Mortgage Broker seeking clawback of commission

lawred2

Hi,

I'm looking for a bit of impartial advice here.

So drew down a mortgage via a broker in May 2015. Signed general terms and conditions of business with broker in Dec 2014 which made mention of Broker possibly passing commission fee clawbacks on to customer if mortgage redeemed - no specific details, timelines - just all very conditional like you would expect to see in any terms and conditions. Just like - "if you fail to meet your repayments you may be in danger of repossession" type terminology.

So that was Dec 2014 and no particular mortgage product had been advised or put forward by the broker at that stage.

Fast forward to May 2015 - gone through the process of getting approval and drawing down a mortgage product.

I just switched mortgage in Dec 2016 so effectively redeeming the mortgage drawn down via the broker. So roughly 19 - 20 months after draw down.

Broker has contacted me seeking clawback of commission. Apparently there was a 3 year period within which a redemption would result in the bank seeking clawback of commission paid to broker.

Now I'm not necessarily on board with such a request from the broker for me to cover this clawback in this case - not at any point during the recommendation of the product, the application, the approval or the draw down was this 3 year period disclosed to me. First I heard of it was when the broker contacted me seeking payback.

I would have considered that an abject failure on the part of the broker to disclose a material fact/aspect of our agreement. Given that such information was never shared with me I obviously was unaware that any such period applied or was in force and consequently believed (in good faith) that I was perfectly entitled to switch our mortgage. I can't operate in a vacuum nor am I a mind reader.

I think they were negligent and I don't believe I should have to foot the bill for their failure to disclose pertinent facts. Surely they can't just rely on general unspecific terms and conditions. Sure what's stopping them entering into some ludicrous 10 year arrangement with a lender and never informing the customer that that's the case..

Must also state that I also had to pay a fee at the time for their professional services so I find this clawback attempt more than distasteful in the light of their rather unprofessional conduct.

Opinions please?

ThisRegard

What was specified in the terms of business he gave you to sign?

lawred2

ThisRegard wrote: »

What was specified in the terms of business he gave you to sign?

I have attached the relevant portion...

Sure it talks about the future - but that's rather unspecific. They subsequently failed to disclose what anyone would consider a material aspect of the loan agreement that they put forward... Full disclosure is supposed to work both ways.

Melendez

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L1011

The terms of business you agreed to doesn't even cap it at 3 years so not mentioning 3 years didn't change anything.

You agreed to recompense them if there was a clawback; and now there has. You could have asked them for the details of this when looking to change - it may have made the change less attractive if worthwhile at all.

lawred2

Melendez wrote: »

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I 110% understand that. No problem whatsoever with how they make their money. But that doesn't in my eyes make exception for failing to disclose materially pertinent information.

My neighbour is a solicitor. I'm going to have a little chat with him - see what his take on it is.

lawred2

L1011 wrote: »

The terms of business you agreed to doesn't even cap it at 3 years so not mentioning 3 years didn't change anything.

You agreed to recompense them if there was a clawback; and now there has. You could have asked them for the details of this when looking to change - it may have made the change less attractive if worthwhile at all.

So you see no obligation to disclose any such details then! Free for all for them to enter into any sort of commission based arrangement with the lender - full lifetime of the mortgage if they so desired - but never share that with the borrower. Not so sure about that really.

Of course the terms didn't cap it at three years - that's the whole point. They were general terms and conditions. If three years was explicitly mentioned in those terms and conditions - I wouldn't be in this situation nor would I have started this thread.

Henry Ford III

You should have enquired the extent of the possible clawback before switching.

_Brian

I suppose you did sign you would repay it in the future. Then was the time to query what exactly "future" meant.

lawred2

_Brian wrote: »

I suppose you did sign you would repay it in the future. Then was the time to query what exactly "future" meant.

they wouldn't have been able to answer themselves at that time...

Melendez

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lawred2

Melendez wrote: »

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thanks - that's good advice

Melendez

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lawred2

Melendez wrote: »

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That's a good point too but mistakes do happen... he said himself that it had been ages since anyone redeemed a mortgage 'early' because banks weren't actively seeking new business for a long time which they are now. Complacency slips in. He also sounded far from sure of himself when I said I wasn't informed about this three year period.

joeguevara

Melendez wrote: »

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You cant go to the FSO until you have exhausted the complaints process with the brokerr. Put in a formal complaint outlining your case. Once they have given their final response (cannot be longer than 40 days) you can then go to the Financial Services Ombudsman. If you go without doing the above they will just bounce you back to the broker.

lawred2

joeguevara wrote: »

You cant go to the FSO until you have exhausted the complaints process with the brokerr. Put in a formal complaint outlining your case. Once they have given their final response (cannot be longer than 40 days) you can then go to the Financial Services Ombudsman. If you go without doing the above they will just bounce you back to the broker.

