The Financial Services Regulatory Authority of Ontario (FSRA) has fined a well-known former mortgage broker from Toronto and his wife for an alleged mortgage “scheme” which they say used a loophole to avoid oversight and caused his clients “serious” economic and psychological suffering.
Harold Gerstel, however, says that he did not cause his clients any harm and that he plans to appeal the decision.
In a ruling issued by the Financial Services Tribunal on Tuesday, Gerstel, the owner of the Harold the Jewellery Buyer store, was ordered to pay six administrative penalties of $10,000 each for allegedly violating the Mortgage Brokerages, Lenders and Administrators Act. His wife, Esther Gerstel, was hit with six fines of $25,000 each for her alleged contravention of the Ontario law.
The provincial financial services watchdog alleges that Gerstel used his credibility as a licensed broker and his Harold the Mortgage Closer Inc. (HTMC) business -- which had its licence stripped last year in connection with the allegations -- to advertise to “vulnerable” consumers who agreed to mortgages with “extremely” high interest rates and fees.
FSRA said of the six customers involved in the case, five were influenced by Gerstel’s ads, which made promises of quick mortgages for those with bad credit. FSRA alleges those borrowers were then diverted to Gertsel’s wife’s company, Esther Gerstel Inc. (EGI), which was not licensed and “placed in high-cost” mortgages which were processed by a lawyer.
The ruling states that in some cases, the customers did not know that Gerstel’s wife would be the lender. In others, customers lost their homes under the weight of a 22 per cent interest rate, lender’s fees and the short-term nature of the mortgages. In one case, the tribunal alleges, the effective annual interest rates on one of the customer’s mortgage were between 51 and 56 per cent.
“Although a 22 per cent interest rate may be justified for high-risk loans, the aforementioned lender’s and renewal fees in addition to punitive charges for late payments raise serious concerns about EGI’s business model and client transparency and due diligence obligations, even if they are not, per se, contrary to the Act,” FSRA said in its ruling.
The tribunal said that because EGI was issuing the loans as an unlicensed lender, the customers did not have the protections of regulatory safeguards offered under provincial law, which would have included full conflict disclosure and formal mortgage suitability assessments.
“The Applicants’ submission that the Borrowers did not suffer any harm is appalling and reflects a total disregard for their professional obligations and the implications of their behaviour for their clients.”
‘Everything was done according to the law’
In a phone interview with CTV News Toronto, Gerstel said he plans to appeal the ruling and said that each of his clients had the “full protection of the law” in their business dealings with him.
“We did not cause them harm,” Gerstel said of his clients, underscoring that the deals were fully consensual and made by “sophisticated” and “knowledgeable” individuals. “They wanted to borrow money. Now they could not borrow money from other people because they had very bad credit.”
All five of the customers referenced in the ruling were not identified. The first customer, which spurred the FSRA investigation, died on Jan. 23, 2023.
“They were very high risk, so we took a chance and lent them the money. These people were all very happy. I mean they weren’t happy sometimes at the end when they lose their houses, but most of them had big financial problems when they came to us, so we did not cause them to get into financial problems,” Gerstel said.
