CIBC IRD Penalty Case Update

Lawsuit-CIBCHere’s the latest on the CIBC IRD penalty class action:

  • CIBC reportedly just appointed its defence counsel in Vancouver.
  • The lead lawyer fighting CIBC (Kieran Bridge) 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.

  • When asked if the Coast loss lessens his chances of prevailing against CIBC, Bridge told us, “No. The case is distinguishable” because Coast had “different language” in their contract than CIBC.
  • Theoretically, if CIBC were to settle, it would probably take at least a year for class members (CIBC Mortgage customers who paid penalties since 2005) to see any money back, says Bridge.
  • CIBC spokesman Rob McLeod told Ellen Roseman: “CIBC believes this suit to be without merit and we intend to defend ourselves vigorously…CIBC’s disclosure of how prepayment charges are calculated is clearly laid out in our mortgage documentation.”

Rob McLister, CMT

  1. I fit the criteria for being a class member and sent my data off to the law firm. They accepted my information and told me “these things can take time”. We’ll see what happens.

  2. This case will go nowhere!
    What do you call a thousand class action lawyers on the bottom of the ocean?
    …….. A good start!

  3. The only thing that’s preventing this case from heading to trial would be the enormous legal costs CIBC would have to pay out to defend itself. Corporate legal teams charge like $1,000 an hour. That’s what sucks about being a big bank; your lawyers get a marvelous paycheck even if they lose. Yay!

  4. Have you got some inside knowledge on this case? Have you even read the statement of claim?
    Nice joke though. Much respect.

  5. Why do we instist on removing responsibilty from people to read and understand the contracts they sign. “They are just poor average people who don’t know any better and need to be taken care of by those of us that do”. What are they, 12? Read the contract and if you don’t like the terms, go somewhere else. If you don’t understand them, ask, if you still don’t understand them keep asking until if you do, if you choose to sign a document without understanding it, then, as an adult, you need to be responsible for that action. Part of the problem is that most contracts are so full of legalease that it is so difficult to read them you often need to take them to a lawyer… Who wrote them; a lawyer employeed by the bank. Who is suing because the language is difficult to read (except by a lawyer), a lawyer. I have nothing against lawyers, I thank God for them because when you need then… My point is that we love to blame the banks for everything and not take even some responisibility ourselves.

  6. What criteria is that, you didn’t understand what a “fixed closed mortgage contract” means?
    Ignorance or stupidity is not a defence!

  7. I think this claim still needs to get past a judge first.
    But your right, all too often, class action’s are often settled because despite the merits of the case or lack thereof, its cheaper to settle. What a great legal system we have! :(
    Everyday: I have no vested interest in this filing and have read it.

  8. Hey Alan next time you buy a car why dont you make sure you understand every little thing about it works.. including the diagnostics so when something goes wrong you are so well informed you can fight for it when they negate your warranty.
    Or perhaps when you get your taxes done… you know exactly where and what all your deductions mean.
    Also dont forget that little clause at the bottom of your financing contract that no one thought to point out to you but hey… you signed for it !!! Too bad eh….
    Your attitude has some merit…. but its not really realistic. People do have some responsibility I agree… but human nature depicts that if a company can get away with the small print you lose and it wins…. until someone stands up and says enough!

  9. Alan:
    You may be a lawyer, but 99% are not.
    You may be a man that have a habit to read any “contract”, but 99% of man are not.
    If you go to a furniture store, do you every read that sheet of paper when you purchase? When you buy a car,
    do you ever read every line and letter, even in small font hidden somewhere?
    I feel 99% of us just listen to the saleman blah, blah, and then sign for it.

  10. Ignorance is not a defence. Most of the 99% know that when they are signing a 5 yr fixed contract, that is what it is.
    Most of the 99% know that when they get a shiny new Iphone that retails for $600 on a 3 yr contract for zero $$$, that there will be a large penalty if they break the contract. Most of the 99% know that. Why? common sense, No law degree required.

  11. Lorilee Lefebvre, and your a mortgage broker from Duncan, BC who has zero respect for the hand that feeds you. all that needs to be said!

  12. Agreed. Ignorance should not a defense for getting out of a contract that you signed.
    Similarly, ignorance should not be an excuse for potentially unfair or misleading practices associated with calculating that penalty.
    The issue isn’t the application of a penalty – it’s the vague language and undefined terms that allows some lenders to change the penalty terms, sometimes at will and apply them inconsistently as they see fit.

  13. why even have IRD fees????
    Loan – I can pay off anytime
    LOC – I can pay off anytime
    Credit Card – I can pay off anytime
    Sure i have a fee if i break my phone contract, but i get to keep the phone, i dont get to keep my house when paying a IRD fee. I still have to pay the mortgage.

