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Clawbacks could sneak onto ComCom agenda

The vexed issue of clawbacks might form part of the industry meeting with the Commerce Commission over remarks that have rubbed mortgage advisers up the wrong way.

Tuesday, April 2nd 2024, 10:34AM 5 Comments

by Sally Lindsay

Financial Advice NZ is leading a group meeting with the Commerce Commission over its recent report into banks.

Mortgage adviser Jeff Royle is part of the group and believes it will be the right time to “tack-on” a discussion about non-disclosure by lenders and how there is a simple remedy that will benefit everybody.

He has been vocal about clawbacks and the lack of disclosure by the major banks warning clients if they pay back their adviser originated loans early they may be up for other costs.

He says advisers are making slow progress on getting a warning in bank documents and now is the time to delve into the issue at a high level. 

“Non-bank lender Reismac is leading the way, talks the talk and includes in its documents a one-liner that tells clients if they repay their loan early they may be in for other costs. Since Resimac has been doing that we haven’t had one nasty situation – we have had positive outcomes.”

Royle says it is such a simple solution to make borrowers aware they may have a liability when they approach their lender for early repayment.

The BNZ has also put a line in their loan documents and is sending Royle a set of blank documents so he can assess what the wording says. “We need a standardised clause that every lender can use so there is no ambiguity.”

He supports clawbacks – repayment or part repayment of commission if a loan is repaid to the lender within 27 months of it being taken out.

“It is the non-disclosure to clients about other costs and to advisers, who often have no idea until they get their commission statement, that a loan has been repaid early. They then try to bill the client for the lost commission and all hell breaks loose. It could so easily be fixed by one line in every lender’s loan documents so everybody is aware of where they stand.”

The Commerce Commission started a furore a couple of weeks ago when releasing its draft report into banking competition by claiming mortgage “brokers” are at risk of being “unduly influenced” by the commissions that banks pay them for placing mortgages.

Royle and a raft of other advisers made scathing remarks about the commission and its chairman John Small being asleep for the past five years when major changes to the industry were made.

No date has yet been set for the meeting.

Tags: commerce commission

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Comments from our readers

On 2 April 2024 at 3:20 pm JPHale said:
Well said, Jeff! You're on point, and it's about time the providers were called to account for this stuff.

And people keep saying we don't need CoFI.

It is because we have CoFI coming that providers are finally shuffling their feet, and advisers wouldn't have to call BS on this stuff if we had effective rules for providers.
On 2 April 2024 at 4:45 pm valkyrie6 said:
No No No , I completely disagree with Jeff (no disrespect Jeff but you're mainly dealing in second tier lending where you are already charging fees) Mortgage advisers should NOT be charging clients for commission claw backs, period.
Its negative and if we keep heading down this track our customers will be disadvantaged as they can go direct to a branch for all their financial needs with no threat of commission claw backs for Mortgages and Insurance.
The negatives out way any positives.
Customers can choose to go direct to a bank branch and not incur commission claw back fees, banks and branches can then say : don’t go to an adviser, come to us as we do not charge commission claw back fees. Sold! Adviser industry is dead.
Charging a customer commission claw back fees and you won’t see them again or receive a referral from them.
You will have more chance of ending up in a dispute’s resolution claim paying fees and it can’t legally be enforced.
We should be encouraging the banks to stop commission claw back fees or reduce them as these are having an impact directly on customers and affecting their freedom to make informed decisions like re financing within a 27-month period which is anti-competitive.
On 3 April 2024 at 9:40 am Amused said:
I agree with Valkyrie. The current focus for the industry in respect to clawbacks should be on those lenders who insist on clawing back adviser commissions when clients elect to make a lump sum repayment. This is completely unfair on the adviser and goes against the whole point of clawbacks which were first introduced by the banks to prevent churn. Lump sum repayments, relationship break ups and poor service received from a lender are all outside of an adviser’s control and the adviser should not be penalised by a lender financially in these situations.

The Australian Prudential Regulation Authority (APRA) has now determined that bank clawbacks of mortgage adviser commissions are prohibiting borrowers from switching banks which is causing some customers to be disadvantaged financially. Clawbacks are thus currently under review by the Australian regulator, and this should in time lead to a positive development for all mortgage advisers on both sides of the Tasman. Watch this space.

On 3 April 2024 at 8:12 pm Paul Flood said:
I feel like I must be missing something here.

The regulations that govern disclosure of fees and conflicts of interest (such as commissions) could not be clearer - the duty of disclosure rests with the person who provides the financial advice, and has fees/COIs to disclose.

If a bank charges a client a fee for early repayment, the bank needs to disclose this. However, the bank is not invoicing the customer for the commission clawback, and so they have absolutely no duty to disclose this, any more than they have a duty to disclose to the client that the mortgage adviser will receive a commission if the loan is implemented. The duty to disclose sits firmly with the adviser/adviser business.

I have no doubt that "all hell arises" when an adviser sends a bill to a client to try and recoup commission clawed back by the lender. I also have absolutely no doubt that all hell breaks loose because the adviser did not discharge their disclosure obligations adequately at the outset of the engagement. I bet the "commission clawback" part of the disclosure was not covered, or was glossed over, or was too vague to meet the disclosure requirements. Decisions out of DRS providers confirm this.

The issue that needs to be fixed here is not solved by placing the client in the middle of what is fundamentally a problem with the relationship the mortgage adviser industry might have with the lenders. The problem is not that the bank is actioning a customer's request, it is that the first time the adviser finds out about the request is when a clawback appears on a commission statement. Could this be due to some lenders seeing mortgage advisers as a necessary evil, rather than a valued distribution channel? (Genuine question, not a rhetorical one.)

Anyway, disclosure that there may be a clawback fee charged for early repayment is not the responsibility of the lender, unless they are the one charging the fee. Anyone who thinks otherwise should re-read the disclosure regs until they are clear on this fundamental.
On 4 April 2024 at 12:10 pm valkyrie6 said:
Paul you are absolutely right, most of the complaints received by dispute resolution schemes relate to Commission claw back fees and insurance products.
The mortgage adviser industry is littered with advisers who do not have adequate disclosure statements confirming if they can or will try and charge the customer potential fees and specifically what those fees will be for commission claw backs or other fees. Some advisers try and charge for just giving advice and some advisers even try and charge fees if the customer does not utilize the pre-approval they had via the adviser! I mean why would you want to use their services?.
A recent seminar given by a mortgage adviser in Wellington recently talked about how they can restructure your lending to reduce it faster but did not disclosure a $ 2,000 fee until the end of the seminar, checking the adviser’s website and disclosure statement shows no mention of fees being charged at all which is pretty misleading until you get to the end.
One large dealer group that has multiple advisers hiding under their FAP license puts a standard clause in their disclosure statements saying they can charge up to $ 2,500 for potential commission claw backs which in itself is vague.
Regardless of what an adviser puts in their disclosure statement they cannot enforce a customer to cover their lender commission claw back fees and would have to take them to court to get the money if the customer refused to pay.
If I was a new mortgage customer I just would not deal with any adviser that said “ I can potentially try and charge you commission claw back fees ‘,It’s just not positive and a bad reflection on our industry.
Where are FMA and Comcom ?

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.75 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

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