A B.C. court has given its blessing to a proposed class action suit against CIBC over the calculation of mortgage prepayment penalties.
The case alleges that the clauses in the firm’s mortgage contracts are invalid because they gave it wide discretion to set the terms of penalties, among other things. The Supreme Court of B.C. has ruled that the case is suitable for a class action proceeding, as long as the plaintiff can give a definition of the affected class that is not too broad.
According to the decision, the representative plaintiff in the case, Erin Sherry, applied for certification of a class action of behalf of residents in B.C. who prepaid some of the mortgages to CIBC before their mortgage contracts were up. It notes that the penalties charged to these customers ranged from less than $1,000 to tens of thousands of dollars. In Sherry’s case, the penalty was almost $48,000.
The suit claims that the prepayment penalty clauses in the bank’s mortgage contracts are void and unenforceable because of the inclusion of provisions giving it discretion in calculating the penalties, and in the selection of a comparison rate. It argues that the maximum penalty should be three months interest; but that if the bank is allowed to base the penalty on an interest rate differential, the formula used by the bank miscalculated the penalties and overcharged customers.
The decision notes that the bank argued that the case is not suitable as a class action, and that this type of proceeding “would be unworkable, consume vast resources, and inevitably fail.” It also says that, in Sherry’s case, the bank reduced her penalty by more than $10,000 as a goodwill gesture, and that she has since recouped the entire prepayment charge after she obtained a new mortgage at a lower rate from another firm.
The court found that there is a genuine issue for trial and that it’s not clear that the plaintiff’s arguments will fail. As well, the court found that there are common issues to be considered and that a class action is preferable to numerous individual cases. It also ruled that Sherry is an appropriate representative plaintiff.
“She had a double discretion mortgage with CIBC, is aware of her responsibilities as representative plaintiff, understands and is affected by the common issues in the case, and does not have a conflict with other class members,” it notes. “Ms. Sherry is also motivated to prosecute the action vigorously, as she is a single parent who was charged a prepayment penalty of over $47,000.”
The court concludes that the claim is suitable for certification as a class proceeding, “conditional on the plaintiff establishing for the court an identifiable class which is not overbroad as are the present proposed terms.”
Parallel actions have been filed in Ontario and Québec. The allegations have not been proven.