It’s no secret that the banking industry operates in a regulatory environment. Bankers and advisors are required to adhere to strict rules and restrictions… except when it comes to mortgages. According to Samantha Gale, a former mortgage regulator with B.C.’s Financial Institutions Commission and chief executive officier of the Mortgage Brokers Association of British Columbia, individual bank mortgage reps, unlike mortgage brokers and agents, operate outside of regulatory boundaries.
In fact, most banks set their own mortgage recommendations and compensation agreements themselves.
Consumer protection differs greatly between brokers and bankers. Since bank employees are the ones recommending the mortgage product, or an alternative lender, and these banks aren’t required to abide by the same broker regulations, there’s nothing stopping them from doing what they please.
Which begs the question, just whose interests are these bankers looking out for?
A Look at Ontario Regulations
Certified mortgage brokers are required to provide you with the highest level of service. Whether you’re looking to refinance your current mortgage or are on the hunt for your first home, a mortgage broker is obligated to look out for your best interests. Failure to do so could result in the broker losing their license or being assessed a fine. As such, brokers in Ontario aren’t permitted to:
- Suggest an unsuitable lender or mortgage to a client.
Regulations state that brokers must “take reasonable steps” to ensure that any mortgage presented to a borrower is suitable. As such, the borrower must be qualified, and the recommendation must attempt to minimize the client’s current and future borrowing costs. Banks, on the other hand, don’t have any specific protocols in place to ensure suitability, apart from confirming the client is qualified. - Sell a higher mortgage rate in order to get paid more.
Brokers are legally required to disclose this conflict of interest. Federal disclosure rules don’t hold banks to the same standard.
Canadian provinces draft specific broker conduct rules that they are then required to proactively monitor. If individual brokers are caught breaking the rules, they are publicly sanctioned.
Bank mortgage reps, on the other hand, aren’t collared by an independent government watchdog. As such, there are no disclosure rules, audits or monitors in place for individuals. Banks themselves are responsible for developing the policies and procedures that their employees must follow.
If you’re like most Canadians, you likely assume that the Office of the Superintendent of Financial Instituions (OSFI) isĀ responsibleĀ for policing bank activity. This is not true – the OSFI can’t actually intervene in the day-to-day operations of the institutions it regulates.
That job falls on the shoulder of the Financial Consumer Agency of Canada (FCAC). This organization is tasked with ensuring bankers comply with federal regulations. And, for the most part, they do a good job of it. When it comes to monitoring high-profile problems, like mortgage penalty disclosures, the FCAC is great. With that being said, the FCAC falls short in the following areas:
- Educational standards – there are no specific requirements of license stipulations for bank mortgage reps.
- Auditing – the FCAC doesn’t pro-actively monitor or audit individual bank reo conduct.
- Public warnings – the FCA doesn’t public a list of bank reps that have wronged customers.
The moral of the story? Banks often refer clients that they can’t service to lenders of brokerages that the bank has a monetary interest in. As such, they’re not necessarily looking out for your best interests.
Work with a mortgage professional who genuinely cares about your best interests. Contact FamilyLending.ca today for more information on current mortgage rates and products.