Banks are not your friend

Never forget that the big banks are in business to make money for their shareholders. Serving customers is always going to be a lower priority than boosting the bottom line, despite what their ads say.

No matter what kind of help you seek from a bank, you can be tricked and deceived if you start with the idea that the bank is your friend. It’s not on your side. The overriding goal is to make profits for shareholders.

Canadians trust the banks too much. We think we will get objective help, not tainted by bias or financial incentives. That’s far from the case.

For example, banks push you to buy expensive insurance that covers minimum payments on your credit card if you’re sick or injured. They may enroll you in a plan without authorization when you get a credit card, then put the onus on you to opt out.

When you take out a mortgage, banks often link their life insurance to the application. They don’t tell you that life insurance is optional and is available at much better terms outside the bank.

And why are banks always keen to extend credit so you can contribute to an RRSP or catch up on previous RRSP contributions? If they had your best interests at heart, wouldn’t they tell you that the best investment is to cut down your debt, especially in the early years of a mortgage when interest costs are highest?

Last year, I got more complaints about banks than in the previous five years. They came from people surprised to find the base rate on their lines of credit going up at a time when the Bank of Canada rate was coming down — and from those shocked at the size of their penalties when they renegotiated a mortgage.

Check the complaint from Sarah below, who renewed her mortgage when the bank approached her and had no idea that she’d be zapped with a huge fee. The friendly banker never mentioned it. In fact, she was assured that she could do this transaction without any consequences.

Author: Ellen Roseman

Consumer advocate and personal finance author and instructor.

23 thoughts on “Banks are not your friend”

  1. A few months ago, I was contacted by my bank to discuss an opportunity of decreasing my interest on my mortgage.

    The banker mentioned that she had recently returned from a maternity leave and was contacting all her clients.

    I went into the branch and she went over some numbers with me. She mentioned that if I went too low on the interest, then I would be charged a fee. I reminded her that she had called me in to discuss an opportunity and that I shouldn’t pay any fees!

    When discussing the new interest rate of my mortgage, my banker asked if I had plans to continue owning. I said yes.

    I can’t remember how it came up, but I told her that I was interested in transferring back to New Brunswick. She then asked “would you own in NB?” and I replied that would be my plan.

    She proceeded to type in numbers and found a new interest rate for me. I wouldn’t pay a fee for changing to this interest rate and would keep the same payment amount if I proceeded with refinancing.

    When discussing this with a friend of mine who recently sold her place, my friend mentioned a penalty she was charged for selling too early. Shortly after that conversation, I contacted my branch and scheduled a meeting with my banker to learn more about this “penalty”.

    My banker informed me that yes, I would be charged a penalty if I sold my place. I immediately said that I would never have refinanced if I knew of this penalty.

    My banker admitted to misunderstanding our discussion during the time I was in to refinance and that was pretty much it. She told me the amount of the penalty and the meeting was over.

    I’m little upset. I feel like I was set up! Odd to say, but true.

    I recently left her a voice mail to discuss this further. I don’t feel this was right. Nothing was disclosed regarding a penalty.

    She returned my phone call and left a message stating she didn’t make commission on having someone refinance, so there would be no reason for her not to disclose the penalty — and even reminded me that it was in the small print.

    Oddly enough, when she pointed to the paperwork and said “sign here,” she could have pointed to the part where it said I would incur a penalty, since I told her that I wanted to move to another province.

    She indicated that everything is out of her hands and out of the branch’s hands.

  2. Thought you might be interested in this story, since my daughter talked to her banker at Scotibank and advised that hopefully, in the near future, she will be moving and will want to sell.

    Her banker suggested she lock in for another five years, with no mention of any penalty if she decided to sell within the five years.

    She recently decided to sell and now faces a large penalty. We feel the banker should have disclosed this penalty information when the mortgage was renewed, especially when my daughter stated she was thinking of moving.

    Is there any recourse in these situations? Does the banker get a commission off the length of the renewal term? Have you ever heard of someone going up against this situation and the bank actually forgiving the penalty?

  3. Actually, the banks have a lot of discretion on the fee they charge in cases like this.

    In the banks, the first defense is to say “you signed the documents, you should have read them first”. They will indeed skip quickly over the part where they have an obligation to ensure you understand what you are signing.

    The banks also are very aware that they have far too many products and policies for any employee to stay current on them. In short, it is cheaper to have a half trained sales staff and say “tough luck” to an angry client.

    In my many years in the bank, I often knew the client was likely misinformed by a bank employee, but the various “product areas” in the bank simply blame the branch staff. The staff have no power to offer a resolution and thus the client is told “tough luck”.

    To get a better result, you need to work your way up the food chain to the regional vice president’s office. Harrass with phone calls, don’t give up and stick to your story without wavering.

    Send a letter to the president of the bank, the executive president of retail banking, the senior vice president of real estate lending. They all know you were likely misinformed and eventually it will make sense to fix their error.

    Avoid the black hole known as the bank ombudsman…..that is where complaints go to die!