Yeah was just reading the FSO website. I will be doing that.

Fries-With-That

Just curious, why were you signing a contract that included a clawback of commission clause if you were paying the broker for his professional services.

It appears to me, and I am not fully aware of the particulars of your case if you pay a broker for his services and the banking institution pay him for his services he has been paid twice for providing the same service.

I have never paid a broker separately for his services he is paid by the banks and insurance companies whenever I use his services to purchase a financial product.

I would ask your broker what exactly your payment to him covered and did this fee not exclude you from an onus to pay any future clawback.

Best of luck.

Wheety

Fries-With-That wrote: »

Just curious, why were you signing a contract that included a clawback of commission clause if you were paying the broker for his professional services.

It appears to me, and I am not fully aware of the particulars of your case if you pay a broker for his services and the banking institution pay him for his services he has been paid twice for providing the same service.

I have never paid a broker separately for his services he is paid by the banks and insurance companies whenever I use his services to purchase a financial product.

I would ask your broker what exactly your payment to him covered and did this fee not exclude you from an onus to pay any future clawback.

Best of luck.

It says in the attachment that they were acting without fees and rely solely on commission.

BeardySi

Wheety wrote: »

It says in the attachment that they were acting without fees and rely solely on commission.

OP also says

Must also state that I also had to pay a fee at the time for their professional services so I find this clawback attempt more than distasteful in the light of their rather unprofessional conduct.

Could it be a case that the timescale involved for a clawback would vary with individual mortgage products/banks so OP should have been made aware of it when getting the actual mortgage rather than in the general terms?

Fries-With-That

Wheety wrote: »

It says in the attachment that they were acting without fees and rely solely on commission.

True, but I was taking the OPs word for it, that he had also paid the broker.

lawred2

Fries-With-That wrote: »

True, but I was taking the OPs word for it, that he had also paid the broker.

I did - there was a fee payable to them for their services in advance.

bmwguy

lawred2 wrote: »

I did - there was a fee payable to them for their services in advance.

Well that's a contradiction to your terms with them in the attachment you posted. I never paid my mortgage broker directly, it was commission only.

How much is he looking for from you? Clawbsck terms between him and the bank are usually reducing as time passes. Although yours is relatively new

lawred2

bmwguy wrote: »

Well that's a contradiction to your terms with them in the attachment you posted. I never paid my mortgage broker directly, it was commission only.

How much is he looking for from you? Clawbsck terms between him and the bank are usually reducing as time passes. Although yours is relatively new

Yes I suppose it would be. But pay them I did.

It's just under about 50% of the original commission. Between the upfront fee and the over 50% commission that hasn't been clawed back they are still reasonably well quids in.

davo10

So, the mortgage broker advises you and does the leg work, you agree to pay if there is a claw back if you change mortgage providers in future, you do change mortgage providers presumably to get a better rate, the mortgage broker then loses money because you changed mortgage providers and his fees are clawed back through no fault of his own, and now you are refusing to pay even though it is in the T&c's you signed?

Am I missing something here?

lawred2

davo10 wrote: »

So, the mortgage broker advises you and does the leg work, you agree to pay if there is a claw back if you change mortgage providers in future, you do change mortgage providers presumably to get a better rate, the mortgage broker then loses money because you changed mortgage providers and his fees are clawed back through no fault of his own, and now you are refusing to pay even though it is in the T&c's you signed?

Am I missing something here?

Yes.

davo10

lawred2 wrote: »

Yes.

Which is?

lawred2

davo10 wrote: »

Which is?

Failure to disclose the basic parameters by which I would be rendered liable for any claw back.

That bit.

Try reading the next time.

L1011

lawred2 wrote: »

Failure to disclose the basic parameters by which I would be rendered liable for any claw back.

That bit.

Try reading the next time.

The terms of business contains the parameters under which you became liable, though.

davo10

lawred2 wrote: »

Failure to disclose the basic parameters by which I would be rendered liable for any claw back.

That bit.

