Corey wanted to buy a new house and approached a mortgage broker to arrange a loan to finance the purchase.
Under the contract between the parties, Corey agreed to pay the mortgage broker a fee for their time if they arranged a loan approval from a lender, but Corey did not draw-down the loan. The fee was $250 per hour plus GST and was capped at $3,000 plus GST. Corey also agreed to pay the mortgage broker interest if an invoice became overdue and follow-up fees of $250 per hour. We took follow-up fees to mean the mortgage broker’s time spent chasing payment of an overdue invoice.
After the mortgage broker had secured a conditional loan approval from a bank, Corey told them he was not going to buy the house. However, this was not true. Corey actually bought the house using finance from a different lender. When the mortgage broker discovered this, they invoiced Corey $3,000 plus GST for the time they had spent securing a loan approval.
Corey believed the invoice was unfair. The parties spent considerable time trying to come to a compromise about the invoice, including an offer from the mortgage broker to write off the invoice if Corey came back to them as a client. Ultimately, Corey decided that he did not want to do this, and settlement discussions broke down. Corey asked FSCL to investigate his complaint.
Corey said the mortgage broker could not get him the loan he wanted to buy the house, so he went to a different mortgage broker to arrange a loan. He also said he had not signed any paperwork about fees.
The mortgage broker disagreed with Corey. They said they had obtained a suitable loan approval, and that Corey had agreed to their fees.
The mortgage broker believed they were entitled to charge for the time they spent arranging the loan approval. They also wanted to charge interest at 18% per annum (on the overdue invoice) which would total at least $450 and follow-up fees of $4,000.
We found that the mortgage broker had obtained a suitable loan approval. Given this, and that their fees were disclosed to Corey and he had agreed to them, the mortgage broker’s $3,000 fee was fair. However, the GST portion of the invoice was not enforceable because mortgage broking is exempt from GST.
We also found that the attendances the mortgage broker wanted to charge as follow-up fees were not what could be described as follow-ups to collect a debt. Rather, they were discussions with Corey in response to his complaint. The mortgage broker could not recover the cost of the time they spent trying to resolve the complaint by way of fees for debt collection.
We also found that some interest was justifiable, but not the amount the mortgage broker wanted to charge, despite the terms of the contract between the parties. We found that it was inappropriate to charge interest during the period when the parties were trying to reach a settlement about the complaint. We concluded that a nominal amount of $100 interest was fair.
We concluded that Corey should pay the mortgage broker the $3,000 fee, plus $100 nominal interest. Corey was not obliged to pay the follow-up fees. Corey agreed to this and the parties negotiated a payment arrangement.
We could not require the mortgage broker to accept payment of an invoice by instalments, but we encouraged the mortgage broker to agree to this because Corey could not afford to pay a lump sum.
Insights for consumers
It is important for consumers to read the terms of the contract they sign with their mortgage broker. It is common practice for mortgage brokers to charge a fee for their time if they obtain a loan approval for a client, but the client decides not to proceed with the loan. If a consumer is having doubts about continuing with a loan or house purchase, or they are not happy with the loan the mortgage broker arranged, they should discuss this with their broker.