Prohibited Practices in Mortgage Brokerage in Quebec

Quebec's regulatory framework imposes high standards of professional conduct on mortgage brokers. Several laws converge to protect borrowers against abusive, misleading or fraudulent practices: the Civil Code of Quebec, the Consumer Protection Act (CPA), the Act respecting the distribution of financial products and services (LDPSF) and the Code of Ethics for mortgage brokerage representatives. Violation of these standards exposes the broker to AMF disciplinary sanctions, civil lawsuits from aggrieved clients and, in the most serious cases, criminal prosecution. Thorough knowledge of these prohibitions is essential for any broker wishing to maintain an ethical and sustainable practice.

Abusive Clauses in Mortgage Contracts

Article 1437 of the Civil Code of Quebec provides that a clause in a contract of adhesion or consumer contract is abusive if it disadvantages the consumer excessively and unreasonably, thereby going against what good faith requires. The court may reduce the resulting obligations or annul the clause entirely. In the mortgage context, the most commonly challenged abusive clauses include prepayment penalties disproportionate to the lender's actual loss, unilateral interest rate modification clauses without adequate notice, hidden or undisclosed administration fees at the time of signing, forced sale clauses without respecting the notice periods provided in the Civil Code, and clauses unreasonably limiting the consumer's rights.

False and Misleading Representations

• Advertising an interest rate that is unavailable or subject to undisclosed conditions, for example a rate valid only for borrowers with a credit score above 800
• Exaggerating potential savings from refinancing without conducting rigorous financial analysis accounting for prepayment penalties and notary fees
• Failing to mention significant penalty fees when presenting a mortgage transfer to another lender
• Promising mortgage approval before receiving the lender's official response, creating false expectations for the client
• Falsifying or embellishing a client's financial documents (income, assets, employment) to obtain approval the client would not otherwise receive
• Using fictitious testimonials or unrepresentative results in advertising brokerage services

Violated Disclosure Obligations

The Code of Ethics for mortgage brokerage representatives imposes strict disclosure obligations. The broker must reveal any actual or potential conflict of interest, inform the client of the source and nature of their compensation, and disclose any business relationship that may influence their recommendations. Failing to disclose that the broker receives a higher commission from a particular lender, or that a volume agreement exists with certain lenders, constitutes a serious ethical breach. The broker must also inform the client if they do not have access to a complete range of lenders in the market.

AMF Disciplinary Sanctions

1. Preliminary investigation: The AMF receives the complaint or detects the breach during an inspection. A preliminary investigation is opened to gather facts and évidence.
2. Interim measures: If the situation requires it, the AMF may impose immédiate interim measures, such as provisional suspension of the broker's certificate.
3. Disciplinary hearing: The broker is summoned before the discipline committee. They may be represented by a lawyer and present their defence.
4. Decision and sanctions: The committee renders its decision: warning, fine (up to tens of thousands of dollars per offence), temporary or permanent suspension, or certificate revocation.
5. Publication of the decision: Disciplinary decisions are published on the AMF website and constitute a permanent record with lasting impact on the broker's career.

Consumer Civil Remedies

On the civil side, consumers who are victims of prohibited practices have significant remedies. They may obtain rescission of the mortgage contract if consent was vitiated by misleading representations. Compensatory damages may be awarded for financial and moral harm suffered. The CPA provides for punitive damages in case of intentional violation, which can be substantial. Section 272 of the CPA offers a presumption in favour of the consumer: once the violation is established, it is up to the merchant to prove the consumer suffered no harm. Remedies may be exercised individually or, in certain cases, through class action when multiple consumers are affected by the same practices.

The enforcement of prohibited practices in Quebec mortgage brokerage reflects a comprehensive regulatory approach that combines proactive prevention through education and inspection with reactive measures through disciplinary proceedings and civil remedies. This multi-layered system ensures that consumers are protected at every stage of the mortgage process, from initial contact with a broker through the life of the loan. Mortgage brokers who understand and respect these boundaries not only protect their clients but also strengthen the profession's reputation and contribute to a fair, transparent and efficient mortgage market in Quebec.