Broker: Time to disclose reward points

Broker: Time to disclose reward points

Clients are entitled to know when they’re being charged a higher interest rate so brokers can bank the spread to pass it on to other customers, argues an industry veteran, calling on FSCO to mandate disclosure around that lender option.

“When we hear‘Disclosure! Disclosure! Disclosure!’ we don’t hear about the points that some lenders give brokers for specifically and intentionally offering one client a ceiling rate in order to hold onto to the basis points and then buy down the rate for a subsequent client – without having to give up any commission on that subsequent deal,” Paul Mangion, a broker with The Mortgage Centre in Mississauga, told “That amounts to charging the first client a fee because it saves the broker thousands of dollars in lost commission in buying down the rate for that subsequent deal.”

The practice is, in fact, shunned by many brokers, some even going so far as to call it “price discrimination.” But many others have stepped up their use of it in order to retain clients threatening to go with increasingly aggressive banks, even if they’re dangling a rate only one or two basis points lower than the broker’s.

Mangion, a high volume broker working both A and alternative deals, understands the temptation, although questions the ethics of mortgage professionals now taking advantage of formal lender points programs that effectively encourage the practice by offering it as an option.

Ethics aside, he said, clients trusting brokers to win them the lowest possible rate must be told when their mortgage professionals have offered them a ceiling rate instead of the floor Rate.

“When we, as brokers, receive an extra benefit in the form of points from a lender for offering the high end of our rate range to an unsuspecting client, that has to be disclosed,” he said.

Still, all lenders now offering those programs do so as an option, said another seasoned broker, suggesting that places responsibility on the broker’s shoulders, not the lender’s.

Either way, Mangion wants the Financial Services Commission of Ontario to take up the issue during its review of industry regulations early next year.

“Our industry’s reputation depends on transparency,” he told

  • Businessman 2011-08-30 3:16:28 AM
    Should any retailer or proprietor in Canada disclose what profit they are making on any sale? Paul is obviously not a businessman and for some reason considers our industry as a charity. We are not a charity and we charge whatever we feel is just for our services. Let the clients decide is they made the right choice or not. Does a bank disclosue to the client how much profit they are making on each product that they sell? NO!!!! They let the client know how much its costing them, and the clients decide for themselves!
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  • Chad 2011-08-30 3:18:02 AM
    Tell that to the lenders when they renew a client.. "did you know we are screwing you since the last guy i renewed i was competing with a broker so I need to make my spread back." or what about the crazy ird calculations using original discount applied to remaining term rate. (eq you received a 2% discount 5 years ago so we not your IRd rate 1 year (2%- your discount 2%)=0

    We need to stop playing around and demand the industry as a whole tell the consumers what is really going on.

    The value of a broker is knowing the above, not just rate.
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  • alberta 2011-08-30 3:58:59 AM
    on our reca forms, we have a section where it states are you ( the client) paying a higher interest than normal for this transaction. it is a clear as day. Do clients need to know everything? I go over the sheet with every client, state very clearly this is how we get paid. Clients are not stupid they know that you are getting paid for your work. We do not work for free. Clients are not dumb and they accept that the are getting value for the service and if we should get paid.
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