ING Direct, fresh off its purchase by Bank of Nova Scotia in November, informed mortgage brokers Wednesday it will no longer do business with them — a move that is rankling some people in the industry, who fear the consumer is losing a major advocate.

In a memo obtained by the Financial Post, ING Direct indicates to brokers that it had studied the two financial institutions’ products and found “considerable overlap.”

“We felt that both ING Direct’s and Scotiabank’s objectives would be better served by allowing each entity to focus its efforts on its own relative strengths,” Kim Luxton, director of broker sales, said in the memo.

ING will now focus on the direct channel to consumers while the brokerage lending business will be diverted to Scotiabank, which the memo describes as the largest in Canada. When the deal was completed in November, Scotiabank said it would operate ING as a separate and distinct wholly owned subsidiary.

Mortgage broker Vince Gaetano, a principal at monstermortgage.ca, wondered what the impact might ultimately be on the industry. Canadian Imperial Bank of Commerce, Royal Bank of Canada and Bank of Montreal have all left the brokerage business.

“I think they are starting off with pieces with ING,” said Mr. Gaetano, who thinks consumers might actually get a better and lower-priced product as brokers are cut out.

ING Direct typically has some of the lowest posted rates on mortgages in the country, with the five-year closed mortgage rate now sitting at 3.08% and the 10-year closed mortgage rate at 3.89%. Brokers, funded by ING Direct, have been able to offer those same products to clients at 2.98% and 3.79% respectively.

“ING was always known as the consumer advocate and we’ll see how Scotia deals with that. Let’s not fool ourselves, they are a big bank,” Mr. Gaetano said. “ING has always been the lender that kept everybody honest.”

One of the key differences with ING Direct mortgages are friendly terms for consumers, including no penalties for blending and extending a contract. Breaking a mortgage was also cheaper at ING Direct than at traditional banks because of the interest rate differential — the penalty the consumer pays for the lost interest between the posted rate and their cancelled contract rate — is skinnier based on ING’s lower posted rates.

Rob McLister, editor of Canadian Mortgage Trends, called the decision by ING Direct a “massive disappointment.”

They had “literally the best” mortgage product in Canada, which he chalked up to their penalty calculation difference.

He said he wasn’t surprised by the decision, based on the two businesses not wanting to trip over each other. “ING Direct is still a great way to reach consumers directly and they don’t have to use a broker,” said Mr. McLister, adding Scotiabank will now have better pricing power with brokers.

Andrew Chornenky, a spokesman for the bank, said no decision has been made on how other services at ING might be affected by the November acquisition. “Today we are talking about the mortgage-broker business after completing a review,” said Mr. Chornenky, who would not talk about how rates might be affected.

Peter Routledge, director of equity research for financial services at National Bank Financial, said the decision for each entity to refocus its efforts was expected.

“It’s a straight consolidation play. One of the things you do when you buy a competitor is you consolidate operations. If you have two units that do the same thing, after the integration you have one.”