Lawyer files prepayment class action against CIBC

Lawyer files prepayment class action against CIBC

Twin class action lawsuits were filed in B.C. and Ontario late last week alleging some CIBC mortgage borrowers have been unfairly penalized by “vague” prepayment terms, the lawyer behind the action told MortgageBrokerNews.ca.

“There are two substantive complaints here,” Kieran Bridge, a Vancouver lawyer with the Construction Law Group, told MortgageBrokerNews.ca. “We believe that through this lawsuit CIBC's practices with respect to how they calculate mortgage prepayment penalties will be found to be unenforceable.  In this case, as with all of these types of cases, we are concerned about whether Canadians are being treated fairly and lawfully."

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 have a chance to respond to the claims, with a judge’s decision on whether to certify the civil lawsuit, and move it to trial, possibly taking a year or more. The bank did not provide comment to MortgageBrokerNews Tuesday, and none of the allegations have, in fact, been proven.

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.

11 Comments
  • BC Broker 2011-10-13 3:07:51 AM
    I loved hearing this story. Kudo's to the lawfirm that ultimately decided to proceed with this case. I have talked to a few lawyers over the past few years about penalties and not one lawyer was interested in tangling with big banks and their powerfull lawyers.

    p.s Is the govt ever going to get around to standardizing penalties as they mentioned in the 2010 federal budget ?
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  • Dan 2011-10-13 5:20:49 AM
    That change will most likely never occur as it would harm the Big 5's ability to profiteer off of Canadians. When was the last time any federal government passed legislation that was detrimental to the banks' bottom line. The same is true for the fact that there is virtually no regulation within the areas of credit cards and in-store financing.
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  • Ron Butler 2011-10-13 6:25:47 AM
    Thank you BC Broker, standardization is the right approach. This would be an easy law for the Feds to enact. I don't even care what the IRD rule would end up being as long as there was only one way of calculating IRD.

    The only ones who do well in any class action lawsuit are the lawyers.
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