Broker fees/Clawback Commission

[JohnK88]

Hello,

Just looking for some advice. I recently switched from KBC to AIB. I completed a 2 year fixed term with KBC and i used a broker. I was told this was a free service at the start.
I've recently received an email from my broker stating I've to Pay back some of the commission my broker received from KBC.
I'm a bit confused as why would the broker give me a 2 year deal (when i requested a 3 year fixed rate) but seemingly there is a 3 year clause in regards to commission the broker got from the bank. So the bank cut his commission and He is now telling me i have to pay the last 12 months of the commission fee he originally received.
Any advice on what to do?

 

[Gordon Gekko]

What does your written agreement or contract say?

 

[JohnK88]

I have asked for the agreement in writing. I only received the email yesterday so waiting on that. I'm waiting on that to be sent to me but was just looking to see if anyone had some previous experience.
As far as i'm concerned i fulfilled my end of the bargain when my fixed rate ended, so kinda shocked i'm potentially liable for this.

 

[Mark Coan]

I've never heard of this before and would be surprised if it's in the terms of business. If it's not you aren't on the hook for anything, even if it is I'd be surprised if it would be legally binding. However @Gordon Gekko is right check the terms of business to be sure.

 

[JohnK88]

@Mark1892 Yeah i'm surprised myself to be honest. You'd imagine if there was a minimum stay with the broker for 3 years, then he should of told me when i signed a 2 year fixed rate with KBC that a fee will be owed to him if i leave the bank after the fixed rate ends.

It might be in the small print but i just thought this was an unusual case. Like realistically whats to stop a broker having a 10 year clawback commission if they help you get a mortgage. I thought i was free to switch banks without penalty once my fixed rate ended.

 

[Paul F]

In this post from early last year, user @_OkGo_ pointed out that some brokers that work with Avant appear to have clawback clauses.

And then user RedOnion quoted this Avant document showing that Avant claw back commission from their brokers if the mortgage is paid off early.

Avant Money clawback commission over 36 months on a pro-rata, month by month basis (36/36ths) i.e. if the loan redeems after 15 months, clawback will be 21/36 of commission.

@JohnK88 But a broker can only claw back commission from you if that was written into their contract with you (at the time you signed the contract), regardless of what clawback agreement exists between the lender and the broker.

Your broker couldn't add such a clause afterwards and apply it to you retrospectively – so when you get a copy of the agreement try to determine if it is the agreement that you signed or if it is the agreement that they make new customers sign (since the two might be different).

Edit: here is an Irish Times article about clawback of broker commission:

Switching mortgage? You may have to repay broker’s commission

Mortgages taken out with a broker and switched within three years could be subject to a financial clawback

www.irishtimes.com

 

[JohnK88]

@Paul F I actually found a table from KBC stating the same terms as avantcard on a 36 months pro-rata basis. So i'm not sure where i stand as of yet.But it's the first i'm hearing of it now. I've requested to see the contract and see what was written about the claw back commission.

I just find it odd that they would encourage me towards a 2 year fixed rate instead of a 3 year fixed rate when the broker potentially loses money themselves if a customer switches mortgage providers after their fixed rate term finishes. Like for a broker to get their money they should be encouraging customers to fix for a minimum of 3 years so this avoids these controversies.

 

[Dave Vanian]

Broker gets paid commission when you draw down your loan. If client redeems the mortgage in the first 3 years then the broker gets a portion of the commission clawed back.

If your broker explained this to you at the start and you signed a Terms of Business that explained this and stated that you would compensate the broker for such a clawback, then you're obliged to pay him back.

If it wasn't explained to you and you didn't sign any agreement to pay back any clawbacks, then it would be up to you whether or not you choose to compensate him for the clawback. Not all brokers have explicit "client is responsible for any commission clawback" clauses in their Terms of Business. (If they plan on writing to a client looking for it back, then they should.)

I just find it odd that they would encourage me towards a 2 year fixed rate instead of a 3 year fixed rate when the broker potentially loses money themselves if a customer switches mortgage providers after their fixed rate term finishes. Like for a broker to get their money they should be encouraging customers to fix for a minimum of 3 years so this avoids these controversies.

To be fair to your broker, what you're suggesting is that he should have recommended a product because it suited him. Perhaps the 2-year fixed rate was the rate that suited your particular circumstances best at the time.

 

[JohnK88]

@Dave Vanian
I've asked for the terms of business to be sent to me in order to see if anything is on it regarding the commission and what exactly i signed. If there is i know I'm eligible to pay this. But If there is no written agreement am i in the right to not pay them the money?

He said it was explained at the start to me but he definitely didn't as i would of did the application myself. He told me it was free and the bank paid him. I literally only used him as my friend recommended me and i was busy with work. A few people i worked with used him as well.

