In response to the release of the final clawback regulations, Connective said the industry needs to find “fairer” ways to apply clawbacks in the future.
Speaking to The Adviser, the aggregator’s executive director, Mark Haron, has called for more modifications to clawback arrangements and has outlined his preferred structure.
“We would like to see it as more of a tiered step-down [arrangement] rather than having significant cliffs in respect to when there is a reduction in the clawback amount,” he said.
“It should be more graduated as opposed to having such significant ramifications, particularly in the first 12 months where there’s a 100 per cent clawback, which we don’t think is fair in respect to that application to brokers.”
Mr Haron observed that the final iteration of the regulations around clawback requirements for mortgage brokers did not vary significantly from the previous versions.
The federal government released the final regulations last week, which ban clawback arrangements if they apply for more than two years from the beginning of the credit contract.
The two-year period usually begins from the first day on which an amount of credit is drawn down by the consumer under the credit contract.
However, for a credit contract where credit is provided that is wholly or partly to refinance credit, the two years begin on the first day on an amount of credit that is provided to the consumer under the credit contract after the refinanced credit is made available.
The regulations also state 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”.
Commenting further on the need for change in the structure of clawback arrangements, Mr Haron said that while brokers would prefer to not have clawbacks apply to them, clawbacks are one of the three components of the commission structure to “enable a higher upfront to be paid”.
“It’s contingent on generally having a clawback in place. Once the economic benefit has been returned or is reduced, then so should the clawback be reduced as well,” he said.
“There certainly shouldn’t be the ability to have the clawback on brokers when it has not necessarily been the broker’s fault, particularly if it was a lender’s fault behind why a customer had to move or had to change.
“It certainly shouldn’t be a cost to be borne by a broker.”
Mr Haron’s comments about the final regulations have followed those by the Finance Brokers Association of Australia (FBAA), which emphasised that the “fight to bring balance and fairness” to clawback is ongoing.
FBAA managing director Peter White said the FBAA and brokers remain dissatisfied with the current stipulations around clawbacks, and added that work continued to liaise with lenders over their individual clawback arrangements.
“I can assure members and the industry that this battle is far from over. Brokers deserve a fair go, and our role is to fight until brokers get a fair go,” he said.
Connective recently added digital lender 86 400 to its lender panel, with Mr Haron stating that “86 400’s approach to mortgages is transforming the process of buying a home for Australians”.
Commenting further on the partnership, Mr Haron told The Adviser that the digital lender’s tiered clawback structure is the preferred arrangement.
“One of the aspects of clawback structures is that the way some of the lenders have them structured is quite unfair and very harsh on mortgage brokers where it definitely hasn’t been mortgage brokers’ fault as to why the customer has paid back the loan or refinanced the loan sooner rather than later,” Mr Haron said.
“We would like to see more lenders look to adjusting their clawback structure in a similar manner.”
86 400, which has grown over the past seven months to $40 million of loans settled or awaiting settlement, was recently also added to the lender panel of Australian Financial Group.
Commenting on the addition to the aggregator’s lender panel, Chris Slater, head of sales and distribution, told The Adviser that the digital lender “has really considered the broker in transaction”, and suggested that its clawback arrangements were “a lot more fair”.
“Clawback is pretty blunt at the moment. [For most lenders], if the loan is moved after 0-12 months, the broker loses 100 per cent of their revenue, and between 12-18 months they lose 50 per cent of their revenue,” he explained.
“But 86 400 has come up with a model where 100 per cent clawback is only for the first six months, which we think is more reflective of the work that has gone on from both sides. Then from six to 24 months, it is done on a pro-rata basis. So, the broker is actually getting something for the work they are doing,” he said.
[Related: AFG Securities updates clawback structure]
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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