Welcome to FSCO's webinar on complaint handling for the mortgage brokering sector.
Before we get started, there are a few housekeeping notes to keep in mind:
- Your computer's minimum screen resolution should be 1024 x 768.
- During the presentation, you can send us a question by typing it in the "chat" field, or by sending an e-mail to: firstname.lastname@example.org.
- Questions will be answered after the presentation has concluded. We will post answers to the questions on FSCO's website.
- This webinar will be recorded and available on FSCO's website. We will also send you an e-mail with a link to the webinar recording and FAQs.
During this webinar, we will cover the following topics:
- Why complaints are important to your mortgage brokerage or administrator;
- Your duties and obligations under the Mortgage Brokerages, Lenders and Administrators Act (MBLAA) and regulations;
- FSCO's role regarding the complaint handling process;
- FSCO's expectations;
- Best practices for dealing with consumer complaints and avoiding errors and omissions (E&O) insurance claims;
- Ways you can improve your compliance with the MBLAA and regulations;
- The connection between complaints, the usage of FSCO's resources and the fees you pay;
- The top five complaints that are made to FSCO in 2009.
After these topics are covered, we will answer any questions that we receive from you.
Before we start, we will like to remind you that under the old legislation (Mortgage Brokers Act), mortgage brokerages had no real advisory responsibilities, but under the MBLAA, they do. Therefore the old ways of doing business no longer apply. Under the MBLAA, more is expected from both you and your brokerage or administrator. In addition, borrowers, lenders and investors have more rights than they did under the old legislation.
No matter the type of product you sell, or the type of industry you're in, complaints are a part of doing business.
Do you remember the Coca-Cola marketing failure from the 1980s? The company tried to switch Coke drinkers to a New Coke formula that was not well received. Fortunately for the Coca-Cola Company, it quickly recognized the problem and resolved it. Their follow-up research revealed that only a very small number of its customers had taken the time to complain about the new beverage. Many unsatisfied customers had simply switched to competing brands.
It's human nature to avoid unpleasant experiences, such as customer complaints. Nobody likes hearing negative feedback about their business or its staff members. But uncovering customer complaints and satisfying them can give your firm a powerful competitive advantage.
This webinar is intended for principal brokers of mortgage brokerages and designated complaint handling staff who work for brokerages or administrators. It is particularly helpful for sole proprietorships, partnerships and small businesses.
As mentioned earlier, the MBLAA has significantly changed how mortgage brokerages and administrators need to operate. Not only does the MBLAA impose more responsibilities on you, but it also grants more rights to borrowers, lenders and investors. As a result, there are more areas where complaints can arise.
Complaints are important to understand because dissatisfied customers will:
- Remain silent and move their business to a competitor;
- Complain to the authorities, including FSCO or the police;
- Complain to friends and anybody else who will listen to them; or
- Complain to you.
Which choice would you like your customers to make? The best choice may actually surprise you.
You would certainly prefer that they avoid complaining to FSCO or the police. And you definitely don't want them to complain to their friends and associates, as it may cost you your reputation, and possibly any repeat or referral business.
Remaining silent may seem like the best choice, but it rarely happens. It's human nature for people to talk about their experiences - especially if they involve emotions like those generated by an unsatisfactory business transaction. Remaining silent could also take away your chance to correct a problem and save your relationship with your customer. Therefore, the best choice is to have your customer complain to you.
Reviewing your brokerage’s or administrator’s complaints can help you:
- Improve your business.
- Identify gaps in your policies and procedures so they can be improved.
- Find additional training opportunities for your mortgage brokers and agents.
- Determine if another broker’s or agent’s files should be reviewed. This can help you see if a pattern exists, and may lead to increased supervision or even termination.
- Spot possible systematic issues with your business.
- Recognize or avoid professional liabilities.
Finding this out earlier, rather than later, may help you avoid E&O insurance claims, which can cost you both time and money.
Customers who take the time and trouble to complain to you are doing you a favor.
- They're helping you grow your business.
- They're giving you the opportunity to resolve their issues and keep their business.
- They're also making you aware of problems that you probably didn’t know about and that may cause you to lose potential business.
The MBLAA requires all mortgage brokerages and administrators — regardless of their size — to establish a complaints process. This includes designating an individual, or several individuals within the business, to receive and attempt to resolve complaints from the public. Since each brokerage and administrator is unique, each business must decide on the approach that suits it best.
When dealing with complaints, make sure:
- You provide a timely written response for each written complaint.
