Regulator addresses cancellation fees

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Whether brokers agree with them or not, industry players in the Pacific Province are not permitted to charge cancellation fees, according to one regulator.

“Brokers cannot work a cancellation fee into the contract that stipulates the client will owe a fee if he or she chooses to not proceed with the mortgage once the broker has already started the process,” Greg Dickson of the Financial Institutions Commission in British Columbia wrote in an email to MortgageBrokerNews.ca.

According to Dickson, the Registrar of Mortgage Brokers issued a bulletin, addressed October 2015, to clarify confusion among B.C.-based brokers about any recourse they have to recoup costs associated with aborted files through cancellation fees.

“The Office of the Registrar of Mortgage Brokers is aware that some mortgage brokers are charging prohibited fees  and using coercive practices to induce consumers to complete on mortgage transactions,” the bulletin states. “In some cases brokers threaten legal action to collect these fees if the consumer elects not to proceed with the transaction.”

The bulletin states the Business Practices and Consumer Protection Act prohibits brokers from charging any fees for arranging a consumer mortgage in B.C. unless those fees are deducted from the mortgage advance at time of funding.

It also suggests any brokers who charge fees for their services should seek legal advice.

Mortgage brokers have long debated the use of cancellation fees, with many arguing they help ensure they are fairly compensated for the work done prior to funding – especially when that work results in clients fleeing to another lender who offers a lower rate.

Others, however, argue they give brokers – who tout no fee services – a bad name.

According to a recent MortgageBrokerNews.ca poll, 77% of brokers refuse to charge cancellation fees.

Of those polled, 12% admitted to using them as a rule, while 11% do in certain cases.

To read the entire bulletin, click here
  • Mike on 2015-10-06 9:43:54 AM

    So time for FSCO to step up and really CAAMP should be making an ethical statement on this. I have an AMP and in my opinion no member of CAAMP should be allowed to take advantage of a consumer like this. This is bad for our business. For the brokers who are in this long term we need this stopped to protect the industry's reputation. Would be interesting to compare the list of brokers released for fraud from Home Trust with the list of brokers who charge cancellation fees. These guys should be out of the industry.

  • John on 2015-10-06 9:47:57 AM

    Why not a compromise. Cap them at $500- $1000. I don't agree with charging 1% of the mortgage amount but having a deterrent in place to limit the number of deals you lose on rate is not a bad thing.

  • David on 2015-10-06 9:56:11 AM

    Mike, the fraud issue is completely different. Not a fan of one Toronto Brokerage recently pilloried for these fees, but you make your claim before seeing the data?

  • Ross Taylor on 2015-10-06 9:58:27 AM

    Mike it is ridiculous to suggest agents who charge cancellation fees should be viewed as the same as fraudsters.

    In the UK, mortgage brokers can charge a non refundable application fee - perhaps as much as five hundred pounds!

    It's a fact there is a certain class of clients who think nothing of grinding a broker's rates down - and then bailing at the last minute.

    If an agent has such experiences and wishes to protect herself, I am fine with that, provided, of course, it is in synch with their provincial regulator.

  • KBowles on 2015-10-06 10:27:28 AM

    With respect to cancellation fees, my question would be. How many clients do you see that have already been to their bank and approved. But they are looking for a second opinion. To the brokers that charge cancellation fees. You would be pretty upset if the bank charged a cancellation fee therefore holding the client to the bank. Because everything we do the banks eventually do. IE CIBC we come to you. Cancellation fees should be eliminated.

  • Jim Walker on 2015-10-06 10:27:52 AM

    Like any other industry, goods and service, when an effort has been made to make a transaction and the client wants to rescind their decision, airlines charge a cancellation fee, many stores charge a re-stocking fee.
    I think it gives a marketing advantage to those who may advertise - no cancellation fees.
    If it is regulated in this industry, I think it should be regulated across all other industries as well.

  • Paul on 2015-10-06 10:59:57 AM

    A cancellation fee of 1% is too much.

    However, there are so many clients shopping around and it wastes our time and wastes the underwriters time.

    It is fair for us to collect a fee if the deal got approval with client's satisfactory terms and conditions, but finally he walked away.

    I suggest $100 fee.

    I agreed with Jim said many industries charge cancellation fee, why we cannot ?

  • Tony Piattelli on 2015-10-06 11:04:58 AM

    Not that I'm a fan of charging these cancellation fees and never have, there are situations where I believe it should be warranted. For example, doing a build with a client where you have everything in place, the mortgage approved, the build is almost completed and the client leaves for a lower rate, so you've spent a year working with this client and then they drop you like a hot potato for .1%. Frustrating and disappointing, but at the end of the day, do you really want these people for clients? No long term relationship with these people. They are one hit wonders and not worth the effort. Once I find out that my client is a rate shopper, I refer them elsewhere as I explain to them that our philosophies are different and they need to work with a broker who pushes rates instead of advice and strategies.

