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Clawback confusion: Is it ever ok to charge clients?

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Australian Broker | 19 Aug 2013, 08:00 AM Agree 0
The legality of passing clawback fees on to clients has left many brokers unsure - we speak to AFM's Iain Forbes and Gadens Lawyers partner Jon Denovan to clear up the confusion
  • Andrew | 19 Aug 2013, 10:29 AM Agree 0
    As Iain says "no business can pay a commission, have the mortgage discharged and not charge a clawback..." and that exact concept applies to the Brokers business too. The broker incurs costs writing the loan, so just as the lender seeks to recover some costs via clawback, so too the broker should seek to recover some costs via a fee. If it is ethical for a lender to recover some costs, then it sure ain't unethical for a broker to do the same.
  • Michael eberand | 19 Aug 2013, 10:34 AM Agree 0
    I disagree with Forbes.

    The lenders have ample margin to at least only part charge a claw back.

    A hefty part of what we do is provide labour otherwise the lenders would have to put on more employees. They do not charge their employees back their hourly wages.. And so should we also retain part of the commission for the work.

    If margins were very tight we could understand but given profits and margins where they are , to me, lender full claw backs is what is unethical.

    Good on Advantedge for understanding and having a 50% claw back arrangement- they provide the respect to us mortgage advisors which we deserve. That's why I support them
  • Michael eberand | 19 Aug 2013, 10:40 AM Agree 0
    Issue is a claw back is a substantial hit for broker of passed on to client . But as a cost to the mortgage provider it would be simply absorbed into the overall profitability of the product.

    Margins are now out where they were or better than when we had no clawbacks and higher commission rates.

    Broker commissions should simply be part of the funding model for the home loan lender- get rid of clawbacks and support lenders who support us by not having them or at partial clawback only
  • Regional Broker | 19 Aug 2013, 10:42 AM Agree 0
    This ios good advice and discussion , what has not been discussed is when the lender still can charge early discount fees on loans that may be over 18 months old and still charge the broker a claw back as well to the broker , it is simple "double dipping " and needs to stopped now . The big four and their regionals are still doing this .
  • Joseph Meyer | 19 Aug 2013, 10:51 AM Agree 0
    Firstly do not sell a mortgage product that you do not earn a profit on from day one!
    Secondly, the withdrawal of early termination fees now allows the customer to make the change, this is not always broker driven and therefore with the abolition of early termination fees so to should claw-back be abolished.Lenders can always monitor brokers business and if they see what would appear to be rolling clients then have that conversation with that broker.
  • Jon | 19 Aug 2013, 11:04 AM Agree 0
    We quote the Clawback fee in our Quote and always discuss with clearly with our clients, explaining to them that we don't work for nothing. They understand this and are happy to sign on this basis, however if a client is aware they only intend to be in the product for a short term, then use a lender that does not charge a clawback, as that is what is ultimately best for the client anyway.
  • Interesting | 19 Aug 2013, 11:11 AM Agree 0
    Funny how the issue of clawbacks; or 'unlimited time' for a Bank to discharge a mortgage, never came up when the licencing legislation was introduced.

    All seem to have been ignored as issues - I can only guess that changes to these items would have disadvantaged the very people/group directly advising the government of what should be in the legislation.
  • John Boudoukos | 19 Aug 2013, 11:31 AM Agree 0
    A broker of 25 years and Claw back has never been an issue in the past but today's market tells my customers that they have a responsibility to shop there home loan because the government has made it cheaper. I touch my customer at least once a month and despite having a great relationship, have been ping several time because of situation outside my control. Forbes notes the cost to the Lender and I'm guessing if you asked any broker the number of hours needed to get an application to a Lender that is compliant, it is just as expensive and time consuming.

    No backlash!!! and the choose was????

    Once again Broker, are asked to do more for less and then have a responsibility period, for up to 2 years, But it is fair for the lender!!!

    If we try and protect ourselves it is could be construed as WHAT "fee-by-ambush" the hits just keep on coming.

