Nearly 80 per cent of mortgagors would be put off using a broker that charged a clawback fee, with just as many not knowing what it is, a new study shows.
A survey of 1,500 mortgagors, conducted by CoreData in May and commissioned by uno Home Loans (uno), found that 81 per cent of respondents are unaware of clawback clauses that would require them to reimburse a broker’s lost commission if they refinanced their home loan too soon.
Founder and chief innovation officer at uno Vincent Turner told The Adviser that clawback clauses are usually buried in the depths of credit proposals.
“Clawbacks fees will be outlined in the credit proposal and are a good reminder to the customer to always read the credit proposal in detail,” Mr Turner said.
“Customers can request to have a clawback clause removed from the credit proposal and should ask their broker to clarify any fees they are unsure of.”
However, the uno chief innovation officer believes that clawback clauses “aren’t very common”, referencing CoreData’s estimate that one in 20 brokers charge clawback fees.
Once survey respondents were made aware of the clause, more than 79 per cent indicated they would be put off using a broker that charged clawbacks, according to the uno-commissioned study.
“This statistic is a reminder that consumers are more empowered and have higher expectations than ever,” Mr Turner said.
“Removing clawback fees from loan contracts can only serve to retain loyal customers long-term.”
Mr Turner noted that uno is against charging clawback fees, saying that a borrower “should have the capacity to refinance their home loan whenever there is a better deal on the market or their circumstances change”.
“They shouldn’t be hamstrung by a clawback fee,” the uno chief innovation officer added.
Industry wants clawbacks removed or standardised
The broking industry itself has lamented the inconsistent clawback arrangements that have been put in place by lenders, with many urging for their removal.
For example, Peter White, the head of the Finance Brokers Association of Australia, told the Productivity Commission in a public hearing in March that the clawback of broker commissions is “something to be concerned about”.
He said he believes that “unfair clawbacks [of upfront commission] need to go” as it is “commercially unfair” that brokers can lose their income for “doing [their] job for up to two years [due to things] that are outside of [their] control”.
Mr White additionally told the commissioner that while he agreed that clawbacks may inhibit the movement of loans/borrowers between lenders, a broker’s duty of care to a client is “unfairly commercially challenged due to this, and this [therefore] must be removed to ensure the best interests of the clients are always [put] first without the potential of commercial disruption”.
One Century 21 Home Loans broker, Ken Crawford, even called clawbacks “the bane of [the broking] industry”, adding that clawback periods can vary significantly from lender to lender.
As such, Mr Crawford was in support of standardising clawbacks, a suggestion that was made by Loan Market executive chairman Sam White.
“There is a myriad of differing approaches by lenders to how clawbacks are calculated, which is why we are calling for a clear industry standard for clawbacks,” Mr White said in April.