New lending in uncertain covid-19 times

In June 2020, Jason and Roimata decided to buy a second property, and asked their financial adviser to help arrange finance for the purchase.

Jason and Roimata’s adviser ran the numbers and told them to refinance their existing mortgage and get their new lending from a second-tier lender, because they could not meet the bank’s stricter servicing requirements at the time.

Jason and Roimata completed the purchase with finance from the second-tier lender.

After a year or so, Jason and Roimata decided to refinance with a bank, which had lower interest rates than their lender.

The adviser sent Jason and Roimata an invoice for the commission that had been ‘clawed back’ by the lender from him, because Jason and Roimata had refinanced within 2 years.

Jason and Roimata complained to FSCL about the clawback fee. Jason and Roimata also complained the adviser’s advice was flawed, because they had been able to refinance with the bank, despite the adviser telling them the bank would not lend. Jason and Roimata wanted the adviser to pay their legal fees for both transactions and the difference in interest they had paid over the last year.



The adviser said he was entitled to charge the clawback fee of $8,000, because that was the commission that the lender had ‘’clawed back’’ from him..

The adviser said Jason and Roimata hadn’t been able to meet the bank’s servicing requirements back when they approached him in June 2020. At that time, the Covid-19 lockdown in New Zealand had just ended and there was a lot of uncertainty about its economic effect.

The adviser said banks were not accepting commission income or business income for the financial year prior, given the unknown impacts of the pandemic. This reduced Jason and Roimata’s income for the purposes of a lending application, and as a result they couldn’t meet the bank’s servicing requirements.



We reviewed the adviser’s advice, documentation and calculations.

We agreed the adviser had given reasonable advice when recommending that Jason and Roimata get finance from a second-tier lender, given the circumstances in June 2020.

As for the clawback fee, we were satisfied the adviser had properly disclosed the fee to Jason and Roimata. However, we thought the fee was too high for the work actually undertaken by the adviser in arranging the loan and refinance.



We suggested the adviser discount the clawback fee by 50%, to $4,000, which would more reasonably reflect the actual work undertaken.

Jason and Roimata didn’t agree with this and wanted to proceed with their complaint.

The adviser then offered to discount the clawback fee by 75% to $2,000. We told Jason and Roimata this was a good offer, given we would say the adviser was entitled to some of the fee, if we continued with our investigation.

Jason and Roimata said they would discontinue their complaint if the adviser waived the clawback fee. The adviser agreed, and we closed our investigation.


Insights for participants

If mortgage brokers/advisers want to recover the brokerage or commission clawed back by a lender from their former customers, they need to communicate this clearly.

Ideally the fee and the circumstances in which it will be charged should be set out in plain language with an acknowledgement signed by the customer. We also expect to see some indication of the amount the customer can expect to pay and how the amount is calculated. Ideally, the fee should reflect the value of the actual work undertaken.