- Your response is in compliance with the MBLAA and regulations;
- Your response includes a proposed resolution, as specified by section 9 (1) of Ontario Regulation 188/08 (for brokerages) and section 8(1) of Ontario Regulation 189/08 (for administrators).
- Your response advises the complainant that he/she may write to FSCO, if he/she believes there has been a contravention of the MBLAA and is not satisfied with the resolution.
Your clients should not face any unreasonable barriers to making complaints.
If a complaint leads you to believe that a mortgage broker or agent is no longer suitable to work for your brokerage or administrator, you must report the incident to FSCO. This is a requirement under section 43 (3) of Ontario Regulation 188/08.
When you are deciding whether or not to report the incident:
- Use your common sense.
- Determine if the issue is serious enough to report. If the mistake is minor, it should not be reported.
- Consider the degree or amount of harm in terms of the value of the funds involved, and the number of parties that are affected.
- Determine if the conduct was accidental or intentional.
To help you determine if the individual is no longer suitable to act as a licensed mortgage broker or agent, you may also wish to consider the three prescribed circumstances that the Superintendent would be required to consider in determining suitability. These circumstances include:
- Whether the individual's past conduct affords reasonable grounds for belief that he/she will not deal or trade in mortgages in accordance with the law, and with integrity and honesty.
- Whether the individual is carrying on activities that contravene, or will contravene the law, if he/she is licensed.
- Whether the individual has made a false statement or has provided false information to the Superintendent with respect to the application for the licence.
For more information on these circumstances, refer to section 10 of Ontario Regulation 409/07 or the "Suitability Assessment Principles for Mortgage Broker and Mortgage Agent Licence Applicants" on FSCO's website.
The legislation requires you to keep a record of all complaints and responses from the brokerage or administrator. Make sure you have this information, as FSCO may require you to provide it.
You also need to provide this information on the complaints portion of the Annual Information Return, which is due by March 31st of each year.
Dissatisfied members of the public will often call FSCO first about their complaints. FSCO encourages consumers to first try and resolve their complaints with the mortgage brokerage or administrator. If they can't reach a satisfactory resolution, and if their complaint involves a contravention of the MBLAA, they may fill out and submit the Mortgage Business Activity Complaint form to FSCO.
If the complaint form does not include a copy of your brokerage's or administrator's final position letter, FSCO will send it to your brokerage or administrator. You will need to respond to the complainant and provide FSCO a copy of your brokerage's or administrator's final position letter within three weeks. If you cannot provide a response within three weeks, you may contact FSCO's complaints registrar and provide a reason for requesting an extension.
Make sure that your final position letter addresses all of the allegations that were made by the consumer. If the consumer's complaint deals with allegations of non-compliance with the legislation, we expect you to demonstrate how the brokerage or administrator and its staff have met their obligations.
Each complaint letter that is received by FSCO is reviewed in conjunction with your brokerage's or administrator's final position letter. If FSCO determines that there is a non-compliance issue, or that your brokerage's or administrator's response is incomplete, the matter will be referred to a Market Conduct Practices Analyst for further review.
The MBLAA authorizes FSCO to make inquiries and conduct examinations of the business and activities of each licensee, to ensure they are complying with requirements under the MBLAA. In response to some cases, FSCO may also choose to conduct a review of a licensee's business activities.
FSCO expects all mortgage brokerages and administrators to comply with the MBLAA and regulations at all times. All brokerages and administrators are required to have policies and procedures in order to prevent non-compliance with the legislation.
For a handy summary of the standards of practice and reporting requirements, refer to FSCO's Compliance Checklists, which are available on the FSCO website.
If one of your customers is dissatisfied with the service he/she has received from your business and verbally expresses it, follow these best practices:
- Don't ignore the customer.
- Give the customer an opportunity to express him/herself.
- Listen carefully to the problem.
- Thank the customer for his/her feedback.
- Agree with any true aspects of the complaint.
- Stick to the facts when responding.
- Offer solutions, if possible.
- Review the solutions or options with your principal broker or administrator first.
- Make sure your response is timely.
- If applicable, report back to the customer on the progress of the proposed solution at regular intervals.
- Report the outcome of the issue to your superior, principal broker or administrator.
- The principal broker or administrator should review the responses and policies and procedures for gaps, determine if additional training is needed, and look for systemic issues.
Do you have additional best practices that you want to recommend to your fellow brokerages or administrators? Please submit your best practices by typing in your question in the "chat" field, or by sending us an email at email@example.com
. Later on we will share some of the responses with you. We'll now pause for a minute to give you an opportunity to send us your responses.