The broker's fees are clawed back by the mortgage provider, "that bit" would be in the mortgage offer you recieved from the bank. Different banks have different terms during which if you redeem the loan there are penalties or claw backs. The broker can't put a specific time frame when you sign the initial agreement because the broker will not know in advance which lenders will offer you a mortgage and what their terms will be.

The term of the "future" period for clawback is therefore dependent on the lender, not the broker. Read your mortgage documents.

Leprechaun77

This is a bit of a tricky one, but a few points below.

A mortgage broker needs to be paid for services provided throughout the mortgage process, from advice at outset to the actual processing of the application. Most Irish people don't want to pay for this service as it has always been included free (broker paid by commission).

This clawback clause was no doubt inserted to cover them from people switching mortgages early and being hit with a debt from the mortgage provider for commission clawback. I presume the fee at outset covered the initial meeting for advice and sending in the application. It likely takes a lot more man hours to process the full application, together with the costs of running a business in general. (I would presume there are a lot of dud applications that never go ahead and so they probably lose out too)

The OP is obviously smart enough to watch his finances and as such has switched mortgage provider, presumably to save money. I don't believe he has given a thought to the mechanism that allowed him to get the advice (and processing etc) in the first place and is trying to get out without paying....however.....

The terms and conditions that he signed are so non-specific with regard to this clawback that I believe the broker is on thin ice with regard to this. This looks like a standard 'cut and paste' paragraph that was not properly thought out. On the basis that the OP was not informed, before or afterwards, of the amount and term of any potential clawback, I believe that it can not be enforced (I admit that I am looking at this from a Consumer Protection Code angle, rather than a qualified legal practitioner's). As a similar comparison, I would note that the cash back offers of 2% on mortgages that were advertised on TV from some banks DO clearly outline a liability to repay this if the loan is redeemed within a certain amount of time.

OP, I would write a letter to the broker to outline the your position and the fact you were never informed of the exact nature of the clawback (amount/duration/method of calculation). On this basis you feel it is unjustified etc.

Paulw

Leprechaun77 wrote: »

I would write a letter to the broker to outline the your position and the fact you were never informed of the exact nature of the clawback (amount/duration/method of calculation). On this basis you feel it is unjustified etc.

But, surely the terms (amount/duration/method of calculation) are done by the bank, and would change, depending on the actual bank used, the term of the mortgage, the duration up to when the change was made, how much commission was paid by the bank to the broker, etc? The broker can't always know these exactly as many are down to the conditions of the actual mortgage. That is probably why the contract may seem so vague?

There may be some weird maths formula behind it all, but this is more likely set by the bank, than by the broker. They just want to claw back the difference between what they should be paid and what they were actually paid.

It's a complex enough situation, between the bank, broker, OP and then the changing of the mortgage.

lawred2

L1011 wrote: »

The terms of business contains the parameters under which you became liable, though.

Not the specific parameters of the agreement entered into with me they didn't.

lawred2

Paulw wrote: »

But, surely the terms (amount/duration/method of calculation) are done by the bank, and would change, depending on the actual bank used, the term of the mortgage, the duration up to when the change was made, how much commission was paid by the bank to the broker, etc? The broker can't always know these exactly as many are down to the conditions of the actual mortgage. That is probably why the contract may seem so vague?

There may be some weird maths formula behind it all, but this is more likely set by the bank, than by the broker. They just want to claw back the difference between what they should be paid and what they were actually paid.

It's a complex enough situation, between the bank, broker, OP and then the changing of the mortgage.

The commission and structure thereof is an arrangement between the broker and the bank. If the broker wants to pass this on then the parameters by which this would be passed on should in my opinion be fully disclosed to the customer.

It was not in the conditions of the now redeemed loan agreement with the bank. Not sure why you think it would be.

Paulw

lawred2 wrote: »

The commission and structure thereof is an arrangement between the broker and the bank.

It was not in the conditions of the now redeemed loan agreement with the bank. Not sure why you think it would be.

I never said it would be. But, the commission and structure would impact on the amount paid to the broker, and then also the amount they need to clawback, as per the contract you signed, when the mortgage was change to another bank.

So, the broker wouldn't have any specific terms in the contract you signed, which is why it seems so general. But, this, in no way, changes the fact that you agreed to pay the clawback fee, and that is why they are chasing now.

lawred2

Paulw wrote: »

I never said it would be. But, the commission and structure would impact on the amount paid to the broker, and then also the amount they need to clawback, as per the contract you signed, when the mortgage was change to another bank.

