What are clawbacks?

Most brokers receive two forms of commission: an upfront payment at settlement that rewards origination, and smaller trail payments while the loan stays live. Clawbacks are aimed at the upfront amount. The lender sets a look-back window, commonly 6, 12 or 24 months and sometimes longer, and if the loan leaves its books during that window a percentage of the upfront commission becomes repayable.

The percentage usually tapers: full recovery in the first month or two, a smaller share later and nothing once the window closes. Recovery happens by deducting the amount from the broker's future trail, by invoicing the broker, or by a claim on the broker's aggregator. Where trail exists the broker may never pay cash; where it does not, an invoice follows.

The broker's contract with the aggregator or lender normally makes the broker primarily responsible for repaying a clawback, and aggregators that hold commission often recover from the broker before passing on any shortfall. A broker can only seek the money from a borrower if the borrower expressly agreed in writing, for example in a separate fee agreement, to indemnify the broker. Without a clear signed agreement the borrower is generally not liable.

Even where a contract does require repayment, enforcement can be limited by rules on unconscionable conduct, unfair contract terms or disclosure failures. Brokers must disclose commission arrangements, including clawback obligations, and keep accurate records. A borrower who receives a clawback request can ask for the clause, the calculation and the trigger dates, check their signed agreements, and use internal dispute resolution and then AFCA if needed.

The most effective mitigants are documentation and disclosure. A signed customer fee agreement that explains commission, clawback risk and any circumstances where the broker may seek reimbursement removes most later arguments. Brokers can also negotiate retention or split arrangements with their aggregator, or set a portion of commission aside until the clawback window lapses.

Talking to customers early about likely loan life and the cost of refinancing within the first year or two, documenting that advice, and setting up alerts for early repayments, arrears and cancellations all help. Some brokers hold professional indemnity insurance and a contingency reserve to absorb a sudden recovery demand.