  14. That’s because mortgage loans are costly to originate and underwrite. The amounts involved also much larger than credit card or LOC limits. Fixed-term mortgages are like an insurance policy: the lender agrees to keep the rate the same regardless of what happens in the markets. The spread between floating (variable) rates and fixed rates for the same term is the premium the borrower pays to lock the rate. In essence, the borrower shifts the interest rate risk to the lender, kinda like an annuitant shifts the risk to an insurance company.
    However, in exchange for the insurance, you pay a higher rate and you also agree not to pay off the balance in full/break the mortgage before the term matures. Most fixed-term mortgages are broken not because people pay them off in full but rather because they want to consolidate debt, move to a lower rate, etc. The banks are pretty good at churning and convincing people that they need to refinance. Why do you think TD started registering all of their mortgages as collateral charge? Better yet, why do you think bank staff have a tendency to recommend fixed-rate mortgages to clients? Because the bank wins either way. Fixed rates have higher profit margins (the current spread between 5-year Canada bond yield and 5-year fixed rate mortgages is about 2% on a fully discounted basis, higher if you’re a sucker to settle for the banks’ “special offer” rates or even worst, posted rates) and if the borrower breaks the term before it matures, the bank could potentially receive a huge payout from the penalty. Unbeknownst to many consumers, this system is a huge revenue generator especially in an economic environment of low interest rates.

  15. I read and understood my terms, I called and called and doubled checked as to what my payout for CIBC would be, they told me $3,800.00 to my surprise my lawyer called and said CIBC is charging $10,204.00 hummm…. I have talked to 20 to 30 different people at CIBC and they all say they can’t explain to me why this is happening, I asked to hear the recorded phone call they won’t allow it, they want me to fill out a form and wait approx 30 days to get it? I have to close my house and where do they expect you to get the extra money??? Nice, I have let all first time homebuyers and all buyers coming into our office to steer clear of CIBC!
    Oh ya did I forget to mention I wouldn’t have even put my home up for sale if it wasn’t for the advice of CIBC, I should have made a profit of 30,000 on this home and for some reason I am 15,000 more in debt.
    But you know what CIBC is sorry!
    Another Victim

  16. “I should have made a profit of 30,000 on this home and for some reason I am 15,000 more in debt.” (a difference of $45,000)
    “CIBC would be, they told me $3,800.00 to my surprise my lawyer called and said CIBC is charging $10,204.00” ( difference of $6,404)
    How is this CIBC’s fault again?

  17. Why would CIBC or any of their employees tell you to sell your home? You should always get the penalty quote in writing and as soon as possible to the closing/payout date. Verbal means ****! I’m *guessing* that what happened here is you may have requested the payout statement a bit too early and interest rates moved during this period and subsequently increased the penalty amount. So while you may have gotten a verbal communication of some kind from their reps that the penalty would be $3,800, the final bill ended up being $10,000. It does happen when rates are fluctuating.

  18. Smiles glad to get a rise out of you IVORY .. I use my real name but you dont. Regardless I stand by what I said.
    Temper temper… go google something else.
    What bank do you report to. I am also an exbanker of 22 years and have had battles with banks over penalties incorrectly calculated for years.
    I also have a lot of respect for the people that “feed my hand” as you so eloquently put it, however this isnt about them .. this is about policy and things that are out of branch control. Things controlled by those we used to call …. From the Ivory Tower!!
    What bank do you work for ??? CIBC?

  19. $6404???? who is going to pay for the difference????? you??? now had to get a cash back to compensate for the interest and I am sure that this will add up to more then 15,000 when it is all said an done with.
    But again it’s all okay because “CIBC said they were sorry”

