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The federal Treasury has confirmed that the proposed changes to broker clawback arrangements are expected to take effect from 1 January 2021.
While the bill containing the best interests duty for mortgage brokers – the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers [2019 Measures]) Bill 2019 – officially passed in February of this year, the regulations (which prescribe the circumstances in which changes apply) are not believed to have been finalised.
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In the draft regulations (National Consumer Credit Protection Amendment [Mortgage Brokers] Regulations 2019) released in August 2019, it was outlined that the period over which commissions could be clawed back from aggregators and mortgage brokers “must not apply for more than two years after the day on which the credit contract is entered into by the consumer”.
Further, the draft regulations stated that the repayment obligation must not require repayment of an amount greater than the benefit given and, crucially, that the consumer “must not be subject to an obligation to pay an amount as a result of an amount being required to be repaid under the repayment obligation”.
Speaking to The Adviser last week, Connective director Mark Haron outlined that more clarity and detail was needed around how proposed clawback changes would work in practice.
For example, Mr Haron said that more certainty is needed on whether the prohibition of clawback recoupment would apply to broker-lodged loans that had included a clawback recoupment clause but were lodged before the 1 January BID implementation date.
The Adviser reached out to Treasury to ascertain the status of the regulations (which were released in draft form under the name National Consumer Credit Protection Amendment [Mortgage Brokers] Regulations 2019).
While no date was outlined in their response, a spokesperson for Treasury commented: “Consistent with the government’s announcement to defer by six months the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, commencement of the legislated mortgage broker best interests duty and remuneration reforms has been deferred from 1 July 2020 to 1 January 2021.
“The proposed mortgage broker clawback provisions will be included in corresponding regulations.
“The regulations are expected to take effect at the same time as the legislative changes.”
Given the uncertainty, conversations are being sought between the broking industry and relevant government agencies to provide further certainty.
Indeed, the broking industry has been united in its push for clawback reform, with several stakeholders, including the Mortgage & Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA) and a number of aggregators backing changes to the current model.
In its submissions to Treasury following the release of the federal government’s draft best interests duty bill, the MFAA recommended that the maximum clawback period be reduced to 12 months, and that the clawback percentage “steps down in a more linear manner”, from 100 to zero per cent over the clawback period rather than the current “all or nothing” approach, which it said is “inequitable”.
The FBAA echoed this sentiment in its submission, stating that while its first preference is for “clawbacks to be abolished”, it would back a move to reduce the clawback period to 12 months.
[Related: More clarity needed over clawback recoupment]
