CBA updates clawback policy

Currently, the major bank claws back 100 per cent of a broker’s upfront commissions if the broker client refinances their loan away from the bank within 12 months from the date of settlement. If the client refinances between 13–18 months, 50 per cent of the upfront is clawed back (it is illegal to apply clawback arrangements after two years from the beginning of the credit contract).

However, under the updated policy, all new applications lodged from 1 October 2023 will have staged clawbacks after the first anniversary.

A CBA spokesperson explained: “Under the new clawback policy, which will be effective on all new applications submitted on and from 1 October 2023, the first year clawback will remain unchanged with brokers earning 50 per cent of the upfront commission after one year.

“The remaining 50 per cent we will pay out over the second year with a monthly, gradual, straight-line approach which will see the clawback percentage continue to reduce every month until month 24.”

Clawback will not apply where the customer experiences hardship.

According to the spokesperson, the update has been made “following feedback from [CBA’s] brokers and aggregator partners”.

The spokesperson continued: “Earlier this year we removed refinance cashback payments for new customers, a move that was followed by a number of lenders and which was broadly supported by the broker industry.

“Combined with the removal of refinance cashback payments for customers, these changes should help brokers and customers focus on the long term benefits of the home loan they are searching for.”

Calls to update clawback arrangements have long been called for by the broking industry, with the debate having reignited in the past year as many lenders offered high cashback offers which encouraged borrowers to swap lenders in quick succession.

The crux of the problem with cashbacks, is that borrowers may become ‘serial cashback chasers’, resulting not only in brokers facing clawbacks, but also potentially working the same deal repeatedly in a short space time for no extra remuneration.

However, the broking industry has long argued that clawing back a broker’s remuneration if a loan is discharged for circumstances beyond their control, is particularly unfair.

Responding to a recent inquiry into promoting economic dynamism, competition and business formation, the Finance Brokers Association of Australia (FBAA) explained: “There are many examples of where a broker has had their income clawed back by a bank because a consumer has paid out their loan as a result of life events such as receiving an insurance payout (life insurance on the partner for example), receiving an inheritance, selling the home and even winning the lottery.”

It noted that borrowers may also choose to leave an institution within two years because “they are dissatisfied with the products or services offered by the institution”.

The FBAA submission to the Standing Committee on Economics inquiry continues: “In most cases, the consumer will be leaving because they have been incentivised by another institution or they are receiving poor service from their current institution. The person impacted by the outcome is the broker who introduced the customer. They have no control over the service level offered by the financial institution or the incentives offered by another institution. Often a broker will have no choice but to trigger a clawback against themselves in order to retain their customer’s business.”

Some non-bank lenders, such as Rate Money and Mortgage Ezy have been moving to abolish clawbacks entirely, while Pepper Money removed clawbacks on commercial finance products earlier this year.

La Trobe Financial has been one of the few non-bank lenders to have no clawbacks on upfront commissions.

[Related: Rate Money removes clawbacks on mortgage line]