Cost of Credit Disclosure - Mortgage Brokerage

Purpose: To explain the cost of credit disclosure requirements and the responsibilities of mortgage broker professionals.

This bulletin applies to all mortgage brokerages, brokers, and associates. 

A mortgage broker professional that represents a lender in a deal in mortgages must disclose to a borrower in writing the cost of credit disclosure requirements in the Consumer Protection Act of Alberta. Mortgage broker professionals who arrange for the financing of real estate must understand their responsibilities under the Consumer Protection Act.

Service Alberta is the department of the Government of Alberta responsible to administer and enforce the Consumer Protection Act and the Cost of Credit Disclosure Regulation. The Real Estate Council of Alberta (RECA) has the authority to enforce provisions in the Real Estate Act Rules (Rules), Consumer Protection Act, and the Cost of Credit Disclosure Regulation. The Rules require industry professionals to practice in accordance with any other laws that govern trading in real estate, mortgage transactions, or appraisals in Alberta.

The Consumer Protection Act states a loan broker “means a person who for compensation directly assists a person in obtaining credit or a loan of money for business or personal use, including credit or a loan made from the loan broker’s own funds”. This definition captures the activities of mortgage brokerages while dealing in mortgages. A person who fails to comply with the legislation may receive fines up to $300,000, or three times the amount obtained, whichever is greater, or up to two years imprisonment. Mortgage brokers may also receive a sanction under the Real Estate Act.

Part 9 of the Consumer Protection Act only applies to residential mortgage loans where the borrower will reside in the dwelling or to farming operation mortgages. Commercial and investment mortgages are not subject to the cost of credit disclosure provisions of the Consumer Protection Act.

Part 9 of the Consumer Protection Act refers to a credit agreement as an agreement where a person extends credit to another person and includes a loan of money, a credit sale, or an agreement under which a loan of money or a credit sale may occur in the future. When you secure a mortgage loan by a charge against real property, this is fixed credit agreement. The legislation outlines the requirements for initial disclosure on loans, prepayment rights, and the timing of required disclosures.

The requirement to give a disclosure statement depends on the extent of the broker’s involvement in the transaction. The broker may or may not give a disclosure statement. The Real Estate Act Rules (Rules) requires a mortgage broker to give a disclosure statement when:

The Rules require mortgage brokerages to make cost of credit disclosures when they represent lender clients that are not banks, treasury branches, credit unions, loan corporations, trust corporations, insurance companies, or any person engaged in the business of making loans that they secure with a mortgage.

Failure to give the disclosure information is an offence under the Consumer Protection Act and conduct deserving of sanction under the Real Estate Act.

Disclosure statement
The Cost of Credit Disclosure Regulation outlines the specific information a mortgage broker must include in a disclosure statement. The statement must be in writing or in a form that will allow the borrower to retain a copy. The information must be clear, concise and in a logical order. It must also be set up in a way that brings the statement to the borrower’s attention. The information you must include in the initial disclosure statement is:

When the optional service is insurance for example, the credit grantor must disclose in writing that the borrower may purchase the insurance through an agent or insurer of the borrower’s choice.

Timing of disclosure
The Cost of Credit Disclosure Regulation requires borrowers to receive a disclosure statement for mortgages at least two business days before they incur any obligation to the credit grantor or make any payment in connection with the mortgage loan. A borrower may waive the time for delivery of the disclosure statement under certain conditions. These conditions are as follows:

The waiver statement must be in writing, disclose the borrower’s rights clearly and prominently, and borrowers must sign the waiver. If the borrower waives the time-period, the credit grantor must deliver the statement to the borrower before the 2 days elapse.

If the information in the document is not complete or correct, the borrower has the option to cancel the agreement or to statutory damages.

Charging a fee
Where the borrower is an individual who enters into a credit arrangement for personal or family purposes mortgage brokerages must not charge, collect, or attempt to collect a fee or commission from a borrower until:

Calculating Cost of Credit
When you calculate the total cost of credit, you must take into account the value the borrower receives or may receive in connection with the loan agreement. This includes:

The total cost of credit is the difference between the value the borrower receives and the value given by the borrower to the credit grantor in connection with the credit agreement. Some examples of value given by the borrower include:

Part 3 of the Cost of Credit Disclosure Regulation outlines the formulas for calculating the APR and the total cost of credit. The Alberta Mortgage Broker’s Association has a computer program that calculates the APR and total cost of credit. The program takes into account the variables that are unique to the specific mortgage related financial transaction. This program is available to all AMBA mortgage brokerage members or to mortgage brokerages using the D & H Expert system.

Floating interest rates
If the interest rate floats, the credit grantor must, at least every 12 months, give the borrower a disclosure statement that includes the following information:

Where the amortization period for a mortgage loan is longer than its term, the credit grantor must, as least 21 days before the end of the term deliver to the borrower a written notice stating if the credit grantor is willing to renew the loan for a further term. If a credit grantor renews the mortgage, the loan must also include a disclosure statement that includes the information identified in s.10 of the Cost of Credit Disclosure Regulation.

If an advertisement offering credit identifies the interest rate or the amount of any payment, it must also disclose the APR, the cash price, and the term of the contract. If the advertisement refers to an “interest free period,” the advertiser must disclose whether the transaction is unconditionally interest free or if interest will accrue during the period but will forgive the interest under certain conditions. If there are conditions, the advertisement must disclose the conditions and the APR for the period if the borrower does not meet the conditions.

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