Option Consommateurs v. Bank of Montréal, [2008] R.J.Q. 1978 (S.C.)  

In August 2008, the Superior Court allowed the bringing of a class action to determine a financial institution’s right to penalize borrowers who repaid their mortgage prior to the end of the defined term, and the appropriate amount on which the financial institution calculates the penalty. In other words, whether the Bank of Montréal (the "Bank") was allowed to apply a penalty on the entire mortgage balance including the amount that the borrower was entitled to pay prior to the end of the defined mortgage term.

This judgment could potentially put an end to a widespread practice of Québec financial institutions. The applicant, Option Consommateurs, represents all persons who, since 2001, have made advance repayment of their mortgages by paying a penalty to the Bank. The applicant contests the Bank’s practice of enforcing a penalty on the balance of the borrower’s mortgage, not taking into account the amount of principal that the borrower has the right to repay each year without being penalized.

In this matter, the Superior Court reiterated financial institutions’ obligation to act prudently and diligently toward their clients. It also stated that financial institutions are bound by an obligation of loyalty, cooperation and good faith, and must therefore act in the interest of their clients. The way a bank acts must reflect the behavior that we expect from a financial institution that produces the same outcome in similar circumstances.

These principles will consequently be examined at the hearing on the merits of the class action in order to determine whether the Bank of Montréal acted within its rights to impose a penalty and, if so, whether the amount of the penalty was calculated appropriately.