Mortgage Broker

Spring 2014

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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12 | spring 2014 MortgageBroker Insurance Information In March 2014, the Financial Institutions Commission published an open letter regarding some issues with creditor's group insurance offered in British Columbia and advised it would conduct a review of these products. Creditor's group insurance is an insurance contract between an insurance company and a lending institution which provides coverage for the lives of clients who borrow money from the lender, should borrowers die before their loans are repaid. e outstanding balance of a loan will be paid off under the insurance contract, which means that the value of the coverage will decrease as the loan is repaid. e lender is actually the policy beneficiary, and not the borrower. However, the policyholder will administer the insurance plan for the benefit of its borrowers who pay for its cost, which makes creditor's group insurance look a lot like individual term life insurance. Under the B.C. Insurance Act creditor's group insurance is defined as "insurance effected by a creditor under which the lives of a number of the creditor's debtors are insured severally under a single contract." In its open letter FICOM advises, "In order to 'effect' a contract, the creditor must play an active and substantive role in negotiating and concluding the contract with the insurer." FICOM is aware of some creditor's group insurance contracts which have not been 'effected' by the lender. If for example, a third party, such as a mortgage brokerage effects the group insurance contract for the benefit of mortgage borrowers, it will not meet the statutory requirements of the Insurance Act. is might pose a risk that a court will find such a contract unenforceable. While mortgage brokers are not expected to be experts on the requirements of the Insurance Act, they may want to be mindful of this potential pitfall when offering creditor's group insurance to mortgage borrowers. FICOM advises that it will conduct a further review of group insurance products offered in B.C., to determine the extent of this problem. — Samantha Gale The six-year rule The SupreMe courT of Bc has recently upheld a Consumer Protection BC compliance order against credit reporting agency, Trans Union of Canada Ltd. 1 At issue was section 109(1)(o) of the Business 1 Trans Union of Canada Inc. v. Business Practices and Consumer Protection Authority of British Columbia 2014 BCSC 74 Practices and Consumer Protection Act, which requires a reporting agency to wipe from a consumer's credit bureau report "any other information adverse to the individual's interest six years aer the event that gave rise to the information". Someone had complained to Consumer Protection BC that enquiries by collection agents were recorded on her credit report and made available to persons who pulled her credit bureau history. However, she claimed that the debts that the collection agents were enquiring about were more than six years old, and that it was improper for the credit- reporting agency not to wipe the enquiries from her credit bureau report. Consumer Protection BC issued a compliance order against Trans Union and Trans Union then sought judicial review of the order from the Supreme Court of BC. Trans Union argued that the enquiries from collection agents were not tied to a particular debt, and that the Act required that an enquiry be removed six years from the date of the enquiry and not six years from the date of the debt. So how did the BC Supreme Court rule? e decision of Consumer Protection BC was upheld. e bottom line is that consumers should expect enquiries from collection agents to be cleaned from their credit bureau report six years from the date of the debt that is connected to the collection agent. Mortgage brokers wishing to assist borrowers with credit repair should check to ensure that this six-year rule is applied properly to their client's bureau. • — S.G. update p12-13_6YearRule+FICOM.indd 12 14-05-08 2:38 PM

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