Clawbacks: 'We are definitely open to discussion'

by Calida Smylie25 Mar 2014
Most lenders are holding their tongues on their justification for clawbacks, but one non-major has said it is willing to discuss change.

ME Bank broker national manager Stewart Saunders said the bank is guided by what brokers want and is “definitely open” to discussion around the structure of commissions and subsequent clawbacks.

He said when ME Bank came into the market, two decades ago, it followed the industry status quo on clawbacks and commissions. The bank takes back 100% of broker commission in the first 12 months and 50% in the first 18 months should the client take their loan somewhere else.

Clawbacks cannot be talked about in isolation as they are intertwined with upfront and trail commission – and when the lender pays the broker upfront commission it is money not yet received from the client over the life of the mortgage, Saunders said.

“What brokers need to understand is the bank’s paying that commission prior to receiving the income from customers. It’s only fair to clawback when banks haven’t received any income.”

Currently aggregators and brokers have indicated they want an upfront and trail commission structure of income, but if there is significant kickback from the industry, lenders should think about changing this, Saunders said.

“If it is something brokers want to change I recommend speaking to aggregators so we can have a consolidated discussion of what needs to be done about an alternative structure.

“We are definitely open to discussion around the structure of commissions.  But we need to have a consolidated feeling from aggregators as to which direction to take.”

Australian Broker asked 15 lenders about their position on clawbacks, why they introduced them, whether they could come up with an alternative which would allow cost recovery while still acting fairly towards brokers, and whether they would consider limiting their clawbacks in future.

St George, ING Direct, AMP, Liberty Financial, Macquarie Bank, ANZ, Pepper and Citibank all declined to comment.

Commonwealth Bank and Resimac indicated they would respond in due course. Others have not responded.

Future Financial general manager Troy McLachlan said his company has never introduced clawbacks for brokers and instead covers the cost themselves.

“If a reasonably small mortgage manager can offer this in the market and maintain strong profitability, I ask why other lenders in the market cannot offer no clawback or even an option [or] model in between what is currently on offer?”

However, McLachlan said brokers must consider when placing business to lenders who have zero fees and extremely low rates “or fancy marketing campaigns”, that the lenders have to cover the costs of these promotions somewhere.

An article on Friday generated huge feedback from brokers, who overwhelmingly decried the conduct and suggested change.
MORE: 

Clawbacks 'not okay', says broker

Hot topic of the week: Clawbacks

ASIC 'reminds' banks to acknowledge clawbacks 

 
 
 
 

COMMENTS

  • by Todd 25/03/2014 9:06:12 AM

    We are simply the facilitator of the loan. We are paid to put the deal together, not fund the deal. The lender takes on the funding risk, so if the client refi's or sells, they should take that risk on board.
    For ALL lenders, please tell me why it is the Brokers responsibility of risk if a client sells a property? Refi, sure... if we are looking after the client then they should come back to us and the Clawback stops churning, but selling a property can be for many reason totally out of our control.

  • by Coast Broker 25/03/2014 9:19:06 AM

    There has always been a glaring issue with Clawbacks especially when it comes to Lenders that have their own retail lending presence also. We have always been told that it is cheaper for a Lender to pay Brokers commission then what it is to have only employed lenders with the associated costs. So if a loan is repaid within 12 months of funding through their own retail presence does the in house Lender that arranged the finance have to repay part of any bonuses they have received. I would say not. 90% + of my client base are still with the same lender any that are not have been moved after 1 to 2 years with a non conforming lender because I had to clean up their credit issues and have them rebuild a clean credit track record.

  • by Bottom Line 25/03/2014 9:19:14 AM

    "Clawbacks cannot be talked about in isolation as they are intertwined with upfront and trail commission".
    So in other words, we'll cut your upfront and/or trail if you want us to remove clawbacks.......reality check: the industry has already done that. We're paid lower commission rates of commission than we were 7 years ago!
    We were also told that by lodging our deals online etc, and thereby saving the bank money; it would enable them to maintain/increase commission rates. After we adopted online processing, our commission rates dropped by 41%.
    Now ME appear to be proposing a lowering of commission rates in the off chance we get a clawback. The call to abolish, didn't include "cancel one cost, but recover the money from us somewhere else".