Quebec. “This prospect takes most of your time and detracts you from certain activities that could benefit your business and health, like business development activities, going to the gym, etc. He calls you after you got his deal approved and thanks you for your efforts but says that unfortunately, he had to go with another broker/bank because they gave him a $50 gift card with the same rate. Multiply that by another 30 to 40 prospects, and then tell me how you feel about charging a penalty.”
The debate around cancellation fees also has garnered mainstream coverage lately. A large Toronto-based broker was featured in a Toronto Star article for levying a hefty cancellation fee in late 2015.
The article claimed a Toronto couple was charged a $10,000 fee for choosing to stay with their existing lender once they learned they would be hit with an even more sizable prepayment penalty of $43,000.
However, the broker told CMP at the time that the penalty amount wasn’t properly reported and that the practice of charging a cancellation fee was explained to the client.
These penalties can often come as a surprise to clients who – as is shown in this example – aren’t afraid to turn to the media to plead their case. That could lead to negative publicity – however unfair – that could put the entire industry in a bad light. Still, many brokers argue the fees are necessary.
“After a few clients [flee], the broker will have a bad taste in his mouth and will not act to his best when he meets a client, because he is fearful of the outcome,” Hammami says. “But once he knows he is protected, he will do his best and will definitely help better his clients.”
Under current regulations, many mortgage brokers are prohibited from charging cancellation fees on deals. However, that could soon change.