Mortgage Broker

30 | summer 2017 cmba-achc.ca CmB magazine brokeringbankers to comply with the same standards in order to create a level playing field. Both mortgage brokers and provincially regulated private lenders have continuously questioned why banks do not have to comply with the various consumer protection rules and standards imposed by provincial authorities. For example, in British Columbia some banks routinely charge more for executing a mortgage discharge than the $75 limit imposed by the Business Practices and Consumer Protection Act. Overlapping Mandates with Regulatory gaps e Canadian Bankers Association (CBA), in recent submissions on Canada's Financial Consumer Protection Mandate asserted: "Despite the fact that the Constitution gives the federal government exclusive jurisdiction over 'banks' and 'banking', some proponents continue to believe that provinces have a complementary role to play in this area. at would not be good for consumers. It would be confusing to have overlapping and conflicting federal and provincial disclosure requirements, and consumers would not know whether to complain to the federal regulator or their provincial regulator if they had a concern about their bank."3 e CMBA would agree with the CBA that overlapping or duplicate regulation does not benefit consumers. Advocating for banks to deliver both federal and provincial forms of cost of credit disclosure does not make sense. However, we need to look more carefully at the question of whether federally regulated financial institutions should comply with provincial requirements when there are clearly regulatory gaps in federal legislation, such as with the lack of limits on discharge fees. Bank Mortgage Brokering A more poignant example of a regulatory gap with banks can be found with non- licensed bank mortgage dealers – the ones who negotiate mortgage arrangements for borrowers, not with the bank itself, but with other third party lenders. A Globe and Mail article (Rob McLister, February 11, 2013) examined this practice at the Royal Bank of Canada: "RBC . . . mortgage reps route applicants that don't meet normal guidelines to their Alternate Mortgage Solutions (AMS) team. RBC's AMS employees then farm those customers out to other lenders and the bank's mortgage rep gets paid when the mortgages close." According to Steven Gargai from CanadaMortgageNews.ca (April 25, 2011), "Back in the early 2000s, RBC created the Alternative Mortgage Solutions. is department would take declined mortgage applications and broker them to secondary lenders like Home Trust, Equitable Trust and other institutional lenders or private lenders. e intention was to retain as much client business as possible while also generating a new source of revenue." Some of these deals truly befuddle borrowers who walk into a bank expecting to get a conventional bank mortgage, and instead end up with a private mortgage with an unfamiliar lender and sizeable broker fees. Non-licensed bank mortgage dealers do not provide borrowers with conflict of interest disclosures to explain who the bank dealer represents or how and how much the bank dealer gets paid. In fact banks operate like a mortgage shop, where qualified mortgage borrowers are offered a bank mortgage to which they can say "yes, please" or "no, thank you." is service model is fundamentally different from how most mortgage brokers operate. ey work on behalf of clients as agents or quasi-fiduciaries to get them the best mortgage deal possible. So exactly how do non-licensed bank mortgage dealers work, and is there adequate federal legislation in place to regulate them? Is the bank dealer an employee of the bank who is just funnelling a declined mortgage application through private channels to make the bank a buck, or are they agents of the borrower who work as a fiduciary to find the borrower the best deal? We can address the concerns made by the CBA by asking whether these provincial consumer protection requirements unduly interfere with the federal jurisdiction over banking. Conveniently enough, the Supreme Court of Canada has rendered a long-awaited and groundbreaking decision that provides guidance on this issue. In the case of Bank of Montreal v. Real Marcott (and two other cases), a class action suit was brought against the bank for failing to disclose exchange fees on credit cards as credit charges as required by the Quebec consumer protection legislation. e bank argued that the Canadian constitution gave the federal Parliament exclusive jurisdiction to regulate banks. However, the court decided that Quebec's consumer protection legislation is "constitutionally applicable and operative" to banks. e concept of "interjurisdictional immunity", which prevents one jurisdiction from encroaching on the laws of another, only applies if the encroaching law "seriously or significantly trammels" the core area of responsibility of the other jurisdiction. In this case, the obligation to disclose exchange costs, as required under the Quebec legislation, did not impair or prevent banks from exchanging foreign currency. e Court concluded, "Requiring banks to inform customers of how their relationship will be governed or be subject to certain remedies Most of us in the mortgage industry are acutely aware of the mischaracterization of alternative lenders as "shadow banks," which connotes an image of mysterious – perhaps even nefarious – individuals lurking in a dark background, lending money to hapless victims in a clandestine, illegal fashion, akin to loan-sharking.

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