  • Mister Gill on 2015-10-06 11:31:15 AM

    Let's get this straight - the Banks don't follow the same rules as a Mortgage Agrnt/Broker. Their rules differs from one branch go the next. The know when they have a good client and they change the rules/rates to accommodate the client - yes they don't charge cancellation fee but when they are able to outbid an Independant Mortgage Agent/Broker - can we do the same?
    I believe CAAMP should step up and identify this issue - hell create a level playing field. Nobody works for free - everyone needs to be Rd ionized for the work we do.

    Banks never play fair- I'm sure you are also aware that at time of renewal if that Bank did not hear from the Borrower and there is an automatic renewal - They charge posted rates!!!!
    Anyways that my 2 cents.

  • Steven P. on 2015-10-06 11:55:32 AM

    The legislation and the request of regulators to enforce either side of this debate is anti-Competetive. Just look at what's happening in the real estate industry. This is a free country and our business is free trade and business should be able to practice as they see fit under the guidelines of the law. If brokers see fee to charge a cancellation fee, they should be able to. If they don't they should be able to. The key here is DISCLOSURE to the customer, UPFRONT and before they sign anything. The choice then is the consumers and ALWAYS should be. And for my 2 cents, I believe cancellation fees or policies have their place, just look a commercial deals.

  • Darrell McCollom on 2015-10-06 12:25:03 PM

    The "Market" does have a long memory and a polorizing personality. Therefore if a select group of brokers decides to push for punitive fees being owed by a potential client, we all wear this as a group. That information will spread and will come back to haunt us as a stereotype. Keep in mind to "be careful what you wish for". It may drive a huge segment of our client base into the arms of those "fair" (read sarcasm) banks.

    Let's keep the high ground here. If we lose one or two we learn to be better interviewers and discriminating business owners.

  • Bob on 2015-10-07 2:04:27 AM

    This discussion is ridiculous! Of course borrowers that are of sound enough mind to enter into a half million dollar mortgage contract with the lender, are more than capable of entering into a simple contract for services. Absurd. Shop away, but once you've selected your mortgage approval it's fair dealing if you expect that broker to make sure the funds are there that you the client also do what you say you will do. It's Perfectly reasonable. It's also no coincidence that several market leaders use these agreements successfully by policy. I agree, if Ever there were an issue for CAAMP and the other provincial memberships to champion with the regulators, it's this one. Surely to God brokers and their clients have the same basic right to enter into these agreements as any other Canadians over 18. Assuming it's fully disclosed and upfront. Any broker that thinks otherwise has no respect for their own time and basic rights.

  • Ron Butler on 2015-10-07 11:18:26 AM

    If you are a mortgage broker working alone from your basement and your entire marking expenses are the cost of donuts for realtors, then you have one view of this issue. If you are a company with $5 Million in fixed overheads I think your attitude towards these fees may be different.

  • Ron Butler on 2015-10-07 11:29:11 AM

    Well said Bob.

  • Mark Nelson on 2015-10-07 4:14:16 PM

    I suggest the insurers all create a dbase (which already exists) of active / approved files and do not issue more than one approval... that way the 2nd lender calls up the broker / bank and says they won't issue an approval until the other is cancelled. That way the first originator at least has the opportunity to call the client and resolve it like frickin adults. Most clients just go with the 2nd approval and NEVER return the brokers calls

    FYI approx 9% of the mortgages underwritten in this country are going to be underwritten by more than one lender. Ridiculous

  • Swerve on 2015-10-07 5:34:03 PM

    Brokers should be allowed to use these agreements. It's unfair to expect a broker to work on a file (eg renewal) for months and have client walk away last minute. I've had clients sign docs and not follow through, which is completely unacceptable. There needs to be repercussions for disrespectful clients. If ficom is issuing this notice then I hope they will start enforcing it with prominent BC brokers. I lost a deal to True North Mortgage because client was afraid of this agreement he signed with them. The penalties the banks charge is way worse than this, and it's complete bs the banks have a different set of rules than brokers. If we are living in a free market, hen why cannot we have a perfectly fair service agreement to conduct business? Even realtors have a service agreement available to them to use. Ficom, time to revisit this issue as being this strict is doing a disfavor to the brokers.

  • Walid Hammami on 2015-10-07 11:59:10 PM

    An unjust law is no law at all.
    We get penalized by lenders if deals that they worked for is not disbursed. The efficiency ratio is one of them but ultimately that is nothing compared to credibility with lenders. After several deals cancelled let's see with which state of mind the lender will receive your next one.