And in regards to the 2 years fixed term, that was actually my 3rd approval in principle. I wanted a 3 year term. The first 2 applications were both 3 year fixed. (my house was a new build and there was delays with the house been completed hence why there was 3 applications). I asked for the 2 year term to be rectified to a 3 year term but he told me I'd have to do a new application and could take 3 months to get approval. The mistake was actually on their end. So i just took the 2 year rate at the time as we were eager to move in.

Also i think when the 2 year fixed term application got AIP i think the obligation should be on them should to tell the customer they are liable for the clawback clause.

Thanks

 

[Dave Vanian]

But If there is no written agreement am i in the right to not pay them the money?

In the interests of transparency, I'm a broker myself.

If there's no written agreement and it wasn't explained to you at the start then there's no legal obligation on you to pay him back.

Wearing my broker's hat, it sounds like there was a fair amount of work involved with your mortgage. Three applications is a lot of work and the broker only gets paid once. I know the delays with your house weren't your fault. Now 33% of his commission has been clawed back. So he's done 3 applications for 66% of the commission.

On the other hand, he has a responsibility to protect his business from such occupational hazards.

I asked for the 2 year term to be rectified to a 3 year term but he told me I'd have to do a new application and could take 3 months to get approval.

If you asked shortly after the third loan offer was issued, then it shouldn't have required a new application; just a reissued loan offer which might have taken a few weeks. However, if you only asked for the new loan offer shortly before closing, the third application might have been close to its expiry date.

Also i think when the 2 year fixed term application got AIP i think the obligation should be on them should to tell the customer they are liable for the clawback clause.

I agree fully. Best practice would be to explain about clawback at the first meeting and follow it up in writing.

 

[JohnK88]

In the interests of transparency, I'm a broker myself.

If there's no written agreement and it wasn't explained to you at the start then there's no legal obligation on you to pay him back.

Wearing my broker's hat, it sounds like there was a fair amount of work involved with your mortgage. Three applications is a lot of work and the broker only gets paid once. I know the delays with your house weren't your fault. Now 33% of his commission has been clawed back. So he's done 3 applications for 66% of the commission.

On the other hand, he has a responsibility to protect his business from such occupational hazards.



If you asked shortly after the third loan offer was issued, then it shouldn't have required a new application; just a reissued loan offer which might have taken a few weeks. However, if you only asked for the new loan offer shortly before closing, the third application might have been close to its expiry date.



I agree fully. Best practice would be to explain about clawback at the first meeting and follow it up in writing.

Yeah i know it was a lot of work in fairness and i appreciated it. I also gave the company 3 referrals during that time of the delays with my house and have still referred people switching/looking for a mortgage to this day. They all had no issues because they all fixed for 3 years or longer.

The broker was a great guy and good at his job and he said this a rare occurrence. But i just want to make sure I'm not getting a raw deal because the reason i went was due to me meeting him once lunchtime in my workplace and been told it's a free service and the bank pays him. Now 27 months later I'm been chased for an outstanding payment that i knew nothing about.

If i have signed something where it is in the small print I'll have no issues paying it. It's an obligation on my side. But i definitely wasn't told at the start like he claimed in the email he sent.

To be fair to them, I'll still recommend them to people but i told them to clarify the issue around the 3 year fixed term so they get their full commission and others don't get put in this position. Still waiting for my agreement/terms of business to be emailed back.

Thanks

 

[Dave Vanian]

But i definitely wasn't told at the start like he claimed in the email he sent.

...and been told it's a free service and the bank pays him.

To me, I think this is the key point. If the broker only described the service as free and never explained about possible clawbacks of commission, either verbally or in writing, then I think it's a bit late for him to be re-writing history now.

Still waiting for my agreement/terms of business to be emailed back.

Would you still have it on e-mails from 2 years ago?

 

[Paul F]

I also gave the company 3 referrals during that time of the delays with my house and have still referred people switching/looking for a mortgage to this day.

In that case don't let him guilt you into repaying the clawed-back commission if there is no such clause in the agreement you signed with him.

 

[Paul F]

@Gordon Gekko At the start of this year you posted the following in another thread:

Last time I took out a mortgage, I paid the broker €500 once I got Approval. That was then refunded to me when the mortgage was drawn-down. There would have been some clawback for the broker on his fee from the bank if I moved within the first 24 months. But it was graduated with no question of any clawback against me.

Just wondering which lender this related to?

 

[Gordon Gekko]

Ulster Bank.

 

[Paul F]

Last time I took out a mortgage [with Ulster Bank], I paid the broker €500 once I got Approval. That was then refunded to me when the mortgage was drawn-down. There would have been some clawback for the broker on his fee from the bank if I moved within the first 24 months. But it was graduated with no question of any clawback against me.

So we can see that Avant and KBC have a clawback period of 36 months, but for Ulster Bank it is only 24 months.

Does anybody know of any lenders that have a clawback period of longer than 36 months?