A B.C. Supreme Court judge has tossed out a claim by a Victoria financial services company, calling its loan agreement with clients “unconscionable.”
As a result, Christopher Bryce Laughlin and Pauline Louella Laughlin are not required to pay any more money on their loan, Justice George Macintosh ruled.
The Laughlins were being charged an annual interest rate of 42 per cent on a loan by Connor Financial Services International Inc., owned by Gerry Connor, who also owns Connor Financial Corp.
They had borrowed $22,221 from Connor’s companies.
“The Laughlins have paid $21,400 on that debt, yet the plaintiff [Connor] asserts that its loan agreement with the Laughlins entitles it to a further $119,000 approximately, up to the start of the trial, with more to be claimed after that,” Macintosh said. “Simply to state those numbers is to expose the agreement for the radically unfair agreement that it was.”
When reached Thursday, Connor said he had no comment.
The figures do not take into account the loss of the Laughlins’ retirement savings plan investments, some or all of which were collapsed to buy Connor Financial Corp. mutual funds, Macintosh said. “I find that Mr. Connor and his companies owed and breached a fiduciary duty to the Laughlins.”
The Laughlins had no independent advice.
Macintosh described the Laughlins as “babes in the woods” and “naive” when it came to their agreements with Connor. “The Laughlins argue that the loan agreement was unconscionable. I agree that it was.”
They said they had approached Connor in 2000 to seek financial advice after seeing his advertisements. They were homeowners and held conservative retirement savings plans, purchased through their bank or credit union. They had always avoided risky investments, Macintosh said in his ruling.
Connor testified that his clients’ main concern was to learn how to manage and eventually eliminate their debt.
The Laughlins believed Connor when told his suggestions would have them debt-free in three years, Macintosh said.
“The Laughlins signed many documents, making many commitments. Ms. Laughlin found it to be overwhelming. Neither of the Laughlins knew what they were getting into,” the judge said.
They agreed to use some money they borrowed to buy mutual funds. They signed papers allowing the Connor Group to collapse their existing savings plans and buy riskier investments.
However, the principal amount owing on the loan never seemed to go down.
When the loan, in the form of a line of credit, was first taken out, the interest rate was 13 per cent.
But the agreement stated, in small print on the reverse side of the document, that Connor could change the interest rate at any time with 30 days’ notice.
There were no criteria required to do that, such as a change in the prime lending rate, Macintosh said.
“As matters unfolded, Mr. Connor changed the interest rate to 36 per cent compounded monthly, or 42 per cent annual interest in September of 2012.”
The Laughlins wrote Connor in June 2004 stating they would make their final payment. They stopped making monthly payments at that time.
They wanted to sell what was left of their mutual funds to put toward their debt.
In August of that year, Connor told them that their funds were locked in until 2008 and, therefore, could not be used to pay debt prior to that, Macintosh said. When the funds were liquidated in 2008, $7,000 was applied against the loan.
Connor has had past run-ins with financial services regulators.
The B.C. Securities Commission sanctioned Connor for pocketing interest from clients’ trust accounts in the 1990s, Macintosh said. In 2005, the commission prohibited Connor and Connor Financial Corp. from lending money to mutual fund clients.
In 2011, the Mutual Fund Dealers Association of Canada found that Connor and Connor Financial Corp. engaged in practices unbecoming or detrimental to the public interest. The corporation resigned from the association that year.