  20. IRD calculations when applied as the big six do is the industry standard. The variables that affects and changes the quote is usually the time between when the quote is given, and what happens with the prevailing rate until payout (prevailing rate = today’s rate that the bank would lend to a similar client for the closest term remaining to what remains on the subject mortgage).
    The changes that increase the penalty typically occur when the prevailing/current rate drops between when the quote is given and the pay-out date; or worse when the closest prevailing rate drops from a standard term, say three years to a even lower two year term, due to the timing of when the mortgage is paid out. This increases the loss of yield the bank experiences and thus increases the penalty to the consumer. If you think a penalty quoted in April is good until November you are sadly mistaken.
    Conversely, it can work to the consumers favour when the rates increase during that time. A rate increase during that time can increase the prevailing rate and therefore reduce the penalty. It all depends on what happens with current rates from when the penalty was quoted and what happens to the prevailing rate.
    That is not to say that there are not penalties that are onerous and outside of industry norms. A few years ago a client that I placed with a defunct American lender went to payout his mortgage upon sale and the lender arbitrarily defined, and not in the written terms of the commitment and mortgage terms, that the prevailing rate would be at a Canadian chartered bank’s best discounted rates. So the client was going to be charged the difference between (from memory – I am not going to dig up the file) 8.25% versus 4% for the remaining three years of a large mortgage. The dollar amount was over $26,000 and wiped out their downpayment. This was after subjects were removed. You can imagine the stress these people were under. Needless to say, I fought on behalf of my client all the way to the CEO and this decision was reversed.
    Another good example of penalties outside of the norms is a BC Credit Union that was offering discounted mortgages, that quite frankly weren’t that steeply discounted, but had a 12 month interest penalty. Or a Trust company operating here in Canada that has prevailing rate discount on variable rate mortgages. The list can go on of lenders that have penalties outside of norms dependent on their current offering.
    Consult a licensed Mortgage Broker when paying out your mortgage. It always comes down to math. This includes the famous “blend and extend” mortgages, which are not always tilted in the consumers favour. Options include porting your mortgage, or in some instances splitting the payout in to two – the allowable 15-20% and then paying the penalty on the difference where permitted.
    Now if our esteemed national organization CAAMP could find some time to start lobbying the federal government that a Canadian wide standard interest penalty would be in the best interest of Canadians, then perhaps one day have an industry wide standard. Unfortunately, CAAMP is too busy promoting their self-serving AMP designation for 10% of their member brokers that hold this useless designation and that less than 1% of the broker industry cares about, rather than promoting the broker industry as a whole – that they were formed to do.

  21. Wow, the opposing forces are going at it with a vengeance today! It’s good for a morning chuckle if nothing else.
    If cooler heads prevailed, common sense would tell us that yes, of course people are responsible for the contracts they sign. But common sense and reality also tells us that the ‘vast majority’ of consumers do not fully understand every clause in the contracts they sign for a few reasons. They likely do trust the party (in this case the Lender) they are entering into the contract with; they mostly trust that our legal system tends to look after the ‘little guy’ vs the big corporation; and most people have a little bit of knowledge about mortgage’s….people still think of a prepayment penalty as generally being about 3 months interest (right or wrong).
    The fact is that mortgage clauses are confusing to understand, but that is not the reason that the finance minister Mr Flaherty has publically stated (March 2010 budget I believe) that he will be looking to standardize mortgage IRD/prepayment calculations. (hasn’t happended yet but rest assured it will be coming, especially with the recent flux of complaints to OSFI, the federal ombudsmen on banking, etc).
    Where the banks are (I believe) shooting themselves in the foot, is in using the posted rate to calculate the IRD instead of the lower discounted rate that pretty well everyone gets. Just look at the banks posted mortgage rates today. Who would actually pay even close to those rates? Nobody. And no banker can tell anyone different. We’re all in the business so we all know this to be fact.
    And to add to the confusion, banks often lower pre-payment penalties (I’ve seen them waive altogether) if the customer has other business with the bank that the bank doesn’t want to lose. The banks will also offer a blend and extend almost any day of the week, to keep the customer’s mortgage. And the rate for the B&E is a lot lower than the posted rate they are using for the IRD. So in these cases they certainly hold the cards in the negotiation…ie, pay us out with a $15,000 IRD penalty, or we’d be ahppy to renew your mortgage early at a blended rate, which would you prefer?
    So there are double standards and inconsistencies applied everywhere. And even different branches of the same bank apply diffferent rules and make different offers. Why?? Because they all have targets to hit and branches are driven hard to hit their sales targets. The bank is a profit center and they are in business for one reason and one reason only, to make money. And they do a great job of making money. Not that making money is a bad thing of course, but all of the banks could certainly use a little bit of their own common sense. Banks…you are giving consumers the ammunition to rise up against you. The ‘occupy Bay Street movement’ is happening because you put ‘making money’ ahead of this common sense’. Right now a rising number of Canadians see banks as a necessary evil…They don’t like them, but feel they have to use them. No wonder Credit Unions are growing like crqazy right across the country. They offer the same products/services the banks do, they have better rates in many cases, and they are owned by their customers in the comunities they serve, so their policices and practices are much more consumer friendly. All we have to do is look at customer service surveys to see that credit unions have been beating the banks for years.
    If the banks were smart(er) they would get together themselves and standardise a simple language IRD, rather than wait for the Gov’t to make the rules for them.
    Now play nice everyone, we still live in the best countrry in the world!

  22. Lorille, how in god’s name do people ever trust you with their personal information? Times have evolved since your bank teller days in [City blocked by CMT]. Ever heard of identity theft?
    How did I find out in less time than it took to write this and by total legal means your age, DOB, your new [Property Type blocked by CMT] address that I must say is quite a step up from the previous bungalow shack that you had closer in town, your vehicle & Lic#,(I hate [Vehicle type blocked by CMT]) or the names of your [Pet breed blocked by CMT] that I bet you probably use as passwords?
    You might have got a rise out of me but you just got owned by a middle aged banker who can’t even set up netflix properly. So, forgive me if I don’t feel comfortable even sharing my first name with you!
    [Edits to this post have been made due to a privacy complaint. Readers please note: If you do not wish to be identified, do not use your name, email or website in your posts.]