So, the broker wouldn't have any specific terms in the contract you signed, which is why it seems so general. But, this, in no way, changes the fact that you agreed to pay the clawback fee, and that is why they are chasing now.

I see that point of view but I don't think it's in any way sufficient. I paid for professional advice - that advice amongst other things involved selecting an appropriate product.

I find it odd that professional advice would fall short of disclosing and detailing the full parameters and conditions of that product selected by them and recommended to me and exactly what was to be considered as early redemption for this product.

But it seems many are happy enough to stand behind such sharp practices.

Leprechaun77

Paulw wrote: »

But, surely the terms (amount/duration/method of calculation) are done by the bank, and would change, depending on the actual bank used, the term of the mortgage, the duration up to when the change was made, how much commission was paid by the bank to the broker, etc? The broker can't always know these exactly as many are down to the conditions of the actual mortgage. That is probably why the contract may seem so vague?

There may be some weird maths formula behind it all, but this is more likely set by the bank, than by the broker. They just want to claw back the difference between what they should be paid and what they were actually paid.

It's a complex enough situation, between the bank, broker, OP and then the changing of the mortgage.

I am not aware of how the clawback is calculated, but the commission paid to the broker by the bank has got absolutely nothing to do with the client. The bank remunerate the broker for business and each will have a defined methods of clawback terms for each product.

Whilst a generic 'terms of business' letter was signed by the client at the outset (I would agree that it is impossible to put the exact figures on it at this stage), I would think that an example should be put on at point of sale, and then when the client is approved perhaps forward the exact details?? I would have thought a process like this would be a minimum requirement as it generally mirrors other financial products I.e. Generic at outset...specific at product drawdown.

I personally think that the broker should be entitled to reasonable reimbursement, but if the amount and method of calculation is not specified at outset, I believe it is unfair to the client....it is akin to signing a blank cheque. At the end of the day, the broker is the financial professional and the client is financially 'lay'? It is up to the professional to be more transparent and in this instance I believe it is a bit sloppy on their side.

L1011

lawred2 wrote: »

Not the specific parameters of the agreement entered into with me they didn't.

Care to explain how?

You posted an image showing that you agreed to recovery of clawback. You could have asked what, if any, there was - but you didn't.

davo10

Leprechaun77 wrote: »

I am not aware of how the clawback is calculated, but the commission paid to the broker by the bank has got absolutely nothing to do with the client. The bank remunerate the broker for business and each will have a defined methods of clawback terms for each product.

Whilst a generic 'terms of business' letter was signed by the client at the outset (I would agree that it is impossible to put the exact figures on it at this stage), I would think that an example should be put on at point of sale, and then when the client is approved perhaps forward the exact details?? I would have thought a process like this would be a minimum requirement as it generally mirrors other financial products I.e. Generic at outset...specific at product drawdown.

I personally think that the broker should be entitled to reasonable reimbursement, but if the amount and method of calculation is not specified at outset, I believe it is unfair to the client....it is akin to signing a blank cheque. At the end of the day, the broker is the financial professional and the client is financially 'lay'? It is up to the professional to be more transparent and in this instance I believe it is a bit sloppy on their side.

The amount and method of calculation cannot be specified at the outset, the op received advice, but obviously the broker does not have the mortgage offer in hand when agreement between the op and the broker is signed. If the op recieves three mortgage offers from different lenders, each one may have different claw back T&c's so a generic "future" timeframe is the best that can be offered. The actual clawback period and amount can only be outlined in the mortgage offer the client chooses.

If the broker is independent, then the op has to assess each mortgage offer on its merits, including penalties for early redemption. The conditions outlined in the offer will refer to the penalties. As in most cases, the op probably considered only the amount and the interest rate, but didn't take due heed of the penalties attached.

The broker is being penalised because the op moved lenders, and the agreement between the broker and the op allows for that penalty to be passed on to the op.

lawred2

davo10 wrote: »

The amount and method of calculation cannot be specified at the outset, the op received advice, but obviously the broker does not have the mortgage offer in hand when agreement between the op and the broker is signed. If the op recieves three mortgage offers from different lenders, each one may have different claw back T&c's so a generic "future" timeframe is the best that can be offered. The actual clawback period and amount can only be outlined in the mortgage offer the client chooses.

If the broker is independent, then the op has to assess each mortgage offer on its merits, including penalties for early redemption. The conditions outlined in the offer will refer to the penalties. As in most cases, the op probably considered only the amount and the interest rate, but didn't take due heed of the penalties attached.

