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Second major bank changes clawback policy

by Annie Kane11 minute read

A big four bank has confirmed that it will be reducing its clawback structure by six months for all consumer mortgages settled with the group.

Westpac Group has announced that it is reducing the time period that clawbacks apply by six months and will be applying the change retroactively.

Currently, the major banking group – which includes Westpac, St.George, BankSA, and Bank of Melbourne – claws back 100 per cent of broker commissions if borrowers refinance away from the bank within 12 months and 50 per cent if they do so within 24 months from settlement.

However, as of next Tuesday (1 August), the clawback policy will be reduced by six months.

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The change will be made retroactively, so all Westpac Group consumer mortgage home loans settled from 1 February 2022 will have an 18-month clawback period.

As such, 50 per cent clawback will be applied for loans discharged within 12–18 months (instead of 12–24 months) and no clawback will be applied for loans closed after the 18-month mark.

Speaking of the changes, Westpac’s head of broker distribution Warren Shaw said: “Reducing our clawback structure is a way we can help support brokers to manage their cash flow.

Since we announced the change [on Wednesday, 26 July] the feedback from brokers has been positive.

We know it’s currently a busy time for brokers and we look forward to continuing to work with them to help more Australians into homes.”

One broker who welcomed the change is BLANK Financial director Bernard Desmond, who told The Adviser: It’s a positive change in the right direction, for sure. Westpac Group has genuinely improved and reduced its clawback policy ... This will certainly help broker business to not be out of pocket.”

However, he added: I would like to see a standardisation of clawback policy across the board. Banks can self-regulate this knowing that 70 per cent of their new application flows are coming from brokers.

Currently, there is a disparity between how clawbacks work with a broker business versus how it works if the client takes a loan directly via a franchise network of a bank or through their own branch network. Best [interests] duty and clawbacks don’t go hand in hand.

In my view, I would like clawbacks to be restricted to 12-month maximum period, and be on a sliding scale.”

Clawback policies in the spotlight

Westpac’s new clawback policy will, from next week, be the same as ANZ’s.

NAB continues to have a 50 per cent clawback for loans that refinance away 12–24 months after settlement.

However, the Commonwealth Bank of Australia (CBA) confirmed earlier this month that it would be making changes to its clawback policy, effective from 1 October 2023.

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 and 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).

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

After the 12th month following settlement, CBA will apply a “monthly, gradual, straight-line approach” to the clawback percentage, which will continue to reduce every month until month 24.

While some brokers welcome this change, others lamented that this actually extended the clawback period, with Finance Brokers Association of Australia (FBAA) managing director Peter White AM stating that he believed clawbacks should be capped at 12 months.

Other lenders that have been changing clawbacks include Mortgage Ezy (which announced earlier this month that it has abolished clawbacks on around 80 per cent of its products) and mortgage manager Rate Money, which updated one of its home loan product suites so it has no fees for borrowers (with no application fee, valuation fee, or risk fee) and no clawbacks for brokers.

The moves come as the broker channel has been advocating a more equitable clawback policy, particularly given the surge of refinances as the ‘fixed-rate cliff’ arrives and borrowers hard-hit by the cost of living look to take advantage of cashback offers.

[Related: Broking industry calls out CBA clawback move]

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