August 16, 2018

Class Action Lawsuit Filed Against CIBC Mortgages On Prepayment Penalties

In my blog dated July 26th, 2011 “Mortgages Penalties Exposed…..An In-Depth Study Reveals Unjust Penalties,” we discussed how the Banks changed how they calculated prepayment penalties about 10 years ago and how the consumer has to pay for any discount off the posted rate and the impact this has had on the Interest Rate Differential (IRD) penalty calculations.

In an article dated October 12, 2011, it was identified that there was a class action lawsuit filed against CIBC Mortgages Inc., a subsidiary of CIBC bank on prepayment penalties.  

Consumers hate mortgage prepayment penalties, largely because they don’t understand them.  Now, there is about to be a high-profile challenge of how mortgage penalties are calculated.

The intended suit claims that CIBC improperly calculated penalties for customers who broke their mortgages from 2005 to date.  The claim alleges that:  “CIBC applied terms and conditions to certain mortgage contracts to allow it unfettered discretion for calculation of mortgage prepayment penalties.”  “The quantification of prepayment penalties applied by CIBC are in breach of the mortgage contracts.”

“Starting in 2005, CIBC started using language in its standard charge terms that was extremely vague regarding how its prepayment penalties would be calculated,” says Kieran Bridge, lead counsel on the case, in partnership with Siskins LLP.  “That language, in legal terms, is called unenforceable.  The net result is that they cannot collect penalties with a clause like that.”  “Even if (part of the language) is enforceable, says Bridge, the penalties should be “capped at three months interest.”

Bridge says the lawsuit applies to most CIBC mortgages, including many of those originated in CIBC branches and through its related entities, such as FirstLine Mortgages and President’s Choice Financial.   In terms of value, Bridge estimates this case is worth “into the tens of millions of dollars.  These types of cases are usually settled out of court, however, and don’t usually make it to full trial.

Bridge is not a rookie in class actions.  He says he brought another prepayment-related class action against RBC where the class members were “paid 100 cents on the dollar” for their claims, plus legal fees.

This particular class action all started with a single parent in B.C whose marriage ended.  That individual had to sell the family home and was stuck with a $47,000 interest rate differential penalty from CIBC.

Bridge has reviewed other banks’ practices and hasn’t yet found other lenders that are calculating IRD penalties improperly.

Note:  It has not been established at this point that CIBC has done anything wrong with respect to how it calculates mortgage penalties.

October 28, 2011 Update:  CIBC reportedly just appointed its defence counsel in Vancouver.  The lead lawyer fighting CIBC also sued Coast Capital Savings for ambiguous IRD contract language and for overcharging on mortgage penalties.  Coast won the  penalty portion of that case on appeal.  It was a legal battle that spanned a number of years.

Bridge said that if CIBC were to settle, it would probably take at least a year for mortgage customers to see any money back.

Colleen Saunders is a 20 year veteran in the mortgage industry, serving Mississauga, Burlington, Oakville and Toronto and offering all mortgage related services such as 2nd mortgages, private mortgages and more.

To contact Colleen, please fill out the form on our site or call 416-459-2406

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