Ontario’s Financial Services Regulator (FSRA) has issued a notice of proposal against Harold Gerstel, his company ‘Harold the Mortgage Closer’ (HTMC), and Esther Gerstel (EGI) for allegedly lending vulnerable people significantly high annual interest rates for EGI mortgages.

The regulator alleges that Gerstel “has orchestrated a scheme under which he leveraged the credibility afforded to him” as a licensed mortgage broker “to advertise to vulnerable consumers”. The proposal, dated April 30, states that Gerstel diverted certain clients directly to a private lender, EGI, and that Gerstel’s wife, Esther Gerstel, is the sole Director of EGI.

Gerstel allegedly did so while purporting not to take the borrowers on as clients of HTMC. Gerstel then engaged with the very same clients as a representative of EGI and arranged mortgages for EGI. In doing so Gerstel traded in mortgages outside HTMC.

“The EGI mortgages carried onerous fees and interest. Generally, EGI charged 22% interest, with funds withheld to pay the interest in advance. EGI also charged significant lender fees. The Borrowers’ total cost of borrowing was between 30% and 80% per year,” the regulator stated in their proposal, adding that, by carrying on business through Gerstel but not HTMC, EGI failed to carry on business solely through a mortgage brokerage or an exempt person or entity.

“By orchestrating this scheme, Gerstel has contravened the Act and denied vulnerable clients the protections of the Act.”

In a press release, the FSRA states that Harold Gerstel and HTMC “are not suitable” to be licensed under the Mortgage Brokerages, Lenders, and Administrators Act of 2006, noting that Gerstel contravened the Act by dealing in mortgages outside of his mortgage brokerage for remuneration.

The FSRA further alleges that EGI was carrying on business as a mortgage lender without being licensed as a mortgage brokerage or exempt from the requirement to be licensed, contrary to the Act.

“FSRA is proposing to refuse to renew the mortgage broker licence of Gerstel, to revoke the mortgage brokerage licence of HTMC, and to impose a compliance order on EGI. FSRA is also proposing to impose administrative penalties in the total amount of $60,000 against Gerstel and $150,000 against EGI,” they state in a press release.

This enforcement action is supplementary to the enforcement action initiated on June 22, 2023. In that notice, the FSRA stated that Gerstel and HTMC failed to cooperate with an investigation by the Chief Executive Officer of the FSRA. In particular, they “failed to fully comply with an inquiry letter and summons issued by FSRA. Gerstel also provided false information on his licence renewals as a mortgage broker,” the regulator stated.