Mortgage Prepayment Fees Land CIBC in Court

It’s not uncommon for banks and mortgage lenders to charge prepayment fees on their mortgages. Even though you’re helping the bank by paying off more earlier, you’re also hurting them by taking away the money they would gain on the remaining interest of your loan. But even though most lenders have prepayment fees, they still need to adhere to rules and guidelines when setting those fees. Recently, CIBC has broken these rules and charged their customers far too much in prepayment fees and that’s how they’re now making mortgage news – by facing a class-action lawsuit.
The lawsuit against CIBC Mortgages Inc., a subsidiary of CIBC, was originally begun when a couple in B.C. got divorced. The now-single parent needed to sell their home after the divorce, as they could no longer afford it. Upon breaking their mortgage, that individual was then charged $47,000 in penalties from CIBC. Taking the case to an attorney, an investigation was then started and that investigation found that CIBC had been charging arbitrary prepayment penalties since 2005.
But why is CIBC even being held responsible? Isn’t it the part of the consumer to thoroughly read over their mortgage contract before they sign it, and to make sure they are aware of any prepayment fees? Well of course, a consumer must do their due diligence. However, the bank still has a large responsibility to make sure their customer knows what they’re signing onto. CIBC didn’t do that, opting instead to use very vague language that is impossible to sort through.
There’s an actual legal term for such language, and according to Kieran Bridge, lead counsel on the case, it’s called “unenforceable.” He goes on to say that, “Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated. The net result is that they cannot collect penalties with an [unenforceable] clause like that.”
Bridge also went on to explain that the class action suit applies to just about all broken mortgages that CIBC handled from 2005 until the present. He says that not only are mortgages from CIBC Mortgages Inc. under question, but also those from CIBC branches, FirstLine Mortgages, and President’s Choice Financial.
The class action suit is going to wind up being somewhere in the tens of millions of dollars, but Bridge doesn’t think that it will ever see a courtroom, as usually cases like this are settled out of court. And it’s not the first time Bridge has challenged big banks in their mortgage practices. He’s also taken on RBC and in that case, his clients were paid 100% to the dollar for their claims, and they also had their legal fees covered.
Bridge also concluded by saying that he’s reviewed the mortgage and lending practices of other big banks, an hasn’t found anything troubling in regards to how they calculate their prepayment penalties.