What Broker Clawbacks Mean for Your Home Loan Advice

The FBAA is calling for an overhaul of lender clawback practices. Here's what the industry debate means for borrowers who use mortgage brokers.

If you have used a mortgage broker to arrange your home loan, there is a financial arrangement happening in the background that most borrowers never hear about: the clawback. Right now, it is at the centre of an industry dispute that touches directly on the advice you receive and the incentives that shape it.

The Adviser reports that the Finance Brokers Association of Australia (FBAA) has submitted to the federal government's Treasury consultation on unfair trading practices for small businesses and franchisees, urging the government to rein in what the FBAA describes as unfair and anti-competitive lender practices — with clawbacks at the top of the list.

How Clawbacks Actually Work

When a lender pays a mortgage broker, they typically pay two forms of commission: an upfront payment when the loan settles, and a trail commission paid monthly over the life of the loan. A clawback applies if the loan is discharged — paid out, refinanced, or closed — within a set period after settlement.

When that happens, the lender can require the broker to repay part or all of their upfront commission. Most lenders updated their clawback policies in 2023 to shorten the clawback period to 18 months and move to a pro-rata structure, which means the amount clawed back reduces gradually over time rather than applying as a flat all-or-nothing repayment.

The original rationale was straightforward: if a broker placed borrowers into unsuitable or short-lived loans, the clawback created a financial disincentive to do so. If the loan did not last, the broker did not keep their full fee.

The FBAA's position is that the system has drifted well beyond that original purpose. The submission argues that clawbacks now frequently arise not because a broker did anything wrong, but because borrowers choose to refinance to a better rate, sell their property, or simply change their circumstances. Under current settings, a broker who acted entirely in accordance with their Best Interest Duty obligations can still face a significant financial penalty when a client's life changes.

The FBAA submission to Treasury also criticised net-of-offset commission structures, which reduce a broker's upfront payment based on how much of the loan balance sits in an offset account at settlement, as well as slow commission payment timelines and internal incentive schemes it says encourage lenders to reclaim broker-introduced loans.

Why This Matters for Borrowers

This might seem like a broker problem rather than a borrower problem — but the two are connected.

If a broker faces financial exposure when a client refinances within 18 months, that creates an implicit pressure against any course of action that might lead to an early refinance — even if refinancing might be the better outcome for the borrower. Brokers operating under Best Interest Duty are required to recommend the most appropriate product regardless of commission outcomes, but financial pressures are real, and informed borrowers benefit from understanding the system their broker is operating in.

Similarly, the net-of-offset commission structure creates a subtle tension: recommending a borrower maximise their offset account balance — which is often genuinely prudent — may reduce the broker's upfront payment under these structures. A broker acting in their client's best interest will still make that recommendation, but understanding the dynamic helps borrowers ask the right questions.

What Treasurer Chalmers Has Said

The industry push for clawback reform has already reached the Treasurer. Earlier this year, Treasurer Jim Chalmers responded to a broker petition calling for clawbacks to be cancelled. His response was measured.

"Broker commissions are ultimately a commercial matter for negotiation between brokers and lenders and, subject to the existing regulatory framework, the government does not prescribe situations in which such arrangements should be entered into," Chalmers wrote.

He acknowledged the risks of moving too quickly. "Removing clawbacks could lead to adjustments in overall commission structures, potentially reducing the upfront or trailing commissions brokers receive or increasing costs for consumers. Similarly, retrospective refunds would require altering commercial agreements and introduce uncertainty for lenders and brokers," he said.

Chalmers also emphasised that clawbacks retained a function in ensuring ongoing compliance with Best Interest Duty, and that removing them abruptly could "undermine deterrence, create confusion, and destabilise regulator expectations."

In short: the Treasurer acknowledged the tension but is not moving quickly to resolve it. The FBAA's submission to the current Treasury consultation represents another push in the same direction, framing clawbacks as unfair trading practices that harm the small business operators who make up the broker sector.

What to Do If You Are Working With a Broker

Brokers are required under Best Interest Duty to recommend the most appropriate product for your circumstances, regardless of commission. That obligation is genuine and enforceable. But understanding the system your broker operates in makes you a more informed client.

Ask your broker directly whether they face any clawback exposure on the products they are recommending. A good broker should be transparent about this. It is also worth understanding the clawback period on any new loan you are considering — if there is a realistic chance you will need to refinance within 12 to 18 months, that timing has financial implications for your broker that are worth discussing upfront.

If you are actively comparing home loans and working out what makes sense for your situation, running the repayment numbers on your current loan versus alternatives is a practical first step before any broker conversation. Knowing your own position going in makes the conversation more productive — and helps you ask sharper questions about the recommendation you receive.