The Unlicensed Finder and the Referral Fee
Priya is a licensed submortgage broker at Cedarline Mortgage Ltd. in Kelowna. A local realtor, Dane, has sent her four approved clients over eight months. None of the deals have closed yet, but Dane now emails: "For each funded file, send me 0.5% of the loan amount as a 'marketing consulting fee.' I'll invoice you monthly." Priya's principal broker, Marta, has a written policy requiring all referral arrangements to be disclosed to clients and approved in advance. Priya has not told Marta about Dane. One of Dane's clients, a first-time buyer, asked Priya whether Dane was "getting anything" for the referral, and Priya said she didn't think so. Dane is not licensed under the Mortgage Brokers Act. Priya estimates the four files total $1.9 million in mortgages, meaning roughly $9,500 in fees.
1. Identify the regulatory and ethical issues raised by Dane's request, and explain what Priya should do before any payment is made.
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The core issue is a payment to an unlicensed person for referral activity connected to mortgage business. Under BC's mortgage broker framework, licensees must not share compensation with unlicensed persons for activities that require licensure, and any permitted referral arrangement must be disclosed and typically approved by the brokerage. Dane is soliciting a fee calculated as a percentage of loan amount, which looks like compensation for steering borrowers rather than a genuine arm's-length marketing service.
Secondary issues: (1) Priya breached her firm's written policy by never obtaining Marta's advance approval; (2) she may have made a misleading statement to the first-time buyer when she said she didn't think Dane was getting anything - if a fee is contemplated, the client must be told; (3) the invoice structure ("marketing consulting") may be an attempt to disguise a referral fee.
Before paying anything, Priya should stop, disclose the arrangement to Marta in writing, and obtain a legal/compliance determination on whether the payment is permissible at all. If any fee is allowed, it must be documented, reasonable for actual services, disclosed to affected clients in writing, and consented to. Given the facts, the likely correct answer is to decline the percentage-of-loan fee and correct the earlier statement to the borrower.
2. Priya worries that refusing will cost her future referrals. How should she weigh that commercial pressure against her obligations?
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Commercial pressure does not change the analysis. Licensees owe duties of good faith, disclosure, and compliance with the Act and brokerage policy; a referral stream built on an unlawful compensation arrangement is itself a liability, not an asset. If Dane's referrals depend on secret payments, those files carry regulatory, civil, and reputational risk - including potential discipline for Priya and her brokerage.
A defensible approach: tell Dane in writing that percentage-of-loan payments to an unlicensed referrer are not permitted, and offer a compliant alternative - for example, a disclosed, flat-fee arrangement for actual marketing services approved by Marta, or simply an acknowledgment of the referral with no compensation. Priya should also document the exchange. If Dane persists, escalating to Marta protects both Priya and the brokerage. The exam point: the correct decision is the compliant one even when it is commercially costly, and the licensee should seek guidance from the principal broker rather than deciding alone.