Mortgage Broker

32 | fall 2016 cmba-achc.ca CMB MAGAZINE debtservices e effect of the CDSSA amendments appears to be that a person arranging or negotiating for the payout of another person's debts requires registration as a collection agent or collector, even if the payout is part of a mortgage arrangement performed by a licenced mortgage broker. e CDSSA does recognize that other kinds of professionals in the financial-services industry may engage in the debt-settlement services captured by section 1(1) and exceptions from the application of section 4 have accordingly been carved out. Specifically, 2(1) provides an extensive list of persons who are exempt from collection-agent and collector-registration requirements; the list includes lawyers, banks, credit unions, real estate brokerages, insurance agents and others. However, there is no exemption for mortgage brokers in the list. A review of the legislative discussions around the CDSSA amendments from "Committee Transcripts: Standing Committee on the Legislative Assembly - 2013-Oct-23 - Bill 55, Stronger Protection for Ontario Consumers Act, 2013" shows that there was no discussion around curtailing the role of mortgage brokers arranging debt-consolidation mortgages. erefore, any potential statutory conflict between the MBLAA and the CDSSA dealing with the mortgage-broker industry and consolidation mortgages appears to be accidental. Since the enactment of the CDSSA amendments in 2015, numerous collection entities have emerged, most of which look like unregistered entities relying on the exemption afforded to lawyers under section 2(1). For instance, one such entity represents itself as a debt-settlement service provider, but explains in a four-page pamphlet directed to mortgage brokers that their lawyers "can charge the client between 17.5% and 50% of the amount saved." Note that these fees are in considerable excess of the 10 per cent fee cap imposed by the new CDSSA requirements by which registered collection agencies are bound. e pamphlet further explains that mortgage brokers are not permitted to do debt consolidations. Specifically, it states: "WHY NOT NEGOTIATE YOURSELF, OR HAVE THE CLIENT DO IT? Whether charging a fee or not, if you are not a lawyer, a trustee, or have a debt settlement license, it is illegal to arrange any form of settlement payout... [e] fine is $250,000 and the loss of your FSCO license." It then explains the process of how a mortgage broker can work with the unregistered entity to perform debt consolidation, and it provides examples of referral fees which are paid to the broker. As an example, the collection agency promises to pay a mortgage broker $7,700 as a referral fee when negotiating a debt consolidation for $80,000 worth of debt with a new second mortgage of $60,000. e mortgage broker's referral fee is in addition to the collection agency fee of $22,000. Using the example contained in the pamphlet, we can compare the fees charged to the client when using a collection agency to consolidate debt using a second mortgage, versus the fees charged when no collection agency is involved in the process. If the CDSSA is compared with the Mortgage Brokerages, Lenders and Administrators Act (MBLAA), the authorized activities categorized as debt- settlement services clearly overlap with debt-consolidation services performed by licenced mortgage brokers in the course of arranging mortgages, mortgage lending and administration. Mortgage brokers, in the course of delivering the above-described services to borrowers, oen investigate the balance of a borrower's third- party debts and make arrangements for those debts to be paid out of the mortgage proceeds received from the lender. In some instances, a mortgage broker will negotiate a reduction of the debt on the borrower's behalf prior to payout. ese debt payouts form part of the mortgage commitment and become conditions of mortgage funding. erefore, arranging for the debt repayment on behalf of a mortgage borrower is an integral part of the mortgage- dealing and lending process. Typically, a broker will make arrangements to pay out a borrower's debts when arranging a consolidation mortgage, which is a mortgage The above chart illustrates the value to the consumer of using a mortgage broker for debt consolidation without any assistance from a collection agency, whether it be registered or unregistered entities relying on a lawyer's exemption. CLIENT WITH $80,000 IN DEBT CONSOLIDATED WITH A $60,000 SECOND MORTGAGE ASSISTED BY: Registered collection agency Unregistered collection agency relying on the lawyers' exemption as per example No collection agency FEE PAID TO MORTGAGE BROKER FOR ARRANGING A DEBT CONSOLIDATION MORTGAGE Typical fee on 2nd mortgage = $2,500 Typical fee on 2nd mortgage = $2,500 Typical fee on 2nd mortgage = $2,500 FEE PAID BY CLIENT TO COLLECTION AGENCY FOR DEBT SETTLEMENT WORK Up to 10% of debt = $8,000 $29,700 Nil TOTAL COST TO CLIENT $10,500 $32,200 $2,500

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