    Feel for the young kids trying to get into our industry
  • Broker | 19 Aug 2013, 11:52 AM Agree 0
    I will NOT write any loan and leave myself exposed to ZERO income.
    Name me a profession that works for free, case closed.
  • mac | 19 Aug 2013, 12:00 PM Agree 0
    You don't have to charge the mirror of the upfront comm either. I put a $700 clawback fee in my quotes as standard for any size deal so it is a fee for my time and advice not a profit share with the lender. If I think a loan may be potentially short term I increase it to whatever I think suitable. I have only lost one client because of it and I can sleep a bit easier at night knowing I am somewhat protected.
  • Broker | 19 Aug 2013, 12:07 PM Agree 0
    So long as it is included in the Broker contract it will never be a surprise to a client , and no annual reminders are necessary.

    If a client rejects this clause , I simply reject their business and suggest they just go to a bank and don't use my services, as I do not want to assist any client that is not on board with how I get paid.

    Respect is supposed to goes both ways, isn’t it?.

    If the MFAA or FBAA had any interest in the members it supposably represents, it would lobby the lenders to at least adopt something like ANZ’s clawback model or abolish them altogether , as more than often it is NOT the brokers fault.
  • Todd | 19 Aug 2013, 12:29 PM Agree 0
    @John Boudoukos - As long as trail income remains - young people will be looking twice at mortgage broking as a career

    I started mortgage broking when I was 18 in 2005. I took a chance and started my own business in 2009 and it all started great. However, the introduction of lower commissions and longer clawback periods made me take a BIG step back and stop all marketing as I was no longer sure the profession was a viable one for my future. I have kept all my accreditation's and finished my diploma waiting off on the sides for the right time to come back into mortgage broking. I have decided that now is the time but it's going to be a very hard road made rocky as hell with the possibility of clawback.

    There is little incentive other than building trail income for young people looking to enter the industry.
  • PeterT | 19 Aug 2013, 12:31 PM Agree 0
    Personally I don't see what the big deal with clawbacks is. Of course everyone deserves to get paid, but clawbacks on my loan book are quite rare to the point of it not been worth the head space to bother chasing them.
    We put in the effort upfront to establish a good relationship and educate the client for the reasons why we make our recommendation. We also make sure we're first of mind when the client is thinking of a loan. The most common clawback we see is where we re-wrote the loan for some reason. Unexpected clawbacks are very rare.
    The additional benefit is that we do a lot of repeat business and a lot of referrals. :)
  • Stuart | 19 Aug 2013, 01:16 PM Agree 0
    Clawbacks are a crafty way that the banks in particular were able to shift the cost of doing business to the mortgage broker. I try and deal with lenders who do not charge a clawback, but when I need to use a lender who does charge a clawback I have a clawback provision in my credit quote that the borrower signs before we submit any applications. It is rare it happens, but we cannot be held liable for people's actions for two years! Life is unprdictable!
  • Broker | 19 Aug 2013, 01:55 PM Agree 0
    We don’t just give the lender just a home loan client, we also give that lender a Credit card client, a Transaction account client, Insurance etc and of course the lender still keeps these accounts active earning a profit.
    Most brokers now are more qualified than some of the people they deal with on a daily basis.

    When a clawback from a broker is executed, that broker is the only person not to be paid. Every single person along the food chain gets to keep their pay.
    This may be the main reason why no-one, That`s NO_ONE is doing anything about this.
    Which bank doesn't make a profit?
  • Brado | 19 Aug 2013, 05:57 PM Agree 0
    I don't understand, for starters, why the lenders cant let us know that a discharge has been lodged against one of our loans. So that we can potentially save it for everyone.

    We have a clawback provision in our credit quote now, after a few un-announced claw backs occurred. Everyone has been happy to agree to pay us back the commission if they enact a clawback on us. But we offer an out to the client if they seek our help again that we wont charge this.

