Clawbacks in the Crosshairs: What the FBAA’s Treasury Submission Means for Broker Commissions

Treasury is consulting on a new regime to protect small businesses and franchisees from unfair trading practices — the same body of reform that will eventually outlaw a range of unfair business-to-business conduct. The FBAA used that consultation to put the lender-broker relationship on the record, arguing that most broking enterprises operate as small businesses and therefore sit squarely within Treasury’s focus.

In practice, the submission is a catalogue of the pressure points brokers have complained about privately for years — clawbacks, offset maths, slow payments, poaching and accreditation culls — assembled into a single, government-facing argument. Here is what is on the list, and why each item hits the P&L of a broking business.

The FBAA’s central point is that clawbacks have drifted a long way from their original purpose. They were designed to stop brokers being paid for misconduct — churning a client from one loan to another purely to bank an upfront. That intent is sound and few in the channel would argue with it.

The problem, the FBAA says, is that many current clawback formulations are now triggered by the borrower’s choices, even when the broker has fully complied with every obligation. A client who sells, refinances or repays early inside the clawback window costs the broker their upfront — regardless of whether the broker did anything other than write a good loan the client was happy with. In a market where property is turning over and refinancing is a live option for many households, that turns clawback from a misconduct deterrent into a tax on ordinary customer behaviour the broker cannot control.

Gagic took particular aim at lenders that justify clawback on the basis of internal cost calculations. Some institutions, he said, “base clawback calculation around the notion of cost recovery” — an approach he labelled “unfair and inequitable”. The objection is straightforward: if a lender recovers its origination cost by reclaiming the broker’s commission, the broker is effectively underwriting the lender’s cost of acquisition without any say in the terms.

The submission reserved its sharpest language for net-of-offset arrangements, under which commission is calculated on the loan balance after offset funds are deducted. The FBAA said the way these provisions are being implemented in practice is “shocking”. For brokers, the mechanics are punishing: a diligent client who parks savings in an offset account — exactly the behaviour a good broker encourages — shrinks the balance the broker is paid on. Do right by the client, earn less. That is the kind of perverse incentive the FBAA is asking Treasury to examine.

The FBAA also tied slow commission payments to broader Commonwealth policy on small-business cash flow. Lengthy payment cycles, it argued, run counter to the expectations embedded in the Payment Times Reporting Act, with the submission stating that “slow payments of commission offend the general principles of fairness which are reflected in the expectations set by government”.

It is a shrewd move. Rather than asking for a favour, the FBAA is pointing out that the government already has a stated position on paying small businesses promptly — and that lender payment cycles to brokers should be held to the same standard. For a solo broker or a small firm managing cash flow between settlements, the timing of commission payments is not a footnote; it is working capital.

The submission devoted substantial attention to channel conflict, arguing that lenders’ efforts to grow direct business are fuelling behaviours that erode trust in third-party distribution. This is the section most likely to resonate with brokers who have watched a settled client drift back to a branch.

Gagic’s description was blunt. The desire to build direct channel, he said, is “causing poor marketplace behaviour including incentivising internal staff to poach and refinance deals originally introduced by third parties, differential pricing whereby a lender will offer an additional rate discount to a customer originally introduced by a broker if the customer refinances through a branch (triggering clawback against the introducing broker in the process) and misrepresentation to customers about the cost of broker commissions increasing the rate they pay”.

The paper then turned to introducer and referral programs, contrasting the obligations imposed on licensed credit businesses with the payments made to unqualified referrers such as accountants and lawyers. The FBAA noted that the Hayne royal commission found defective introducer arrangements had caused significant consumer harm — yet lenders continue to remunerate introducers without subjecting them to clawbacks or similar consequences.

The competitive argument is pointed: “The separation of allowing unqualified people to introduce customers for a substantial fee free of clawbacks and other consequences is resulting in anti-competitive behaviours and unfair outcomes against regulated small credit licensee businesses,” Gagic said. In other words, the most heavily regulated participant in the chain — the licensed broker operating under Best Interest Duty — carries the clawback risk, while an unregulated referrer collects a fee and walks away clean.

Finally, the FBAA accused some lenders of using minimum-activity thresholds to cull brokers in ways that align with distribution strategy rather than consumer protection. Gagic described lenders cancelling the accreditation of brokers who did not meet minimum volume requirements as “repugnant behaviour” that was “more about consolidating direct business over third party channel than protecting consumers”.

For brokers, this is the quiet one that rarely makes headlines but reshapes a panel. If a lender de-accredits you for low volume, you lose the ability to place clients there — narrowing the very choice that Best Interest Duty asks you to demonstrate. A cull dressed up as risk management can, in practice, be a distribution decision that shrinks broker competition one accreditation at a time.

The consultation the FBAA is responding to is not abstract. It is seeking examples of practices that disadvantage small businesses ahead of new laws banning unfair trading practices, which are due to commence from 1 July 2027. That timeline is the strategic heart of the submission: the FBAA is trying to get lender conduct toward brokers written into the evidence base before the rules are finalised.

There is a neat symmetry here that brokers should not miss. Brokers already operate under Best Interest Duty and ASIC’s responsible lending framework — a legal obligation to put the client’s interests first. The FBAA’s argument is, in effect, that the fairness principles binding brokers should also shape how lenders treat brokers. Whether Treasury agrees is another question, but the channel now has a roughly 12-month window to supply the case studies that make the argument stick.

Reform, if it comes, is more than a year away — and there is no guarantee the final laws will reach broker remuneration at all. So the practical value here is not “wait and see”. It is using the submission as a prompt to harden your own business against the exact risks the FBAA has named. None of this is a reason to place a client in a product that is not in their best interests; it is about managing commercial risk within the choices BID already allows.

Several moves are worth making now:

• Model your clawback exposure by lender. Know which of your panel run 18-month versus 24-month tapers, and which calculate on a cost-recovery or net-of-offset basis. You cannot manage a risk you have not quantified.
• Treat commission structure as a legitimate business factor — not the deciding one. Where two options are genuinely comparable for the client, remuneration mechanics are a reasonable tiebreaker, and your file note should show the client’s interests came first.
• Diversify your income base. Asset and commercial finance, and a well-managed trail book, reduce the damage any single lender’s clawback or de-accreditation can do to your cash flow.
• Document channel-conflict incidents. If a branch poaches a client you introduced or offers a discount you were barred from matching, record it. Those examples are exactly what the FBAA needs — and what your aggregator can escalate.
• Get client retention working earlier. Proactive annual reviews and rate-check touchpoints keep clients with you through the clawback window, blunting both branch poaching and borrower-driven refinances.
• Engage the consultation through your association. The evidence base is being built now; a two-line real-world example from your book carries more weight than a hundred pages of theory.

• Pull a clawback matrix for your top 10 lenders — taper length and calculation method.
• Flag any client settled in the last 18 months who has offset balances materially shrinking your trail.
• List clients approaching the end of a fixed term or a clawback window and schedule a proactive review.
• Note any recent branch-poaching or differential-pricing incidents and send them to your aggregator or association.