“I had a situation where a client came to me and said the bank offered the same rate as I had offered them with the promise of a discount on their banking fees,” John Greenlee wrote in the comments section of MortgageBrokerNews.ca. “With this information I did the math on how much I was going to make on the deal really quickly if I bought it down 5 points and then offered to cover the costs of their entire banking fees for the 5 year term which came out to around $700.
“Fact is at that point I was going to make $0 if I didn't do something. The client took my offer and I closed the deal. I made less, but it was better than zero.”
Brokers have a tough enough time competing with the banks, and players are finding it difficult to compete with big banks’ relationship pricing offerings.
“[Bank employees] have a target on a weekly basis for not just selling mortgages but other products that they have to cross-sell, and to meet that target they have to look at other ways to changing their wording in delivering their speech to customers to cross-sell other products,” Deepak Bansal of Dominion Lending Centres
told MortgageBrokerNews.ca. “They have to watch their discretions as well – if their discretions allow them to go on a five-year rate down to 2.69 but 2.79 is competitive, they’ll offer 2.79 but [say] ‘Mr. Smith if you’re able to open a bank account with us and apply for a Visa we might be able to bring that rate down to 2.74 or 2.69.’”
Bansal, who worked in the banking industry for a number of years, says this kind of practice has gone on since he was a banker. And bank employees are using this method to hit their sales targets for a number of products, not just mortgages.
According to Bansal, it’s called coercive tied selling and is in breach of the Financial Consumer Agency of Canada Act.
The Act states that banks are not permitted to engage in “coercive tied selling” or “forced purchases” – meaning banks cannot force clients to buy certain products as a condition of approval for others, such as mortgages.
But is what Bansal is describing in violation of the Act?
Not according to the wording on the FCAC’s own website.
“Banks (and their affiliates) are allowed to offer consumers, in conjunction with one of their products, another product or service on more favourable terms than they normally would provide. This is similar to a company offering a deal or discount to its customers if they purchase more than one item from the company,” the FCAC page on tied selling states. “For example, if you obtain a loan from a bank to purchase a Registered Retirement Savings Plan (RRSP) investment, the bank might offer you a better rate on your loan if you also purchase your RRSP investment from them.”
Sometimes the only option to close the deal is the one most brokers push back against at almost all costs.