Banks tardy on making changes to clawback policies

The ANZ has dropped its maximum clawback period for adviser commissions from 27 months to two years, with the clawbacks now diminishing on a pro-rata basis every 30 days.

Other banks have done nothing and one adviser says they continue to make excuses that they are reviewing their respective clawback policies.

“This continued delay feels increasingly like a slap in the face to the mortgage adviser industry which help lenders like the ASB grow their mortgage book annually,” the adviser says. 

“Sadly, the ASB doesn’t appear to value the business it receives from the adviser channel given its obvious lack of urgency in reducing existing adviser clawbacks periods.”

This is despite the Commerce Commission saying in April it was pleased with banks progress on shifting to a monthly pro-rata clawback model.

Commission chairwoman Anne Callinan said at the time one of its focuses was on clawbacks, particularly how they may influence switching behaviour.

“We appreciate that some clawback is justified where a customer leaves in the very early term of a mortgage,” Callinan said. “But we recommend that clawback of commissions are pro-rated, reduced monthly, and there should be no clawback of commissions after two years.”

The commission says some clawback practices impose unjustifiable costs on consumers looking to switch lender. Competition will be promoted if consumers face lower and more certain costs when switching home loan providers, it says.

Squirrel Mortgages chief executive David Cunningham says policies at all banks differ and it is a problem.

Some banks apply rules such as 100% clawback within six months; 75% clawback seven-12 months; 50% clawback 13-18 months; 25% clawback 19-24 months; or 100% clawback 0-15 months; 50% clawback 15-26 months.

“This step approach many banks still apply has elements of unfairness. It’s more the smooth (rather than stepped) pro-rata clawback that should be implemented.”

Cunningham says if every bank had the same ‘rule’ it would make things easier to explain to customers who get confused and often upset when confronted with a clawback account.

“All banks need to move but most haven’t yet.”

The commission says the existing lengthy clawback periods are an anti-competitive practice that deters borrowers from refinancing, especially when customers switch lenders. 

“Clawback frameworks varied significantly between banks making comparisons difficult.

“The existing system creates a barrier for customers looking to refinance their loans within the clawback period, forcing them to pay a prohibitive one-off cost.”

It says the longer clawback periods also place mortgage advisers at risk, as they can be forced to repay commissions when clients switch lenders or refinance, even when it is in the client's best interest to do so.

The new system banks need to follow makes it easier for borrowers to understand and compare loan offers, as the amount they might have to repay is now more predictable and directly reflects the time remaining on the clawback period, the commission says.

Financial Services Complaints Ltd said it receives about 12 to 15 complaints a year about mortgage advisers seeking to recover clawed back commission.

It has a consumer guide to help explain what claw back fees or fees for service are, and why advisers may charge them in certain situations. “We believe this has helped improve understanding and contributed to a noticeable drop in complaints."