CIBC class action attracts hundreds of inquiries

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Lawyers spearheading twin class-action suits against CIBC over “vague prepayment terms” have fielded interest from hundreds of the bank’s mortgage clients -- that as a case management judge in B.C. gets assigned to the legal action.


“There have been hundreds of inquiries about these cases to our office and that of our co-counsel in Ontario,” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told MortgageBrokerNews.ca, pointing to borrowers who paid out CIBC mortgage from April 2005 onward.

Firstline clients areamong those concerned that they may have been adversely affected by the lender’s prepayment policy.

A Case Management Judge has also been assigned, what Bridge calls a key, mandatory step in moving class actions forward in British Columbia.

“We applied in November for a judge to be appointed, in order to move the case ahead, and are pleased this has happened,” he said.

The twin lawsuits were filed in B.C. and Ontario last October, alleging some CIBC mortgage borrowers have been unfairly penalized by unclear prepayment terms giving rise to two substantive complaints.
 
Aside from what Bridge terms “uncertain and unenforceable language” in contracts dating as far back as 2005, he also points to the mathematical formula CIBC used to determine those prepayment charges, calling them “invalid,” or in legal speak a “miscalculation.”

The suits rely on individual representative plaintiffs in B.C. and Ontario. Each of those two notices of claim alleges CIBC applied terms and conditions to certain mortgage contracts that allowed it “unfettered discretion” in calculating mortgage prepayment penalties.  

The suits also allege that the actual amounts of those penalties were themselves in breach of the mortgage contracts.

CIBC will haven’t yet filed a statement of defence against the allegations.


“Because these cases are intended class actions, the normal time limit for filing a Statement of Defence is rarely applied,” said Bridge.”There has been no Statement of Defence filed, and no substantive response from CIBC.”

The assignment of a management judge notwithstanding, the suit still must be certified in order to proceed to trial. That could take a year or more.

The collective legal action effectively echoes some of the more-perennial and broader concerns of brokers, who grapple with the widely varying interest rate differential and prepayment penalties many lenders demand of borrowers. The former, sometimes stretching into the tens of thousands of dollars, has presented a major impediment to helping clients take advantage of historically low rates by switching or refinancing clients before maturity, argue many mortgage professionals.

Those challenges have led to broker calls for industry-wide standardization of penalties.

Undoubtedly, broker-arranged mortgages through Firstline are among the thousands of transactions the dual suit is meant to address, said Bridge, at the same time expressing his support for mortgage professionals.

The B.C. lawyer led a similar case against RBC about ten years ago. It ultimately ended in a settlement, said Bridge.
 

  • Ad Lakhanpal, Mortgage Broker, Mortgage Alliance on 2012-01-19 9:02:05 AM

    I am glad to see some action re this issue. MBLAA requires the brokers to disclose the penalties to the borrower very clearly, but does not require lenders to provide this info to the brokers in an efficient manner.Ideal situation would be that a few penalty options be standardized, and let lenders select one of them to give them flexibility of product design. Until that time, they should be required to clearly state the method of calculation in their commitment letters.

  • Ad Lakhanpal, Mortgage Broker, Mortgage Alliance on 2012-01-19 9:07:26 AM

    I am glad to see that some action is being taken re this issue. MBLAA requires the brokers to disclose the penalties to borrowers,but does not require lenders to provide this info to the brokers efficiently. Ideal situation would be to develop a few standard options for penalty calculations and let the lenders select one of them to give them flexibility of product design. Until that happens, at least they should be required to state their method of calculating penalties, very clearly, in their commitment letters.

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