Mortgage Broker

Summer 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.

Issue link: http://digital.canadawide.com/i/354755

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MORTGAGEBROKER mbabc.ca summer 2014 | 37 classaction Prepayment Clause Sparks Class Action Suit WITH ONE REASONABLY easy-to- resolve condition, the Supreme Court of British Columbia certified a class action lawsuit against CIBC Mortgages Inc. regarding prepayment payment clauses. In a class action lawsuit the court allows a person to bring a lawsuit on behalf of a defined class of people who face the same issue. Amongst other benefits and reasons, this allows the issue to both be raised for people who individually would not find it economical to go to court and for court resources to be used more efficiently. In this case the lone plaintiff sought to bring the case forward as a class action lawsuit on behalf of persons in B.C. who borrowed money from CIBC and who prepaid part or all of the principal amounts secured by those mortgages from 2005 onward. e amounts charged to individuals ranged from less than $1,000 to tens of thousands of dollars. e court said the class was not defined precisely enough but otherwise certified the case as a class action on 30 June 2014. e plaintiff's counsel is to come back with a more precise definition for the class. In certifying a case as a class action lawsuit a court is not saying that the class will win, but only that the claim is not plain and obvious to fail. e primary issue in the lawsuit is whether the prepayment clauses in CIBC's standard term agreements are void and unenforceable because they give too much discretion to CIBC in calculating the prepayment amount. e plaintiff claims that the discretion makes the prepayment clause in the agreement too uncertain to be enforceable. As an alternative, the plaintiff claims that even if the clauses are not void, CIBC overcharged by not taking into account the fact that money paid sooner has a greater value than money paid later. e court accepted there may be arguments against the plaintiff's positions but decided it was appropriate for a court to hear the arguments and decide the issues aer a trial. Should CIBC lose the case, the expectation is that it would have to refund large amounts of the prepayment penalties it charged. However, before potential recipients of the money go on a spending spree, be aware that these cases can take years to resolve. • Ray Basi, MBIBC Director of Policy and Education

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