Growth

Govt lobbied over commission clawbacks

By James Mitchell•Wednesday, 25 Nov 2015•7 minute read

The chief executive of one of the broking industry’s peak bodies has held discussions with the Assistant Treasurer concerning “unjust” clawbacks.

In a statement yesterday, FBAA chief executive Peter White described discussions with Assistant Treasurer Kelly O'Dwyer concerning “unjust commission clawbacks” in the broking industry as "fruitful".

Following his promise to lobby the government on this sensitive issue, Mr White spent Monday morning with Ms O’Dwyer discussing the lack of fairness in commission clawbacks, which he said continues to drive a wedge between brokers and lenders.

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“You can call me the proverbial dog with a bone on this issue but I will not let it rest,” he said.

“I outlined the FBAA’s concerns to Minister O’Dwyer about the unfairness of ‘non-contract-breach’ clawbacks and discussed ways to resolve the inequity of broker clawbacks.”

Mr White stressed that brokers suffer the consequences of being in an industry in which it can take two months for a loan to be settled, but with the broker possibly seeing their upfront commission clawed back due to circumstances outside their control.

“It is unjust and unreasonable that a person who is self-employed could wind up having to suffer financial hardships after having commissions taken off them 12 months later,” he said.

The FBAA chief also discussed lender's mortgage insurance disclosure and the potentially negative effects it has on borrowers who do not appreciate the full risk and obligations of LMI.

“This could be very embarrassing for government, with so many borrowers completely unaware of the hidden terms and conditions that affect their loan,” Mr White said.

“The Minister’s office is going to review my historic submissions and data on this issue and we are hopeful of a positive outcome soon on this potentially nasty issue."

Mr White also welcomed ASIC’s probe into the remuneration process in the broking sector and was confident discussions with the Minister and industry regulators would help all parties find the best outcome.

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James Mitchell

AUTHOR

James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.

He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.

He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.

James holds a BA (Hons) in English Literature and an MA in Journalism.

MORE ABOUT THE AUTHOR

MMR Thursday, 26 November 2015

Unfair Contract Terms Legislation has just been passed in Australia - to be effective 12 November 2016. This legislation impacts any contracts held with small businesses (small business is considered to be a business with less than 20 employees). Perhaps the FBAA can run a test case??

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Bluedog Thursday, 26 November 2015

Silly move by FBAA getting the government involved just speak to any financial planner and see if they are happy now that Govt had regulated life insurance commission<a href="riskinfo.com.au/news/2015/06/25/new-life...framework-announced/" rel="nofollow">riskinfo.com.au/news/20...</a>

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PeterT Wednesday, 25 November 2015

I'm sure this will be a very unpopular statement, but does anyone truly believe that this will be successful? The government doesn't care about claw backs, they've made it reasonably clear that they'd like to do away with commissions completely. I don't see that they'll be bothered with making lenders remove claw backs. The banks obviously aren't interested in this initiative. The cynic in me thinks this is simply the FBAA taking a populist stance to gain membership, nothing is really expected to come of this. The government will ignore it as will the banks.I'd be delighted if claw backs didn't exist, but change isn't going to be driven by the government. The only way it would happen is if every broker collectively chose a single bank, wrote to their BDM from that bank to tell them they're not seeing any business for 60 days unless claw backs are removed. Then the industry chooses another bank. Of course then ASIC would investigate the industry for collusion. No industry body is going to support that.

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Jeana Wednesday, 25 November 2015

Enough ! I have been reading these comments about claw backs for years now & have never made comments before , but seriously you brokers out there where this is a major issue, you obviously do not have a KYC programme in place with your clients. In over 10 years in the industry I have had about 6/7 clawbacks, I have always had a claw back clause in place & I get my money back from the client. In the last week I had a clawback made 5 weeks from the 2 year expiry period and politely requested the lender to consider refunding this and they approved this yesterday. I have one client who did not make the claw back and frankly I would not WANT to have him as a client ongoing. You think we are the only small business who have 'bad debts' in their business, well take a look at the balance sheets of some small business owners ! Honestly, if you think this is the worst issue in our industry at the moment, you do not take this industry seriously. I am far more concerned about changing credit policies at the moment. Manage this issue in a better way and stop moaning about it. And sorry but if you think Peter White and the FBAA will change this , think again ! Its all media hype....

