Referral fee rules to remain untouched according to recommendation

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Brokers can expect the Mortgage Brokers, Lenders, and Administrators Act (MBLAA) to continue to permit charging a fee for “simple referrals.”

“During the consultation, there was a suggestion that the simple referrals exemption be tightened to prohibit the receipt of any fee,” MPP Steven Del Duca wrote in his MBLAA review. “However, there is no evidence that the prohibition of referral fees is necessary or desirable.”

According to Del Duca – the man charged with providing his MBLAA recommendations to Ontario’s Finance Minister --, the reason for continuing to allow referral fees is because they are so common in the financial services industry and are properly policed by MBLAA.

“The referral of prospective clients to other financial services providers is commonplace in the financial services sector,” he stated. “It is permitted under the MBLAA, subject to a clear set of restrictions regarding the information that must be disclosed (and) I agree with the majority of stakeholders who indicated that no changes are warranted.”

Del Duca also recommended that certain “appropriate exemptions” regarding licensing be maintained.

“Under the MBLAA, a person who refers a borrower to a lender (or refers a lender to a borrower) is exempt from licensing if certain conditions are met,” he wrote. “Written notice must be provided to the prospective borrower in advance about fees and the person’s relationship with the lender.

“As well, only limited information about the borrower such as name and address may be exchanged.”

However, MBLAA will continue to exclude licensing exemptions for those licensed under the Securities Act, citing customer protection as the main concern.

“There was also a suggestion that the licensing exemptions be expanded to include registrants under the Securities Act or their representatives; however, these persons are not subject to regulatory oversight in respect of their mortgage lending activities and as such consumers would not be adequately protected," Del Duca stated. "For this reason, I do not support a change to the current exemptions in this regard."

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