  23. Nice .. to see I riled you again and frankly I think you should be ashamed that your temper caused you to share all my personal information on this site.You must be very proud at your latest internet prowess!!
    Im laffing at “owned” Grow up .. next you will threaten to come and hurt me??? Since you know my address and all that.
    You tell me I cant be trusted yet you are the one sharing this with the general public.
    Next time you do this think about what you are doing and dont make such a spectacle of yourself.
    In other words you have nothing but my personal history and you are more than willing to share it… a public forum
    Who cant be trusted?
    Thanks for making me look good and you look awful and well… childish.
    Now I ask people .. who would you trust someone willing to put your information up on a public forum without your permission?? Or a broker who is fine to use her own name. :)
    I do think I really hit a nerve here.. your angry with me Ivory .. hmmmmm makes one wonder.
    If you could find all that out about me.. no wonder you dont want to use your real name… Fear I would say that someone might just do this to you!!
    Carry on

  24. I commented on the first news item about the CIBC lawsuit, and coming back here and reading these comments now from (presumably) brokers and bankers leaves me shaking my head at the sorry state of ethics in the banking business.
    I’m a client. A first time buyer that trusted my lender to be honest and transparent — to honor contracts and not use slippery language on IRDs and manipulation of short term fixed rates to maneuver themselves into protective profit positions.
    Instead, I’ve been made to feel like a rube, told one thing one day, and the next day something different. The attitude that “stupidity and ignorance is no excuse” and “you signed it, buyer beware, read the contract” is no defence for being misleading and unethical in your business dealings.
    The looseness in the way CIBC/Firstline’s IRDs are calculated, and the slippery language in which they’re described, the way they maneuver penalties up and down at will using posted rates and lowering 2,3,4 yr term fixed rates while raising 5 yr terms, is simply, from the standpoint of a consumer, indefensible.
    The fact that a credit union would also use a movable IRD calculation is further evidence that there’s no hope that natural competition will solve this problem. It shows that all banks are willing to sacrifice transparency at the altar of greed, and why the only hope lies in the courts and/or regulation.
    The optics of this “lawusit defense” is a scar on the mortgage industry and erodes my trust that I will ever be able to trust anyone from a financial institution again — no matter how warm their smile, I will always see teeth.

  25. Penalties on fixed mortgage rates are outrages. With a variable rate the penalties are usually 3 month interest. The fixed rate penalties should not be much higher.
    Many people break mortgage contracts not to save a few bucks on the interest but because they have to sell their homes they cannot afford any longer. And that well may be not because they overextended their credit but because unexpected life events (illness, separation, etc.)
    The purpose of the posted rates at big banks seem to be to charge higher penalties or use the them in rate negotiations to tell not well informed customers how much they will be “saving” with such a great discount they are offered (when other lenders openly offer a better rate).
    The mortgage documents are not easy to understand for most regular people. But the biggest problem is that now many lenders will not give you the contract to read ahead of time. They want you to come and sign it on the spot. How is it fair to the customer? What if the customer wants to take their time to read and understand the contract, take it to a lawyer, or compare it with other offers?
    Another problem is that most (or all?) banks offer consumers the terms that the consumers will be screwed big time if their circumstances change and they have to break the contract. Will any of the banks change the contract in the customer’s favour? I really doubt it. Not a tiny bit.
    The IRD calculations are confusing not only for customers but for many bank employees themselves, from mortgage consultants to branch managers. For example… A client takes a 5-year fixed mortgage with 3% interest rate when the posted rate is 5% and pays it all back next day. Did the bank just lost 2% times 5 years = 10% of the mortgage as their profit? Most likely the bank sold its bonds with 2.5% yield and the maximum loss would be 0.5% x 5 = 2.5%. In reality the bank will sell that mortgage to another client within a few months and possibly at a higher rate.
    What the bankers could not explain me is that if, for example, I take a 5-year fixed at 5% and repay it earlier with two different scenarios:
    1. The new rate is 3% so the IRD will be 5-3=2%. OK, that is understandable, the bank would loose the profit.
    2. But what is the new rate is 7%? Will they calculate the IRD as 5-7=-2% so they would theoretically owe me the money since now bank can sell my mortgage money to someone else at a higher rate? (I know the bank will charge minimum 3 month interest penalty). Should not the bank pay me since I let them out of the unfavourable contract earlier? LOL
    Would it be a reasonable assumption that with the current record low fixed rates the early prepayment penalty risk is only 3 month interest?

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