By Aron Hochhauser, Fulton & Company Law Corporation
A recent Ontario Superior Court of Justice decision highlights potential consumer-law and lending-law risks arising from automatic mortgage renewal practices.
In Abeywickrama v. The Bank of Nova Scotia et al, 2026 ONSC 3262, released June 4, 2026, the Court certified a proposed class action against The Bank of Nova Scotia (“Scotia”). The claim alleges systematic breaches of section 8 of Canada’s Interest Act, R.S.C., 1985, c. I-15.
Section 8 provides:
No fine, etc., allowed on payments in arrears
8 (1) No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property or hypothec on immovables that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.
The Facts Alleged in Abeywickrama
The plaintiff, Ms. Abeywickrama, and her husband entered into a five-year closed fixed rate mortgage with Scotia in 2018 to purchase their first home in Saskatoon. The mortgage carried an interest rate of 3.34% and was scheduled to mature on August 22, 2023.
As the maturity date approached, Ms. Abeywickrama decided not to renew with Scotia after obtaining more favourable terms from another lender. In or about June 2023, she advised Scotia that she did not plan to renew the mortgage. On or about July 21, 2023, she and her husband signed a payout request authorizing their preferred mortgage lender to take all steps necessary to discharge the 2018 mortgage by paying the outstanding balance before maturity.
Scotia telephoned Ms. Abeywickrama to remind her of the upcoming maturity date. It also sent a letter dated July 18, 2023, as required by banking legislation, identifying the mortgage maturity date, outlining end-of-term options and describing the automatic renewal provision.
Although Ms. Abeywickrama signed the mortgage payout request form in July, Scotia did not receive it until August 17, 2023. On Monday, August 21, 2023, at 12:01 p.m., Scotia advised the preferred lender that it could not process the payout request because it could not verify the signatures of Ms. Abeywickrama and her husband. The mortgage was therefore not paid out at maturity.
On August 22, 2023, without further notification to Ms. Abeywickrama, Scotia automatically renewed the 2018 mortgage into a fixed-rate, six-month closed term at an interest rate of 7.75%. Her monthly payments increased by approximately 42%.
After learning of the automatic renewal, Ms. Abeywickrama took immediate steps to discharge the Scotia mortgage and change lenders. While the discharge process was underway, she made the first monthly payment under the renewed mortgage. To discharge the six-month autorenewed mortgage, she paid Scotia the stipulated penalty of $5,456.94.
Ms. Abeywickrama then complained to Scotia. Scotia’s Customer Complaints Appeals Office (“CCAO”) declined to reimburse either the interest paid under the autorenewed mortgage or the penalty payment. Following a recommendation from the Banking Ombuds Office, Scotia offered a good-faith payment of $1,100 conditional on Ms. Abeywickrama signing a release. She rejected that offer.
The Court’s Certification Decision
The Court concluded that the plaintiff may be able to establish at trial that Scotia’s autorenewal practices violate section 8 of the Interest Act. The claim alleges that the automatic renewal structure imposed a substantially increased interest rate and a prepayment penalty after the original mortgage reached maturity, resulting in an unjust enrichment of the bank.
Certification does not determine whether Scotia is liable. It does, however, permit the claim to proceed as a class action on behalf of eligible class members, who may seek damages if the alleged practices are ultimately found to contravene section 8.
A Developing Area of Mortgage Litigation
This is not the first class proceeding to raise concerns about mortgage renewal practices. In 2024, Haventree Bank faced a similar class action lawsuit and settled the claim for $1.5 million.
The Abeywickrama decision is a useful reminder for lenders to review automatic renewal provisions, maturity-date procedures, payout administration processes and prepayment-charge practices. In particular, lenders should consider whether the combined effect of an automatic renewal at a higher interest rate and a discharge penalty could be characterized as increasing the charge on arrears beyond the interest rate otherwise payable on principal not in arrears.
For borrowers, the decision underscores the importance of beginning the refinancing and payout process well before a mortgage maturity date, confirming that all signatures and discharge documents have been received and accepted, and carefully reviewing the consequences of any automatic renewal provision.
Aron Hochhauser
Fulton & Company Law Corporation
960-1055 W. Georgia Street
Vancouver, BC V6E 0B6
T: 604.900.3104
