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[UPDATED] ComCom told clawback periods need to be reduced

The clawback periods of mortgage advisers' commissions should be much shorter and brought more in line with Australian practices, the Commerce Commission has been told.

Thursday, May 16th 2024, 6:09AM 6 Comments

by Jenny Ruth

Speaking at the Commerce Commission's third day of hearings about competition for personal banking services adviser Patricia Marsden said clawbacks should be shorter and more aligned to what happens in Australia.

Commission chairman John Small described the issue as “noisy” and it was the subject of a number of complaints lodged with dispute resolution services.

While some bankers at the hearing said they wouldn't enforce clawback provisions if a customer repaid a loan early because they received some unexpected lump sum such as an inheritance, Marsden challenged that.

Her experience was that banks in New Zealand considered four years to be “short-term” when in Australia the period is more like six to 12 months, Marsden said.

A lot of things can change within four years, from inheritances or death, to matrimonial problems that can mean “having that loan may not be in their best interests,” she said.

But if the adviser is facing a clawback in such a situation, they could be “compromised” in advising the client.

Small said the commission is concerned that some lenders don't warn advisers when a customer switches to another adviser or repays a loan early.

Bank of New Zealand chief executive Dan Huggins said that “it would be very challenging” for his bank to warn advisers in such situations.

Mortgage adviser Jeff Royle told the commission of a case in which one of his clients had been told in writing by a bank that she would incur no charge from repaying a loan early but ended up receiving a bill for $5,500 for doing so, which included a commission clawback.

The hearing also discussed whether advisers should have to tell a client which lenders they were not accredited with, as the Australian Securities and Investments Commission (ASIC) requires, as well as those that they do have accreditation with. While some advisers present wouldn't object to that, most were not in favour.

- An earlier version of this story included an accurate comment from an ANZ staffer. However the comment related to cash contribution clawbacks, not adviser commission clawbacks.

 

Tags: commerce commission

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Comments from our readers

On 16 May 2024 at 11:39 am dweusten said:
with 27 registered banks are in NZ, disclosing that you are not accredited with, I guess 70% of them, is a joke.
On 16 May 2024 at 12:57 pm Anita Cheung said:
It is totally a nonsense. In the article it stated that "A banker from ANZ Bank NZ said that early repayment of a loan would not trigger a clawback and noted that in cases where a loan is discharged, the process usually involves a lawyer as well" which is totally wrong. The fact is that my clients made the early repayment to reduce their loan amount when their loans were due for review, and all the securities stayed no change and were still held in the bank.

However, I had been charged for clawback, so what is it?

Banks should train their staff properly about what they will charge brokers' clawback in the case of early repayment and do not mislead customer to make the situation more complicated.
On 16 May 2024 at 1:16 pm JeffQV said:
All credit to ComCom for engaging with us Advisers. We have come a long way from the outrageous draft report a month or so ago.

My comment in regards to Clawbacks is that the lender, bank or non bank, should have a duty of care to a consumer in disclosing at the time of potential early repayment, that other fees and charge may apply.

They already state any break fees or discharge fees. There is no good reason as to why this cannot be done as the lender will know that the deal came from an Adviser and when.

Resimac already do this and the results are that consumers are properly informed as to the true costs of early repayment and can make an informed decision.
On 16 May 2024 at 2:43 pm Amused said:
Are people really expecting anything substantial from the Commerce Commission at the conclusion of this enquiry into the banking industry? No. Just look at their track record when reviewing competition in other industries. This whole inquiry was a directive of the last Government by the likes of Duncan Webb and Grant Robertson who thought civil servants at the Commerce Commission would know what they are doing. If the Commerce Commission were the right organisation to conduct this inquiry, they would've done it years ago when it mattered.

It illustrates the lack of value that the taxpayer is getting nowadays from the Commerce Commission that business banking wasn’t included in this study. As one economist pointed out last year the Commission needs to probe competition in small business banking, a sector which some think is less competitive, and less transparent than personal banking. Personal banking is where we have the least problems, business banking is where we have got the most problems and where we have the biggest opportunity to fix things.

The only people who will do well out of this study by the Commerce Commission are the law firms and the consultants and the price will ultimately be borne by the banks’ customers, workers and shareholders. These inquiries are not costless. Each bank will likely have to spend millions in counsel to assist with gathering whatever materials are required to comply with the Commission. Then there will be no small amount of internal staff time as well. All in aid of something that based on previous market studies, is unlikely to help consumers.

All that we’ll likely see at the end of this process in August will be a couple of hundred pages report produced by the Commerce Commission with its obligatory bilingual contents page which essentially says our banks are very profitable, but we are too small as a country and have introduced too much regulation to encourage more players to enter the market now. Don’t forget HSBC pulled the plug on New Zealand for home loans last year sighting the latter and they are a monster internationally.

It will take the new Ministry of Regulation once it’s up and running to go through the financial services industry in New Zealand and overturn the overregulation introduced by bureaucrats and compliance people to encourage new players (both lenders and insurers) to enter the market. This will then drive competition benefitting consumers. Technology like open banking is not the silver bullet. More competition entering the market is.






On 16 May 2024 at 3:07 pm valkyrie6 said:
After reading the full Comcom personal banking market study,
Comcom state,
“The overriding aim of this study is the same as the purpose of the Commerce Act – to promote competition in markets for the long-term benefit of consumers within New
Zealand.

Comcom’s overall recommendation is that the Government (tax payer) provide more capital funding to Kiwi bank ( currently government owned) so that Kiwi bank can provide loans to Māori land owners even if these loans have a higher risk , essentially a loan with a much risker profile , with a legal mortgage over the house but not the land ,only accessible by a certain demographic, funded by a taxpayer owned bank.
Separate special banking services for a certain demographic only. Disgrace
Current Government needs to sell Kiwi bank as fast as it can.
On 16 May 2024 at 4:22 pm P1p said:
wow yet another disappointing article that is poorly written. Once you get past the spelling errors you get hit with incorrect information which I'm sure ANZ will be all over. To put in writing "A banker from ANZ Bank NZ said that early repayment of a loan would not trigger a claw back and noted that in cases where a loan is discharged, the process usually involves a lawyer as well" has surely been wrongly interpreted by the reporter. Clearly either the report or the ComCom don't understand the difference between customer Cash Back Offers and Adviser Commission. I'll be really interested to see how you fix article and would sincerely hope that going forward there is a more thorough check that the information going to print is timely, accurate and factually correct. Very disappointing mis information again especially after the other incorrect article a few months ago.

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
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ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
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BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
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CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 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 6.89 6.55 6.35
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 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
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 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
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SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
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TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

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