Failure for more than 10 years to properly disclose all the costs of discharging a mortgage led to a $1.6 million penalty against an online mortgage provider from Canada’s financial consumer watchdog.
The Financial Consumer Agency of Canada (FCAC) ruled that mortgage documents used by Community Trust Company failed – from January 2010 to November 2020 – to provide fixed-rate mortgage customers with the information required by regulations.
Regulations require that costs and fees related to borrowing must be disclosed in a specified information box at the outset of a credit agreement or other disclosure document (information box) and also in the schedule of charges in the credit agreement or other disclosure document.
CTC’s $495 discharge administration fee was properly disclosed in the documents but a second fee of $100 charged to produce a statement providing information related to the discharge was not included in the information box disclosure. The issue was drawn to FCAC’s attention by a consumer complaint that reached the Ombudsman for Banking Services and Investments (OBSI). OBSI is required to inform FCAC of potential system issues uncovered in its investigations.
The decision from FCAC Commissioner Judith Robertson said “accurate disclosure of fees and costs is fundamental to fairness, honest business practices and the integrity of the financial system.” Plus, the importance of this accountability “is amplified in circumstances like a mortgage discharge, where the stakes are high, and a customer may feel pressure to acquiesce to a non-disclosed fee in order to complete the purchase or sale of a home.”
FCAC investigators assess that ineffective controls allowed the non-compliant disclosure to continue for many years without detection or correction. When a client first raised the complaint with the lender, Community Trust failed to notify FCAC of the issue. The investigation also showed CTC had some knowledge of the disclosure shortcomings dating back to 2014, but did not take corrective action.
The number of affected customers was relatively low, with approximately 6,392 receiving the non-compliant disclosure and 3,428 charged the $100 statement fee, for a total impact of about $340,000. CTC refunded customers it could identify and made a charitable donation to support financial literacy with the remaining funds.
Robertson waived a second penalty of $1.55 million recommended by staff for a similar violation from the lender, because the $1.6 million penalty “is sufficient in this case and is proportionate to the findings of non-compliance.”