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John Ruddick Wednesday, 25 November 2015

Sorry everyone ... you are completely wrong. If the heavy hand of the government stops clawbacks it means that brokers will be less profitable to banks and so upfront commissions will be cut a fraction. If you put a loan into a bank and it discharges then you have brought an unprofitable piece of business to the bank ... and should not get paid. Clawbacks are fair. The more the government gets involved in something they barely understand ie mortgage broking the more clumsy decisions they will make.

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Maria Rigoni Wednesday, 25 November 2015

If the FBAA and Peter White are serious about the removal of clawback the place to make this occur is in the law court. Not only will this test an untested law it will bring public focus to the unfair practice. After writing to Wayne Swan, Chris Bowen and Nick Sherry about the possibility of the government investigating clawback I flew to Canberra in September 2008 to discuss clawback with Senator Nick Sherry's senior adviser. I brought the issue of clawback to Hon Julie Bishop MP attention in Jan 2009 and her response was total silence. The new changes to the small business legislation has a clause that will allow the unfairness to continue... if the person knew the term and still accepted it then too bad so sad.

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Nathan Daniell Wednesday, 25 November 2015

Regardless of the dynamics that goes into Clawbacks, I look forward to joining FBAA who is solely dedicated to Mortgage Brokers unlike the MFAA. Don't get me wrong, Jon, your point is valid but Broker commissions are the Banks cost of doing business, the same way they pay their staff and staff incentives. Initially they may make a loss but over time they make Billions in profit... I have no doubt that Banks would reprice their loan books, enforce loan set up costs onto the clients, effectively reflecting the true cost of doing business and maybe, just maybe they start treating Mortgage Brokers as business partners, instead of competition, and begin to deliver on service... MFAA stance was clearly detailed that Clawbacks are here to stay, without working out a solution to have them removed.What if: A client from ANZ for example, came to me wanting to refinance because they had seen a lower interest rate advertised on TV but they didn't like their last Broker, Branch Loan Officer or Mobile Loan Officer. Instead of refinancing them to a new lender I was able to switch them to a better suited product with ANZ, a product that came with a lower interest rate and the change only cost the client $250 compared to the full costs to refinance. And a simple form that details my info stating that I am now the clients preferred Mortgage Professional, which then sees ANZ pay trail commission to me.Would this save the Bank money? Would this save the client money? Would this get rid of Mortgage Broker's who are purely in the business to churn clients? Would this force Mortgage Brokers to be better at maintaining their clients? Would Mortgage Brokers work harder to retain their Trail Commission? Would this better the industry as a whole? Would there now be a need to have Clawbacks?This may not be the solution, this is but a simple suggestion that may become part of the mix if the industry was interested in getting rid of Clawbacks, which can be achieved, instead of being shut down by the MFAA whose interests are also aligned with the Big Banks and their agenda...

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Rob Wednesday, 25 November 2015

Hi Guys, Yes great job Peter, keep agitating and the easy solution for the Government will be to implement a "fee for service" agreement that would suit the banks, suit the government and get rid of the clawback argument for good!

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kickittome Wednesday, 25 November 2015

Tell me this, if the lender takes the customer and re finances their loan, which does happen, should the broker be the one to lose? If the broker re finances the customer to another lender, then yes, they should be clawed back

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Jon Wednesday, 25 November 2015

HI PeterYou don't seem to have any understanding how the mortgage industry works and how commissions are generated. The lenders earn income on loans by an interest rate margin over time. The upfront payment to a broker is the margin on income to be generated in the future paid as a subsidy or loan to the broker.If the loan does not generate any income, why should the broker be paid for business that doesnâ€™t happen? The clawback is repaying the income from the future that hasnâ€™t been earned.Do you really want the industry to lose any upfront payment and only receive a trail income?

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