    If the fees become illegal that becomes a reputational risk for us with lenders. Unlike clients shopping for electronics between electronic shops our work involves paying for credit bureau, meeting clients in their home the week ends collecting documents following up with lenders etc.. We spend at least on an easy file 3-4 hours a medium one 6-7 a complicated one dozens. Above that we spend money also to get leads wether we buy leads, spend on SEO, SEM or attend business development activities several times/month.

    All this commitment from our part must have some value.

    By the way on commercial deals banks charge cancellation fees should that be illegal?

    What about if you break a mortgage, is it legal to charge cancellation fees? What is the difference between us charging a fee on cancellation and a bank charging one for mortgage cancellation? Their product the mortgage has been initiated and our product is the consultation and processing was also initiated.

    Consultants working per hour will have an advantage of being paid immediately even if the result is not there, us we offer service based on success which is even better for the consumer.

    That's why I say the guys in BC should talk to the regulator who said this. He clearly didn't think it through (as do some people on this forum).

    More so this is also portraying us as evil. We charge while the good law abiding banks don't even though it is not true because they charge different types of penalties (mortgage cancellation and file fees cancellations in commercial)

  • Warren Ross on 2015-10-08 7:40:01 PM

    My attitude is as follows. I don't mind giving someone 20-30 minutes of my time and disclosing everything I would do for them at no cost. However, once a client asks me to do the job from A-Z, I expect to be compensated in the end. Before moving forward, I always tell the client that its always possible that there will be a lender that is 10 bps lower than me, but for all the work that I am doing, I don't want to hear about other lenders after I do the job. In regards to cancellation fees, I always put zero on my form because I want my clients to feel comfortable that I am acting in their best interest. In regards to cancellation fees in general, I think all brokers and banks should have one. A consultation is one thing, but after you do all the work its something else. Why should the banks eat the underwriting and appraisal cost for a client applying to 10 different institutions? Why should we as brokers work for free? I'd rather they increase broker compensation with the savings. In regards to brokers claim that we offer a free service, well if the client doesn't jerk us around then its free. Sounds fair to me.

  • Dustan Woodhouse on 2015-10-11 2:18:17 PM

    This is a slippery slope that I would prefer our industry did not step on. We have bigger fish to fry. i.e. being better trained and better at what we do so that people love us for our amazingly skilled selves. Handcuffing clients has zero appeal and will reflect poorly on the entire industry.

    I would never enter such an agreement myself, and thus would never expect a client to do so.

    I will never charge a client a cancellation fee, not ever.

    My time and energy will be focused on becoming better at what I do, including pre-screening the clients I work with.

    Implementation of such fees and 'exclusivity' agreements are to me signs of weak business practices.

    If you love something set it free, I love my clients and so they are free to walk at any time. It is rare that they do, and rarer still that I am sad when they do.

    Focus on being the best for the clients who love you back, chasing nickels and dimes from those who have gone another path is not part of successful Brokering.

    Last point; talk about giving the bankers a killer marketing program. 'unlike Brokers who lock you into fees for a mortgage you do not even take - we here at big bank will NEVER have you pay an upfront deposit or sign an exclusivity agreement. We believe that our client relationships are built on trust - not bondage.'

    Be careful what you wish for and be well aware of the rule of 'the unintended consequences of the best intentions'.

    my two cents.

  • Ad Lakhanpal,Mortgage Broker on 2015-10-12 5:19:23 PM

    There are many aspects to this issue but let me give a real life example of my own practice regarding fees. It may clarify some issues.

    I give free advice and free verbal quotation. If the client likes it ,I submit the deal to the lender and get a commitment. At that stage, when they are ready to sign the commitment, I ask them if they are satisfied and accept the deal. If they confirm,I present them with an acceptance agreement which states that if they choose not to close the deal with me, they will owe a specific amount as compensation to my brokerage for the work that we did. I set the amount which is reasonable and is close to my expected finder's fee or broker fee, as the case may be.

    I have been doing it for 5 years and not one client has objected to it and I have not lost a single deal. Thanks to that one little piece of paper!

  • Mark A. on 2015-10-14 1:59:45 PM

    The eutopian view of conducting business without Agreements is unrealistic and unprofessional. Suggesting that brokers shouldn't be allowed to enter into these basic service agreements and/or that clients aren't bright enough to understand them and are being 'coerced', is grossly insulting to all parties involved.

    Btw for any 'big bank campaign' to have any moral ground against cancellation fees, they'd first need to do away with all those pesky 60 page fine print documents that they register with land title outlining the terms and conditions of their own fees and penalties. What are those things called again ..oh right.. Contracts.

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