Consumer alleges online investing app misled her about margin borrowing and interest obligations

Key lesson

Consumers who open online investing accounts (also known as discount brokerage or “order execution only” accounts) are responsible for reviewing all account agreement terms and conditions, making their own trades, and monitoring their account activity.

Do-it-yourself investing

In early 2019, Ms. C opened an investment account at Firm K, an online broker, using the firm’s mobile app. Choosing to invest with an online broker meant that Ms. C was responsible for making her own investment decisions and trading on her own behalf without the services of a financial advisor. Her agreement with Firm K allowed her to borrow money from the firm to purchase investments in a margin account. When she opened her account, she agreed that she was aware of the terms of her account agreement with the firm.

Ms. C accessed her account primarily through the firm’s mobile app. She relied on the app to make trades, monitor her account, and access important information such as her account balance. She also had access to her account through Firm K’s website and the firm provided account statements on a regular basis.

Trading in a different currency leads to unexpected margin borrowing

Shortly after opening her account at Firm K, Ms. C deposited Canadian dollars into her account and purchased both Canadian and US securities. After a few months, she discovered that she was being charged margin interest. She did not understand these charges because the app showed she always maintained a positive cash balance. In August 2019, she contacted the firm to inquire.

Firm K explained to Ms. C that she had purchased her US securities on margin because she held only Canadian dollars and no US dollars in her account. The firm’s mobile app had showed a positive cash balance for the first few months because the amount of US dollars she had borrowed to purchase her investments was less than the amount of Canadian cash she had in the account. Firm K explained to Ms. C that she could have avoided paying margin interest if she had converted some of her Canadian cash to US dollars before purchasing the US securities.

Ms. C believed that Firm K’s app had misled her into believing that she could purchase US securities without interest charges because it showed that she had a positive cash balance in her account. She complained that she received no message telling her that she would need to borrow money when placing an order to purchase a US investment. She also said she was unaware that she was being charged margin interest for purchasing US securities when she had a positive Canadian cash balance.

By November 2019, the interest charges on Ms. C’s account had grown to over $1,000 USD. She requested that Firm K reimburse her for the full amount. Firm K refused because Ms. C’s account agreement clearly indicated the terms and conditions for trading in other currencies and the firm had followed their own policies. Firm K offered Ms. C a goodwill gesture of $190 USD instead, which was the equivalent of the interest charged to her account in August 2019.

Dissatisfied with Firm K’s response, Ms. C brought her complaint to OBSI.

Our findings

During our investigation, we found that:

• As an online investor, Ms. C was solely responsible for all investment trades and decisions in her account.
• Ms. C should have been aware of Firm K’s terms and conditions for purchasing US securities. The terms of her account agreement clearly said that the firm would not automatically convert Canadian currency to US currency when consumers purchased US securities and that margin interest would be charged on all debit balances.
• Firm K’s platform (including the firm’s mobile app) clearly displayed interest charges applied to client accounts in multiple locations.
• Ms. C’s account statements clearly showed that she was being charged margin interest for purchasing US securities since opening her account and she should have been aware of these interest charges from the outset.
• Firm K had acted in accordance with the account agreement and their own policies.

The outcome

We did not recommend compensation, however, Firm K reinstated their goodwill gesture of $190 USD (approximately $251 CDN) and Ms. C accepted it.