    Having had one recently where the lender did an internal refi and then clawed back the commission ( got it back in the end ) I still think that lenders need to prove that we are churning the loan to be able to charge the clawback. If its a sale or something else, it shouldn't be charged.
  • David | 19 Aug 2013, 06:32 PM Agree 0
    While provision for clawbacks can be made in the quotation document, the principle of clawbacks being universally applied is iniquitous. There are instances where mortgages are discharged early through no fault of the broker or, for that matter, the client. For instance, if a client dies within the clawback period, the broker loses all income associated with that deal. Or when a client is unexpectedly retrenched (a common occurrence these days) and defaults. Similarly, if a couple separate/divorce the broker cops it. In these circumstances it is unfair to pass on costs to the broker or to the client through the quotation contract.
    There should be rules surrounding clawbacks that exempt certain circumstances. The reason for clawbacks, and with which I agree, is to prevent churning, but where churning is not involved there should be a clawback exemption or, at the very least, reduced clawback, for certain defined circumstances. While I understand that lenders have costs associated with establishing a loan, so too do brokers and to have a blanket clawback policy demonstrates what little regard some lenders have for the work of brokers.
  • broker | 19 Aug 2013, 07:27 PM Agree 0
    I really believe brokers should contact there respective aggregators and let them know that we as a whole reject the clauses that allow you (the aggregator) to claw back our income.
    I mean the ABN that pays me is the aggregators and not the lenders.
    Brokers only have ourselves to blame if this practice this continues.
    Aggregators Mfaa Fbaa and the like,
    Stop this practice today.
  • Unhappy-broker | 19 Aug 2013, 07:40 PM Agree 0
    Lets do the numbers
    Average broker settles 52 loans a years.
    4 clawbacks p.a
    The 4 weeks that we are expected to work free.
    1. Death
    2. Destitution
    3. Divorce
    4th. Sale of property

    I don't think it's a matter for ASIC
    I'm more inclined to think its a matter for the Office of Fair Trading. Really how can the lender as a business say it makes no money.

    I mean the works done so the pay stands.
  • Broker | 19 Aug 2013, 07:53 PM Agree 0
    With enough money to give clients cash back for refinancing, it really is hard to believe lenders are still getting away with clawing back brokers.
    To the body's that claim to represent brokers,
    Now is the time to take a stand for brokers as stop clawback dead in there tracks!!
  • ozboy | 20 Aug 2013, 09:48 AM Agree 0
    Another example of us and them, as an industry we will ever really work in partnership with our suppliers? The scary part of this discussion is the comment "if we know they are going to payout early we put them with a lender that doesn't have a clawback policy". If we keep that up pretty soon there will be none. We need to tackle this unfair and lengthening policy together with someone like the MFAA/FBAA playing a moderating role to try and find some middle ground that benefits everyone. While the MFAA is out trying to recruit new and younger members these type of policy's make it harder. Anyone know any profession or business that does the work, gets paid and then has a period of up to 2 years where their income can be taken back without consultation? I didn't think so.
  • oldBroker | 20 Aug 2013, 09:50 AM Agree 0
    Get the percentage of broker-initiated deals up to 75% and watch the clawbacks disappear. The only power we have is performance.
    Getting rid of the clawbacks would allow the best thing that could happen to our industry: the elimination of the aggregator. Without clawbacks, the lenders could pay the brokers directly which is the last hurdle to removing the soul-sucking, valueless aggregators.
  • Todd | 20 Aug 2013, 12:59 PM Agree 0
    @John Boudoukos - As long as trail income remains - young people will be looking twice at mortgage broking as a career

    I started mortgage broking when I was 18 in 2005. I took a chance and started my own business in 2009 and it all started great. However, the introduction of lower commissions and longer clawback periods made me take a BIG step back and stop all marketing as I was no longer sure the profession was a viable one for my future. I have kept all my accreditation's and finished my diploma waiting off on the sides for the right time to come back into mortgage broking. I have decided that now is the time but it's going to be a very hard road made rocky as hell with the possibility of clawback.

