BMO advisor fired after customer co-signs loan

Bank didn't properly investigate allegations of conflict of interest
|Canadian Employment Law Today|Last Updated: 04/30/2014

Bank of Montreal Investments (BMOI) wrongfully dismissed a financial planner for a conflict of interest that didn’t really happen, the Nova Scotia Small Claims Court has ruled.

Tammy Mercier was hired as a financial planner for BMOI in August 2010, after several years of employment with Bank of Montreal (BMO) financial group. Her job involved encouraging customers to invest in the banks’ financial products and providing advice to customers with investment portfolios with BMOI. Mercier had no role in loans, lines of credit or other banking operations, which were part of the regular bank (BMO), not BMOI.

Mercier knew the late husband of one of BMO’s clients and developed a friendship with her after the client’s husband died. The client owned and operated a construction and rental property company and most of her business dealings and her commercial account were through BMO.

In July 2011, BMO informed the client her GICs were up for renewal and her signature was required. The account manager of the client’s commercial account wanted to get a better interest rate for the client’s GICs and asked Mercier to do this. This was a common practice, as commercial account managers were encouraged to pass GICs up for renewal to financial planners to see if the planners could get better rates. In these circumstances, the financial planner didn’t meet the client, but just allowed the codes to be used for better interest rates and signed the GIC renewal forms.

In the spring of 2013, Mercier wanted to consolidate her mortgage and a number of debts into one loan she could manage more easily. However, BMO rejected her application for a consolidation loan.

A short time later, Mercier had lunch with her friend who was a BMO client and asked for advice. The client offered to co-sign a loan to help her out. Mercier didn’t think it was a conflict of interest and she insisted later it was her friend’s idea.

Mercier contacted BMO about re-applying for a loan, indicating she had her friend to co-sign the $45,000 loan application. Mercier was up front about the fact her friend was a BMO customer but she had no business dealings with her so there was no conflict of interest. The lending specialist had some concerns about a customer co-signing an employee’s loan, but processed it anyway.

The BMO credit department decided it wasn’t comfortable with the situation and denied Mercier’s loan. Mercier then applied to the Royal Bank of Canada (RBC) for a $50,000 loan — with her friend also co-signing — but was denied over similar concerns of conflict of interest.

Mercier’s supervisor learned of the loan application and reviewed the documentation, particularly Mercier’s assertion she had no business dealings with her friend. He was aware of Mercier’s involvement in getting her friend better interest rates on the friend’s GICs, which was processing an investment for the client in the name of her business. The supervisor found Mercier had not been truthful in her loan application.

BMO interviewed Mercier’s friend, who explained she had offered to help Mercier. The friend also mentioned the denied loan request from RBC.

A report was prepared in July 2013 that stated Mercier had renewed a GIC for her friend three years earlier, but was “not doing presently any kind of BMO business.”

However, on July 26, BMOI terminated Mercier’s employment for violating its corporate policies and guidelines of conduct, which required employees to avoid conflicts of interest and personal financial dealings with clients, including “borrowing money from clients.”

The court found flaws in BMOI’s reasoning for termination. The employer interpreted Mercier’s renewal of her friend’s GICs as meaning the friend was a client of Mercier, and remained one up to the time of the loan application. However, this was the only business transaction the two were involved in together, and it was minor enough that Mercier likely forgot to mention it, said the court.

The court found the only potential conflict of interest was that Mercier’s friend was a customer of the bank being applied to for a loan. However, Mercier revealed this fact right in the beginning, and the friend was a savvy businesswoman who knew the risks of co-signing the loan — and it was the friend’s idea.

Additionally, the court found there was nothing in the bank’s policies that prevented one customer from co-signing a loan for another. If there was, the bank would have immediately rejected the application, the court said. However, the application was processed and it was only eventually rejected by the credit department.

The court determined Mercier had done nothing dishonestly and had not violated any conflict of interest policies. BMOI was ordered to pay her four months’ notice for wrongful dismissal. See Mercier v. BMO Investments Inc., 2014 CarswellNS 194 (N.S. Sm. Cl. Ct.).