Mortgage prepayment penalty still applies despite poor service

A couple took out a mortgage from a bank, agreeing that their payments would include property taxes that the bank would remit to the city. A month later, they received a notice from the city saying their taxes were due. After some finger-pointing about whether the bank's or clients' lawyer was to blame, the bank agreed to reprocess the paperwork to make sure the taxes would be paid automatically. Four months later, another notice arrived from the city: their taxes were overdue. Upset with the two missed payments, the couple told the bank they were considering moving the mortgage because of the possible impact on their reputation with the city and their credit ratings.

The bank's branch manager apologized and soon after a letter arrived saying the bank contacted the city to remedy the situation, and it had taken the blame for the mix-up. However, the couple had had enough and, claiming the bank had failed to live up to its obligations, moved their mortgage. Because the mortgage was only a few months into its term, a prepayment penalty of $2,100 was levied. When the couple asked for a waiver of the penalty based on the bank's poor handling of the taxes, a senior bank official apologized for the errors, declined to waive the penalty and offered the couple a $100 restaurant gift certificate. Insulted by the offer, the couple declined, closed all their accounts at the bank and brought their complaint to OBSI.

In fact, the couple's credit ratings were unaffected and the bank had written an appropriately contrite letter to the city taking responsibility for the tax arrears. While we sympathized with their loss of confidence in the bank given its failure over several months to straighten out what should have been a routine transaction, they did consciously choose to proceed despite knowing of the obligation to pay the penalty.

Under the circumstances, we believed the bank's offer of a $100 gift certificate was insufficient. We recommended the bank pay $500 to the couple given the inconvenience they experienced.