Here are some best practices for dealing with complaints and possibly avoiding errors & omissions (E&O) insurance claims:
When dealing with complaints, make sure you:
- Keep a copy of all written complaints and your responses. You might also want to keep a complaint log or file on the client that has notes regarding verbal complaints and discussions.
- Review the file that pertains to the complaint.
- Interview the broker or agent that worked on the file.
- Use concise and plain language in all correspondence.
- Address all the allegations that are included in the complaint.
- Are transparent with all parties.
- Comply with the MBLAA and regulations.
- When in doubt, get the opinion of a knowledgeable third party, to determine if your proposed response is reasonable given the circumstances.
- Read your E&O policy to see when and if a complaint needs to be reported. This will serve two purposes:
For tracking purpose, make sure you record all complaints in a complaint log that is organized by the name of the mortgage broker, agent or other staff member. Also record any findings associated with the review of the complaint.
Report an unsuitable broker or agent to FSCO.
Provide consumers access to a complaint officer, and post the information in your office or on your website.
Send your response letter in a timely fashion.
- it will avoid the possibility of not meeting the terms and conditions of your policy; and
- it may provide you with a legal defence if court action is taken.
By following these best practices, borrowers, lenders and investors will be confident in knowing that they are dealing with a brokerage or administrator that treats its customers in a fair manner.
During the summer of 2009, FSCO conducted on-site field reviews of a random sample of 128 mortgage brokerages (or approximately 10 per cent of all brokerages in Ontario). These reviews were conducted in order to ensure that the mortgage brokering industry was in compliance with the MBLAA and regulations. FSCO was specifically interested in determining the level of compliance with sections 40 to 48 of Ontario Regulation 188/08, which discusses standards of practice.
When FSCO staff conducted these reviews, they used a risk-based approach to give themselves the flexibility of getting the most from all available resources and to minimize compliance costs.
After considering input from various key stakeholders, the state of the mortgage industry in Ontario, Canada and the United States, FSCO decided to focus on areas with the highest risk, which had the greatest need for initial testing and monitoring. These areas included the mortgage brokerages' corporate governance and oversight.
After each examination, if corrective actions were required to improve a brokerage's corporate governance and oversight, the examiner would discuss the required actions and timeframe for implementation with the principal broker. The examiner also reiterated this information in a letter to the principal broker.
As is FSCO's practice, the results of these examinations will be summarized in a report that will be made publically available on FSCO's website. Principal brokers will then be able to compare their individual assessment reports to the sample of brokerages. An e-mail will be sent to all brokerages when the report is posted online in the spring.
Given the short time frame since the introduction of new regulations on January 1, 2009, it was encouraging to see that the majority of mortgage brokerages were successful in implementing policies and procedures to some degree.
Most of the 128 brokerages obtained information for their policies and procedures from FSCO, CAAMP, IMBA and other industry resources. However, nearly all of these resources contain information that is general in nature and that is intended to be used as a helpful guideline. Therefore, brokerages need to enhance their existing policies and procedures by tailoring them to their unique operating requirements.
The majority of brokerages made their policies and procedures available to their brokers and agents. They included built-in provisions that require each broker and agent to comply with the MBLAA and regulations, and provisions for the adequate supervision of all brokers and agents that are authorized to deal or trade in mortgages on behalf of the brokerage.
FSCO's on-site reviews also revealed that the majority of brokerages maintained training records for their brokers and agents.
A large number of brokerages had policies and procedures that dealt with sections 40 to 48 of Ontario Regulation 188/08 with respect to:
- the supervision of their brokers and agents;
- the role of the brokerage;
- disclosures to clients;
- the material risks of a mortgage or investment for a client; and
- ensuring the suitability of a mortgage or investment for a borrower, lender or investor.
Only a few brokerages failed to have written policies and procedures. In general, most of these brokerage were sole proprietorships that did not employ any brokers or agents, or that had not done any mortgage business. However, this does not excuse them of the legal requirement to have policies and procedures.
FSCO staff also reviewed public relations materials. A small number of brokerages had signage that was non-compliant with legislation. Surprisingly, old business cards with unauthorized titles were still being used, even though legislation only allows the titles "mortgage broker" or "broker" and "mortgage agent" or "agent" to be used.
With respect to complaints, only one brokerage failed to designate a complaints officer to receive and attempt to resolve complaints. However, this brokerage is now in compliance with legislation, as it has designated a complaints officer.
The majority of brokerages maintained a complaints log that included information on all written complaints that were received, along with the brokerage's responses. Principal brokers need to remember that they are responsible for maintaining a complaints log, and for making it available to FSCO, if this information is requested.
