Monday, December 5 2022

Speaking in a keynote address at the national industry conference for the Finance Brokers Association of Australia (FBAA) in Gold Coast on Friday November 11, Deputy Treasurer and Minister for Financial Services Stephen Jones MP questioned the economics behind lenders recovering brokerage commissions.

He recalled that the ALP has a committee to leave broker compensation alone – however, he suggested the issue of clawback was potentially something that needed to be reconsidered.

Mr Jones said FBAA chief executive Peter White had been “in [his] constantly listening since the election and wanting to talk to [him the issue of] remuneration” – in particular with regard to recovery.

The Assistant Treasurer said, “I understand that it takes a lot of effort, a lot of work, a lot of hours to establish a loan. And if one of your clients transfers their mortgage from one bank to another within two years, the bank automatically recovers – sometimes the majority of a commission payment.

“That means mortgage brokers pick up the cost.

“There are all sorts of contractual arrangements between brokers and lenders – and the government would be very slow to want to step in unless there is something completely [wrong]… [but] in my discussions with Peter [White]I said I wanted to know if the money that was recovered is more than the original cost to the bank to set up the loan.

Although he stressed that no political decision was made on this at the moment, he said that if there was evidence that banks were indeed making money from the clawback, the government could have reasons to consider it.

FBAA chief executive Peter White told member brokers that the association had researched the issue earlier this year and would continue to do so.

Indeed, the association found that the average annual salvage value per year for a broker had increased by 47.4% in three yearsfrom $10,229 in 2018 to $15,077 in 2021.

Mr White pointed out that brokers find themselves increasingly exposed to clawbacks, given the ongoing repayment offers offered by lenders at the moment.

FBAA research previously found that lenders’ cash back incentives increased by 59.1% between 2018 and 2021, but the problem had recently worsened as lenders scrambled to refinance borrowers in a rising interest rate environment.

Mr White reported that some lenders were offering deep repayment incentives to those who refinance – in some cases (as Ubank announced this week) – up to $6,000.

He said he believed the Minister of Financial Services was “very, very knowledgeable about clawback issues”, as the association had provided him with research on the matter.

Mr White told brokers it was ‘unfair’ that, ‘for the first two years [after a broker writes a mortgage]someone has their hands in their pocket”.

“The question is, are the banks actually earning more, are they taking advantage of the clawback?” White summed up, adding that the association would continue to study the issue and provide data to the Treasury on this.

The FBAA MD said that this issue, along with issues such as education reforms, point-of-sale exemptions, the appropriateness of comparison rates, discharge tactics from bank retention teams, and net compensation were also on the discussion list with the assistant treasurer.

In conclusion, the Labor MP thanked brokers for their role in helping Australian borrowers navigate a changing economic environment.

Mr Jones said he wanted to ‘recognize the really important role that brokers – all of you 17,000 – play in helping Australians deal with mortgage and credit stress’.

“A study shows that approximately 70% of all home loans are underwritten through a mortgage broker. This speaks to the great value you provide to your customers; proof that, day after day, you work in the best interests of your clients to obtain the best results for them.

[Related: Labor open to discussing clawback]

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