Mortgage Broker

disclosure BY samantha gale Two class-action lawsuits have been filed in B.C. for breaches of cost-of-credit disclosure rules Disclose with Care Most Mortgage brokers and lenders in B.C. are well aware of their obligations to complete cost of credit disclosure under Part 5 of the Business Practices and Consumer Protection Act. Not only does it need to be completed, but it needs to be completed fairly accurately. Under the regulation, the disclosed annual percentage rate ( APR) is considered to be accurate if it is within one-eighth of one per cent of the actual APR. is does not leave much room for error and, fortunately, the industry has several cost-of-credit calculator programs at its disposal. e ramifications for industry members failing to provide accurate cost-of-credit disclosure can be serious, and include regulatory action under the Mortgage Brokers Act or a civil lawsuit. Despite this, mortgage borrowers are highly unlikely to initiate an individual civil action in most cases of inaccurate disclosure, given that most disclosure errors would not result in sufficient damages to warrant the cost of initiating court action by a single plaintiff. However, class- action lawsuits are a complete game changer. By aggregating relatively miniscule damages from each plaintiff into a large, collective pool of damages from a class of plaintiffs with the same cause of action against a particular defendant, the litigation becomes affordable – and can have potentially devastating consequences for defendants. e real risk to mortgage brokers and mortgage lenders who provide borrowers with inadequate disclosure is, therefore, the class- action lawsuit. However, the cost-of-credit rules have been around since 2004 in B.C., and there haven't been any class-action lawsuits against mortgage brokers or mortgage lenders relating to cost-of-credit disclosure – until now, that is. ere are currently two pending class-action lawsuits that have been certified against mortgage lenders – one against a financial institution and the other against a registrant under the Mortgage Brokers Act. In one cause of action, the plaintiffs allege that the calculation of the lender's prepayment penalty was discretionary, and therefore the penalty clause in the mortgage agreement should be void and unenforceable. A corollary to this claim is an allegation that the prepayment penalty was not accurately disclosed. In a second cause of action, the plaintiffs allege that the mortgage lender did not accurately disclose legal fees that borrowers were required to pay, describing them as title insurance fees. e legal fees were paid to the title insurance company for performing legal services to convey the mortgage and not for title insurance. ese cases highlight the challenges that mortgage brokers may have in providing cost-of-credit disclosure when the disclosed information from lenders, such as with complex or vague prepayment penalty clauses, is itself unclear. ere is also an overlap in many cases with both lenders and brokers providing two different cost-of-credit disclosures to borrowers that have been mandated under different cost- of-credit disclosure statutes, one federal and the other provincial. However, at the end of the day, mortgage brokers and lenders really should take care to understand the purpose of the cost-of-credit disclosure and not just do number crunching – they need to figure out what is being explained to borrowers and ask themselves whether the disclosed information is clear, accurate and true. • MortgageBroker mbabc.ca winter 2015 | 41

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