  4. I, too, was contacted by ScotiaBank to renew my mortgage early — “no fees”, they claimed.

    After going through all the numbers, I refinanced for five years. Only then did the bank officer print out ALL the pages and tuck them into a file folder for me. I only saw the exorbitant penalties for an early pay-out after I got home.

    Tsk, tsk, ScotiaBank. I’ve been a customer since 1999 and this is how you treat me?!? Where do you think I’ll be getting my next accounts from? Where do you think I’ll go for investment advice?

    Where do you think I’ll go in four years, six months, when my mortgage comes up for renewal again? Certainly not ScotiaBank!

  5. Second opinion is right. Ellen knows; Presidents Office (thanks for verifying my opinion of the Bank Ombudsmans Office -esp ROYAL BANK (20000 later). But make sure they know that you know there are other venues. Once upon a time,
    Paul Martin , in 2002, wrote me a personally signed letter when I wrote a letter reflecting Ellens concerns about the Royal Bank. Even thought Scotia got my mortgage insurance money, after 18 months, when my husband died, I STILL heartily agree with her. SO
    Yes, follow the fooc chain, to the President Office. It took 2 hours for someone to fix a 2 week nightmare (loan documents sat on someones desk for 2 weeks, rather than faxing, until we phoned presidents Office at 3 pm a Friday afternoon. Action was taken even afther the Burlington train pulled out. BUT, by the way, watch out for local reprisal.. they don;t like women having a clue.
    AND, thanks Stephanies MOM; seems like more and more of us are having to do this. AND, thanks , Ellen , for not making us feel dumb when we do!!

  6. My thoughts are, if you can’t beat ’em – join ’em!

    There’s nothing worse than getting nailed on everything from service fees, insurance fees inside a personal line of credit, and account transaction fees over the past years.

    Now, I buy shares in a lot of the big banks and I get my money back that way. I know its not the greatest system, but at least I know I get some back.

  7. Thanks Rat; I am actually in a position to decide about doing that with several banks Simple way to do it; as I have gotten that vibe. Now, back to Bell blues !

  8. I agree with BG. I currently work in banking and I know the banks do not have anyone’s interest at heart more so than the shareholders. The primary goal is to butter up as many customers as possible so that they can be relieved of more of their money.

    Having said that, I believe Canadians are incredibly naive when it comes to money and banking. People should educate themselves and be aware. Caveat emptor.

  9. Banks are evil, period. I have a financial advisor who I trust, but I decided to go into the Bank of Montreal to get some information about how to maximize my TFSA. Bad mistake, but good education.

    I sat down in an office with, get this, TWO advisors, both of them women my age, and the first thing I said was that I’m not in debt and I don’t want to take on debt. I said that three times.

    The two women kept me for two hours. They went over all my financial information, their tongues hanging out when they saw I own my condo.

    The both of them acted like they were my best friends. They saw I was wearing a “vegan” pin and so they talked about how they only eat meat sometimes. What does this have to do with banking, I wondered. They chatted me up like I was their bestest friend in the world. It was really sick, but I sat there because I’m so darn polite.

    They talked about all kinds of stuff as though I was their friend. I found out all about one’s marriage and another’s recent vacation.

    And then they told me to borrow $37,000 to invest in my RRSP.

    And that’s when I realized that banks truly are evil, evil, evil and that banking staff are underpaid hacks who hate their jobs and see you as someone they’d like to hurt for the fun of it.

    We all have to be very careful when we walk into a bank or deal with a bank in any way, shape or form. Yikes. It’s a scary world out there.

  10. Our Scotiabank branch’s customer service approach has devolved from four years ago when we were told that we had a “special relationship” with the branch to the current “Do you have a Scotiabank Visa?”, “Do you have a Scotiabank TFSA?”, and believe it or not, “Our mutual funds have no fees”.

    I’m giving the bank rep the benefit of the doubt by assuming that she meant no fees OTHER than the MER. Please give me a break!

    Stay alert when dealing with your bank; it is NOT your friend.

  11. This is where those crap banks waste your money. I moved into my current home over 4 years ago. The previous tenants moved to Jo’burg in South Africa. Bills from TD kept showing up, regular as clockwork, every month. I returned EVERY one with ‘MOVED TO AFRICA’ written in big red letters. Still they kept coming. Eventually I opened one-seems they didn’t pay a $1,000+ visa. Oops. I phoned TD, expalined everything and got some twit that said they would keep sending the bill for 12 months, then take legal action. Sounds pretty stupid to me. Eventually they stopped. About a year ago, the postie showed up at the door with a registered letter for the old tenant. I told him the story, he just laughed-guess he’d heard it before!! I phoned TD yet again. Last week a letter showed up from a solictor. Over four years and they’re still trying to get it back-it must have cost them more than that to do what they keep on doing. Well, it’s not their money. Oh, and should I mention my wife paid off her TD Visa but mistakenly paid ONE CENT too much. You guessed it-for four months she’s been getting a statement showing her one cent credit!!!!!

  12. Neil B.:

    It’s not likely that a bank employee would openly discuss another person’s account with you, unless the customer had authorized them to do so. Based on your story, that seems unlikely.

