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A petition has been lodged by a broker calling on Parliament to not only cancel clawback, but also refund any that have been implemented since BID.
A banker-turned-broker has lodged an e-petition with the House of Representatives seeking signatures of support to cancel clawbacks and have any commissions clawed back since the introduction of the best interests duty (BID) – which came into effect on 1 January 2021 – refunded.
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Created by Western Australian-based finance broker and director of Alorap Creations, Paula Parola, the petition said that – because mortgage brokers are now subject to a legal obligation to work in the ‘best interests’ of their clients when writing a loan regulated by the Credit Act – the role of clawbacks is defunct and should be removed.
It said: “Clawbacks are no longer relevant and occurs [sic] during the term of the loan when the lender cannot price match competitors so clients refinance or may sell the property.
“Banks will take up to 100 per cent of the upfront commission off the finance broker which sees them unpaid for the loan and out of pocket for their time and expenses.
“Now banks offer cashbacks to get clients and record extremely high profits, but [they are] punishing finance brokers on payment for services? No other business provides a service and doesn’t get paid for it?”
The petition also said that some lenders are offering home loan products directly to customers that are not available through the third-party channel and sought to allow all loan products to be available to brokers.
It therefore asks the House to:
- Remove clawbacks being charged to finance brokers immediately for services rendered.
- Refund any clawbacks charged to finance brokers since origination of best interests duty.
- Allow all loan products to be offered by finance brokers to clients.
- Ensure that brokers are contacted and paid when their client takes out any additional lending products with the lender following the initial introduction.
The petition is open for signatures until 11:59pm on Wednesday (11 September).
‘What other business does not get paid for their services?’
Speaking to The Adviser about why she launched the petition, Parola said she was inspired into action after seeing the work being undertaken by the associations to make broker remuneration fairer and reading the opinion piece on The Adviser written by broker Phil Rice, ‘Unpacking the unjust clawback: A call for fairness in finance’.
She flagged FBAA data that found the average annual clawback value per annum to a broker had surged by 47.4 per cent between 2019 and 2021, rising from $10,229 in 2018 to $15,077 in 2021.
The broker said she believed that upfront commission costs were already factored in lender pricing and that they were therefore “double dipping” when raising clawbacks and “profiting” from them.
The broker has extensive experience in the lending industry herself, having worked as an agribusiness manager at Bankwest for nearly 30 years and having held BDM roles at both AMP Bank and Liberty Financial.
She told The Adviser that lenders also “make money from undrawn Line of Credit products and loans offering offset accounts” as brokers are not paid for these either unless fully drawn/are only paid commissions net of offset.
Parola said this was particularly an issue at the moment given the “substantial amount of funds” being held in offsets.
She said: “I launched this petition based on listening to other brokers and recognising the need for positive change. It will allow brokers to speak up and help the finance broker industry.
“Brokers need to be repaid clawbacks from since BID was introduced … now is the time to enforce it with the lenders, and to backdate the clawbacks, as part of being fairer within the industry for services rendered under BID.
“The FBAA’s Peter White is seeking changes regarding clawbacks within the industry (based on BID being introduced) and how it has created the changes needed. So, this should be an open-and-closed case.
“The end game for brokers is to do the best for their clients under Best Interest Duty (BID) and to be paid fairly for their services provided, like any business … providing it is best for the client, the service needs to be paid for and not taken back 12 months or less.
“What other business does not get paid for their services?”
The petition author said that she believed it was also important brokers are able to offer the same products as lenders to ensure an even playing field.
Lenders adjusting clawback structures
The petition comes amid ongoing changes to broker commissions and clawback structures.
National Australia Bank (NAB) updated its clawback structure for brokers last week, following similar moves from the other major banks last year.
It has now moved to a stepped clawback commission rate for all new residential loans that refinance away from the lender after 1 September 2024.
Other major banks that have revised their clawback policies in the past year, include Westpac (which dropped down to an 18-month clawback period) and the Commonwealth Bank of Australia (CBA), which moved to a staged clawback approach after 12 months.
The moves come following ongoing talks between broker associations and the lenders.
Moreover, following more than two years of discussions between the Finance Brokers Association of Australia (FBAA) and the federal government about the “unfair clawback” structure and net-of-offset commission structures impacting broker incomes, a meeting took place on 8 July between Minister Stephen Jones and members of the FBAA to tackle the matter.
While no actions have yet come about as a result of the meeting, the minister reportedly asked the FBAA to put together a list of top priorities and outcomes they want to see brought about.
[Related: NAB changes clawback policy]
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