The broker is being penalised because the op moved lenders, and the agreement between the broker and the op allows for that penalty to be passed on to the op.

So when the actual clawback period and amount isn't outlined or disclosed in the mortgage the client chooses then what?

There were no conditions referring to early redemption penalties either in the loan offer.

caveat emptor I presume

Fries-With-That

I posted earlier in reference to the fact that you had paid your broker a fee, I worked for a banking organisation arranging mortgages for clients, my commission fee depending on if I also arranged the insurances was up to 1% of the mortgage amount.

Did the fee you paid the broker come close to this 1% and if it did I believe he was paid twice for his time and effort.

Clawback of commission was usually on a sliding scale over three years, however your broker may have lost his index linked commission fees on your insurances(if you changed provider for these also) paid on an annual basis to the broker.

The clawback arrangement was between the broker and the bank not the broker and the client, it looks like sharp practice to me that a broker along with charging you for his services tried to prevent you from moving your mortgage provider by passing his clawback arrangement with the bank onto you the client.

The mortgage adviser in the bank is to all intents and purposes a broker, he works for the bank to get them the best deal from you, along the way you get your mortgage the bank gets a lifetime customer and the mortgage adviser got a healthy commission for arranging the mortgage. Has anyone ever been approached by a mortgage adviser in the bank to sign a clawback clause, I doubt it, because clawback is between the broker/adviser and the bank not the client.

As a further point to those people that alluded to the amount of hard work a broker has to do to arrange a mortgage on your behalf, its not that time consuming to fill in the applications for the mortgage, the life insurance or the home insurance, once filled in the are sent to the relevant bank and they then tell you what else they require.

If you know what you are doing you will have prepped your client to have all the paperwork available at time of signing applications.

Leprechaun77

Fries-With-That wrote: »

The mortgage adviser in the bank is to all intents and purposes a broker, he works for the bank to get them the best deal from you

As a further point to those people that alluded to the amount of hard work a broker has to do to arrange a mortgage on your behalf, its not that time consuming to fill in the applications for the mortgage, the life insurance or the home insurance, once filled in the are sent to the relevant bank and they then tell you what else they require.

With all due respect, the adviser in the Bank is NOT a broker. He is effectively an employee/agent of the bank who can only offer products and services from that particular bank. From a processing perspective, he is probably doing the same thing on an individual mortgage, but is certainly not in a position to offer a proper market-wide comparison where a more suitable product may be available. There may be better rates/terms/underwriting available elsewhere in the market, and you would think a broker would have better access to these.

With regard to the initial clawback query (and even leaving out the fee paid), is it fair that a broker can insert a clawback clause to recoup the full/outstanding commission given by the lender? Just because a lender pays 1%, or potentially more, does this accurately and fairly reflect the work put in? If I take out a mortgage for €400k and the broker gets 1%, should I be liable for a figure of remuneration paid by a bank, or else liable for any fee I would have paid for the work on a standalone basis? The previous poster alluded to the fact that there is not that much involved in the process, so just because lenders have lucrative broker remuneration, should the client be put on the line for the full amount to preserve the brokers inflated commission.

I personally believe that if the client is getting a brokers service, they should be informed of the full cost of this service. If the commission is higher than this, a rebate should be given, and if the commission is lower the client should have to top it up. There should be a full transparent disclosure to the client of the magnitude and calculation of any potential clawback.

Fries-With-That

Leprechaun77 wrote: »

With all due respect, the adviser in the Bank is NOT a broker. He is effectively an employee/agent of the bank who can only offer products and services from that particular bank. From a processing perspective, he is probably doing the same thing on an individual mortgage, but is certainly not in a position to offer a proper market-wide comparison.

You are correct of course. I was merely using the mortgage adviser in the bank as an example of someone that is paid commission on a mortgage and suffers the consequences of claw back arrangements, in a similar way that a broker does.

I smiled reading this

Leprechaun77 wrote: »

There may be better rates/terms/underwriting available elsewhere in the market, and you would think a broker would have better access to these.

You would think that a broker would have access to these and offer them to a client, call me cynical if you like I am of the belief that brokers will offer your business to the banking organisation that pays themselves the highest commission.

I am of the opinion that if a broker is arranging something on your behalf with a banking or insurance organisation, and they are being paid by those organisations you as a client should not have to pay them also.