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In the absence of an industry standard, the clawback policies between lenders can vary dramatically.
Many non-banks have reduced or even removed clawbacks entirely, while other lenders have tiered systems that can reduce the forfeiture depending on the time lapse.
The majors have loosened policy in recent years, implementing tired structures to reduce the burden on brokers. Other lenders bypass clawbacks entirely by charging an upfront fee, such as La Trobe.
Then there are those who charge 100 per cent clawbacks no matter how far the loan has come.
Astute Financial broker Brent Rollings recounted a scenario where he was hit with a 100 per cent clawback after a client discharged a loan at 363 days, just two days short of the full 12 months.
Brokers have voiced concerns over the lack of an industry standard for clawback policy.
Rollings said that out of the 66 deals that were affected, just four “may” have been preventable.
He believes clawbacks are necessary, but without a blanket industry standard, brokers are being unfairly targeted by the policy of some lenders.
“I’m not saying that clawbacks are unfair, and shouldn’t be there. I’m actually an advocate for it, because I think we need to be driving the right behaviours in this broker space. We can’t just have brokers wanting to flip clients out without any consequence,” he said.
Head of broker at Finni Mortgages, Eva Loisance, agrees that blanket policy would benefit brokers and consumers.
Most brokers have a clawback horror story that could possibly be prevented by more regulatory oversight.
Loisance said a structure with a six- to 12-month cap would “strike a fair balance” in protecting both lenders and brokers.
She said the current policy disadvantages borrowers as brokers are discouraged from refinancing clients, a direct conflict with best interests duty.
“Clawback uncertainty are a drain on our industry and affect trust with our clients and the lenders,” said Loisance.
Lenders could benefit from a regulated standard too. If brokers are presented with similar offerings from a handful of lenders, would they not pick the one with better clawback policy?
“While clawbacks aren’t the driving force behind lender selection, it’s becoming increasingly difficult to reconcile this model with the best interests duty. Expecting brokers to wait up to two years for their income, with no guarantee, undermines long-term trust and makes the system fragile. We need solutions that support both client outcomes and broker sustainability,” Loisance added.
So, what’s the way forward? Flint Group CEO Christian Steven believes a uniform, industry-wide clawback system, with clear, tiered steps, applied equally across every lender would allow for fairness.
This would remove the “internal tug-of-war” between best interests duty and financial risk, he said.
It would also allow brokers to scale better, invest in client service, and build trust.
Brokers can do their part by educating clients on the consequences of clawbacks.
Rollings believes engaging in clawback education with clients in the early stages of the loan could help reduce instances.
[Related: Clawbacks in the spotlight: ‘Undermines the spirit of partnership’]