    There is little incentive other than building trail income for young people looking to enter the industry.
  • Chris C | 20 Aug 2013, 01:06 PM Agree 0
    We are supposedly living in a 'consumer pays' society. Whilst the Banks seem to be allowed to have their cake and eat it in making the rules and are quick to claw back their costs (at the expense of the broker who has done all the same work load), unless for churning, the bank should be the one to levy the charge against the customer. The early repayment fees should never have been abolished (may be reviewed for a fairer $ value rather than a % of the loan etc) and they should be applied by the Bank to the customer, not the broker if it is the customer's doing. What other business has their max income dictated to them and is not allowed to pass on their fair costs of doing business ?
  • Bill Tapper - Cleveland Finance | 20 Aug 2013, 02:18 PM Agree 0
    Clawbacks fortunately are not too prevalent but wrongly directed, they deny the broker of recognition for effort, undermine his status and potentially strain client relations. The lender should have it as a term of the contract and it be levied on the customer.
  • The Observer | 21 Aug 2013, 03:10 PM Agree 0
    I value enormously Jon Denovan's pragmatic and non-scaremongering approach to NCCP. However, the correct construction and delivery of the appropriate clawback documentation to the consumer may need to be considered in the overall context of the Government's intended spirit of outlawing of DEF's. I wonder if the Government ever intended to have the consumer pay the broker instead of the lender. I am not lawyer and Jon is a good one but this clawback fee smells like "the cost of doing business" and that perhaps should be borne by the business partners (lenders and brokers). The clawback scenario is particularly acute if you did not receive trail in the 1st year.
  • mac | 22 Aug 2013, 09:19 AM Agree 0
    @ Observer. Lenders DEF's went for 4 years on average and we still had clawbacks with most lenders out to 18 months at that time (non banks excepted). Clawbacks are not a new thing since the banning of DEF's. Whether a broker has a commission clawback clause is not necessarily linked to the banning of DEF's. Some brokers had these clauses before this came into effect.
  • Concerned and confused | 22 Aug 2013, 09:29 AM Agree 0
    Obviously this is an important and topical issue. It would be great to know why, when the MFAA scheduled an event on this exact subject earlier in the year that only 6 people registered and the event had to be cancelled???
  • ozboy | 22 Aug 2013, 09:45 AM Agree 0
    Concerned and Confused, when where and why as I a member did I not see anything? Can you provide more details?
  • Reply | 22 Aug 2013, 10:19 AM Agree 0
    In reply to concerned & confused.

    I never saw it either, nor got an email from the MFAA regarding it.

    Seems it mustn't have been advertised much.
  • Stuart | 22 Aug 2013, 12:54 PM Agree 0
    If the lenders are going to clawback these commissions they pay to us, then it may be appropriate for them to deduct the amount from any subsequent settlement that may arise. Why can't we state in our credit quote that we give permission for the lender to do so on our behalf in case of a clawback meanwhile disclosing to the borrower the clawback and getting consent from the them to do so?
  • SEQ BRoker | 10 Nov 2013, 12:13 PM Agree 0
    I am facing a Clawback from a customer who wishes to sell the property inside the clawback period. If I told them the clawback situation, they would pay me - they value the work i did for them unlike the lender obviously.
    I want to know why the MFAA and the FBAA haven't already gone into bat for us brokers here. Is it because the very people who would end up with a hip pocket cost are the people sitting on the boards of these supposed Broker groups? Such a big issue you would think that any organisation representing OUR interests would have made a court case out of this already. Claw backs for Churns excepted, everything else should be off the table. Seriously, is it even economical to churn anyhow you certainly don't increase your book. I haven't even heard of this happening.
    MFAA why haven't you protected me from this? I agree with the sentiment that I have worked for my income and now to have it clawed back is unfair, however I also think my client should be able to sell their property without fear of economical recrimination. This cost f doing business should be at a minimum - shared. In addition, I would be surprised if a court found it fair that the Broker (introducer) bears the entire cost of this cost of doing business clawback.
  • CharlieX | 08 Mar 2015, 03:54 PM Agree 0
    who should bears the clawback? the lender make the rules, the lender bears the clawback? the borrower breaks the rule, the borrower bears the clawback?

    what's the purpose for the aggregators?
    why the role of the industry associations is to be another gatekeeper to new blood, with all their useless requirements?
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