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Why CIBC is being sued over mortgage penalties
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The Toronto Star-By Ellen Roseman
I don't like the unfair way that prepayment penalties are calculated for borrowers who break a closed mortgage. Lenders don't follow a standard formula, nor do they make full disclosure in their contracts.
In the past few years, I've received a steady flow of mortgage penalty complaints. Many have been resolved in the borrower's favour, including one where ING Direct gave a $7,300 refund to to a borrower because of faulty communications.
The federal government promised to standardize mortgage penalties, but didn't follow up. Now there's a class action lawsuit challenging the math used by CIBC Mortgages Inc., a subsidiary of CIBC bank.
Kieran Bridge, a Vancouver lawyer, is the lead counsel on the case, in partnership with Siskinds LP in Ontario. You can find information at Siskinds' website.
"CIBC believes this suit to be without merit and we intend to defend ourselves vigorously," says bank spokesman Rob McLeod. "CIBC's disclosure of how prepayment charges are calculated is clearly laid out in our mortgage documentation."
The class action, which has not yet been certified to go ahead, claims the language was so vague in CIBC's mortgage contracts that the penalties are unenforceable. It wants the bank to give refunds going back to 2005.
Robert McLister of Canadian Mortgage Trends mentioned that I have a connection to this lawsuit. Lawyer Matt Baer of Siskinds posted a comment at my blog last July, saying he was doing research on mortgage penalties and people who paid them. Maybe he found a few participants that way.
Class actions have been used against mortgage lenders before. A number of Canadian banks were sued successfully for not including a borrower's prepayment privileges when calculating the penalty.
McLister says mortgage penalty language is "notoriously cryptic" at the big banks. I agree, since I get complaints about almost all of them.
Verbal disclosure to customers is often non-existent or wrong. Many borrowers think they'll pay a penalty of three months' interest. Later, they're hit with an interest rate differential penalty that is much higher than they had anticipated.
I hope this lawsuit puts pressure on Finance Minister Jim Flaherty to keep his promise. Action on unfair mortgage penalties is long overdue.
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