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For years, there have been debates over the fairness of clawbacks and calls to scrap the practice.
This policy costs brokers $15,077 a year on average. For small business brokers, this cost can be detrimental.
While some lenders have scrapped this policy, proving it can be done, it is still largely active in the industry.
Speaking with Broker Daily, Business Advice Agency CEO Phil Rice said the practice is a “persistent burden” on brokers.
“Clawbacks aren’t ‘reasonably necessary’ to protect lenders’ interests,” said Rice.
“These clauses, requiring brokers to repay commissions if a loan is repaid or refinanced within two years, have been criticised as inequitable, particularly under the Unfair Contract Terms (UCT) regime.
“Under the UCT regime, part of the Australian Securities and Investments Commission Act 2001, a contract term is unfair if it creates a significant imbalance, lacks necessity, and causes detriment. Clawbacks meet these criteria, penalising brokers – often for client refinancing driven by initiatives like lender cashback offers – while banks remain profitable.”
Rice said some brokers fear that commissions may be cut if clawbacks are removed altogether. However, he said this isn’t necessarily true.
“The UCT regime protects against unilateral commission cuts that create significant imbalances or lack justification, especially given banks’ profitability. Historically, banks absorbed early repayment costs through loan pricing, a practice that could resume. The Best Interests Duty and post-Banking Royal Commission focus on competition further discourage punitive commission reductions. Industry bodies like the FBAA and MFAA can monitor and challenge unfair practices, ensuring ASIC oversight,” he said.
Rice said the practice “undermines the spirit of partnership,” as both parties should share the risk and reward.
“True collaboration would see banks eliminate clawbacks, align incentives, and support brokers’ sustainability, ensuring a competitive industry that benefits clients,” he explained.
“If ASIC and the government refuse to address the clawback problem, there is another way the industry can be proactive with this problem. Second and third tier lenders could be leading the charge with clawback eradication to bolster their value proposition, especially if they rely on broker deals.”
Lenders have updated their policy on clawbacks in recent years to ease the burden for brokers. Despite this, the policy remains in tact at many institutions.
Speaking on the issue, Hello Funding broker Ashley Fisher said she understands the intention behind clawbacks, but still finds the policy largely unfair.
She said brokers should not be punished for circumstances outside of their control.
“This can put the brokers at a financial risk and affect cash flow,” said Fisher.
“I think it would be beneficial if clawback periods were shorter or if they were reduced overtime. We have already started seeing some lenders implementing a tiered system, which is a move in the right direction.”
[Related: A can of worms – the latest on clawbacks]
