For brokered transactions it can be difficult to differentiate the obligations of credit brokers from the obligations of credit grantors. The following provides some clarity on the responsibilities of each party.
Credit Brokers and private lender transactions:
If a credit broker is representing a lender who does not lend in the ordinary course of business (e.g., a private lender), the broker is responsible for carrying out the disclosure obligations that would ordinarily fall upon the credit grantor.
Credit Brokers and lender transactions:
The credit brokerís disclosure obligations do not limit the disclosure responsibilities of the credit grantor.
When a broker takes a loan application from a borrower and forwards it to the credit grantor, the broker must give the borrower an initial disclosure statement. The lender then has the option of adopting the broker's disclosure statement or providing their own disclosure statement.
A broker whose involvement in a transaction is limited to referring a prospective borrower (where no credit application is taken) to a prospective lender (i.e., an intermediary), is not required to provide a disclosure statement to the borrower, even if the broker charges for this service. The responsibility of the disclosure statement in this type of brokered loan is the lender.
Brokerage fees (e.g., file opening fees and commissions) are to be disclosed by the broker and accounted for in calculating the annual percentage rate (APR) where the broker collects a brokerage fee directly from the borrower. It is the lenderís responsibility to disclose the brokerage fee and account for it in the APR calculation where the fee is deducted by the lender from the amount advanced to the borrower, and is paid directly by the lender to the broker. Essentially, the only circumstance in which the lender will not be required to disclose an APR that incorporates the brokerage fee is when the borrower has been referred to the lender by the broker, and the brokerís fee has been paid by the borrower directly to the broker.