    In the bank’s eyes, legally you have no business in the former tenant’s affairs, so the agent on the phone probably told you a bunch of general information just to get you out of his hair.

    Furthermore, what business do you have opening someone else’s mail? That says a lot about you.

    As for the Visa statement with the one cent credit, most people should be aware that everything is computerized in a bank and these things are automatically generated. If you want the statements to stop, then pay the penny and quit complaining.

    I’m all for taking the customer’s side in wrongdoings, but all I see in your post is unwarranted kvetching.

  13. Correction to my previous post:

    I said pay the penny, when I should have said either use the card or have a Visa agent transfer the credit balance to another account for you.

  14. A little tip about mortgage penalties:

    Mortgage penalties are pretty straight forward. You just have to know the type of mortgage you’re taking. Reading some of the responses posted here, it’s clear that many bank employees aren’t providing their clients with enough details about their mortgage and taking into account long term objectives.

    Mortgage penalties are broken down as follows: If you are taking a closed term fixed rate, your penalty would be 3 months interest or the interest rate differential, whichever greater.

    When the spread (difference) between your existing mortgage rate and the current mortgage rate of your lender grows, you will most likely be charged the interest rate differential as this would yield the higher amount. The only time when the differential would not apply is if you have been in the current term for more than 5 years. Under this particular circumstance, you will only be charged 3 months interest to discharge the mortgage. The IRD cannot be used.

    Note, however, that discharge fees are charged separately from the penalty.

    With adjustable rate mortgages, the game is a bit more simplified. A closed adjustable mortgage would incur a penalty of three months interest (there is an exception to this with some lenders, but that’s discussion for another day). A fully open mortgage would be discharged without penalty but these are priced at a higher interest rate.

    When you do a switch (that is, moving your mortgage from the current lender to another lender when the term matures), the new lender would usually cover most if not all of the costs associated with the transfer and registration of the mortgage to them. However, the new lender would *not* pay any penalties owed to your current lender for breaking the term early. That remains your responsibility.

    The fact that you’re selling the property while on a closed term (except on maturity, of course) is irrelevant. You will still incur a penalty to discharge the mortgage.

    Food for thought: If you are facing the interest rate differential as many people are right now (as rates are significantly lower than they were 3 or 4 years ago), the penalty amount would be higher the closer you are to maturity.

    The reason is because most lenders use the current rate for the term left on your mortgage to compute the differential. Simply put, as shorter maturities are priced at a lower rate, the spread between your existing rate and the lender’s current rate for the remaining amount of time left on your term would increase if a shorter term (a lesser value) is used to determine the spread.

    Once the spread is determined, it’s a simply formula to compute the penalty. The key here is determining how the lender computes the spread. Some lenders use their posted rates while others use discounted rates. Some lenders round up the term, others round down. Every lender has a different set of policies, which is why it’s so difficult trying to estimate the differential in the first place.

    This type of penalty is quite prevalent right now. People are shocked when they see how much it would cost them but they have no idea how their lender reached these figures.

    Think of the information I’m giving you now as a perk as lenders don’t even bother discussing it with anyone. The only place you’ll find any reference to it is buried in the SCT.

    Let’s assume you currently have a closed 5-year fixed rate mortgage and you’re 2 years away from maturity. The lender would compute the spread not on its current 5-year term but a 2-year term as that’s the amount of time remaining on your mortgage.

    The key is to increase the spread between the two rates. Do that and the penalty to discharge would be enormous.

  15. If your existing mortgage did not mature, you will pay a penalty even if you transfer to another lender. It’s important to remember that lenders do NOT pay your prepayment penalties even if you transfer. Some lenders, such as ING for example, will let you roll up to $5,000 of the penalty you’re facing with the existing lender to the new mortgage.

  16. I recently re-financed with TD to a rate that came available only a few months after we signed our mortgage. We’re paying the penalty fee, and not happy about it, but of course we’re doing it because even with it, we’ll come out ahead at the end of our 5 years.

    Before re-signing with TD, we looked into ING; they would have paid maximum of $500 towards transfer fees for leaving TD, but if I recall correctly, that $500 max was only applicable to TD’s transfer fee, not to their actual penalty.

    TD initially would not match ING’s rate, until we asked for a third time (they came down in increments in the meantime). They may have been contacted by ING too in the meantime, so they saw that we were serious about switching.

  17. It has always amazed me that you had to paid to use your money… I understand they provide a service, but when you know what they’re doing with your money, you find it hard to believe they cannot offer you simply a credit card…

  18. If your existing mortgage did not mature, you will pay a penalty even if you transfer to another lender.

    It’s important to remember that lenders do NOT pay your prepayment penalties even if you transfer.

    Some lenders, such as ING for example, will let you roll up to $5,000 of the penalty you’re facing with the existing lender to the new mortgage.

  19. The banks also are very aware that they have far too many products and policies for any employee to stay current on them. In short, it is cheaper to have a half trained sales staff and say “tough luck” to an angry client.

    In my many years in the bank, I often knew the client was likely misinformed by a bank employee, but the various “product areas” in the bank simply blame the branch staff.

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