FSCO's review revealed that approximately half of the brokerages DID NOT have adequate policies in place to report unsuitable brokers or agents to the Superintendent. We'd like to remind principal brokers that they are responsible for ensuring that their brokerage and all of their brokers and agents comply with the law.
By conducting these reviews, FSCO gained valuable insight into the operations and oversight of mortgage brokerages. The reviews were a good first step in assessing the state of the Ontario mortgage brokering industry's implementation of Ontario Regulation 188/08 – Mortgage Brokerages: Standards of Practice, since January 1, 2009.
Based on the findings from these reviews, FSCO concludes that the majority of mortgage brokerages appear to be operating in compliance with most aspects of the law.
By extrapolating these findings, we concluded that the mortgage brokering sector as a whole, has a medium-to-high risk of non-compliance. We also provided new information to policy experts at FSCO and the Ministry of Finance.
Some of this information will provide guidance for areas that may require more regulation when the next legislative review takes place. It will also impact decision makers with respect to how much of your fees will be allocated to compliance, and whether there is a need to increase fees to cover compliance work in the future.
If the mortgage brokering sector is at a greater risk of non-compliance than other regulated sectors, FSCO will need to allocate additional resources and activities for regulatory and supervisory activities. This resource allocation has a cost associated with it. Since FSCO is a cost recoverable agency, higher expenses must be covered by the mortgage brokering industry through higher licensing fees.
There are many handy resources you can consult on FSCO's website to assist you in your compliance role. They include:
- compliance checklists
- webinars recordings on suitability and risks, disclosure of potential conflicts of interest, and requirements for supervising mortgage brokers and agents.
- Mortgage Broker e-Info Newsletter
- frequently asked questions
- links to the MBLAA and regulations
Many industry associations also offer a wide variety of resources and events for you to attend.
As we mentioned earlier, there is a direct link between fees and the resources that FSCO uses.
FSCO's mandate is to provide regulatory services that protect the public interest and enhance public confidence in the sectors it regulates. This is accomplished by striving to balance the interests of the public and FSCO's regulated stakeholders.
Full compliance with the MBLAA will not only foster a healthier industry, but it may also lead to lower fees. As long as the mortgage brokering sector is at a greater risk of non-compliance than other sectors that are regulated by FSCO, additional resources will need to be allocated for regulatory and supervisory activities.
As you can see, compliance and fees are connected, and have an impact on all licensees.
In 2009, FSCO's Market Conduct Analysis Section closed over 250 complaints related to the mortgage brokering sector. Approximately 45 of these 250 complaints dealt with unlicensed activities and have been excluded from this chart.
Out of the remaining 205 complaints that were handled:
- 35% dealt with public relations materials violations. This includes violations such as mortgage agents using titles other than "mortgage agent" or "agent", and mortgage brokerages that failed to display their licence numbers on their websites.
- 13% of the complaints dealt with fraudulent or illegal activities such as identity theft, providing false income documentation without the borrower's knowledge, or soliciting funds from investors based on an already over-mortgaged property.
- 6% of the complaints dealt with false, misleading or deceptive statements, or misrepresentation. This includes mortgages that were arranged by a mortgage agent for several "grow-op" properties, and providing insufficient information to a borrower with respect to the costs associated with getting out of an existing mortgage.
- 5% of the complaints dealt with representation or amounts related to fees, such as not disclosing the brokerage's fees at the onset of a private mortgage.
- 3% of the complaints dealt with policies and procedures. Examples include the automatic renewal of a mortgage by an administrator after it failed to hear from a borrower, and a brokerage that failed to screen a mortgage agent for suitability.
The MBLAA has significantly changed how mortgage brokerages and administrators do business. Not only does the MBLAA impose more responsibilities on the brokerage, the administrator and the principal broker; but it also grants more rights to borrowers and lenders, which could generate more complaints if they are not properly managed.
By reviewing your complaints you can:
- make your business more successful,
- identify gaps in your policies and procedures,
- determine if additional training is needed for brokers and agents,
- find a way to correct improper conduct.
Remember, fair and appropriate handling of complaints is the way to avoid two regulatory issues: non-compliance with the MBLAA and mishandling of complaints. In addition, it may prevent professional liability claims.
We will now:
- Review the best practices you have provided us.
- Read questions and answers that were prepared ahead of time.
- Read new questions that were sent in by the audience.
Our team has grouped similar questions in order to respond to as many questions as possible.
Here we go with the first one…
Please note that we will post these Qs&As, plus any we did not get a chance to answer, on FSCO's website.