Small businesses with loans of up to $1 million are being urged to check their contracts, as the banking regulator gets tough on enforcing protections against unfair contract terms.
This week, the Australian Securities and Investments Commission (ASIC) released a report outlining changes major banks have made to their loan agreements with small businesses, including to default and indemnification clauses, since the unfair contract terms rules were introduced from 12 November 2016.
The report notes that banks will be required to contact all relevant customers to notify them of the changes, while ASIC — together with the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) — will extend their review to cover other banks and lenders.
“Just over a year ago, ASBFEO and ASIC jointly reviewed small business standard form contracts, and we found the major four banks had failed to take the necessary steps to comply with their obligations under unfair contract terms (UCT) legislation,” the ASBFEO’s Kate Carnell said.
“This was after a generous one-year transition period to meet the November 2016 implementation deadline.
“Shortly after our UCT review, the big four banks committed to a series of changes to make sure small business loans of up to $3 million entered into or renewed from 12 November 2016 would be protected from unfair contract terms.
“The legislation covers all financial institutions in Australia, and we are yet to see the rest of the financial services industry make the appropriate changes so their standard form loan agreements comply with the law.”
ASIC announced in August last year that all four major banks had agreed to remove the clauses deemed unfair to their SME customers.
Ms Carnell urged all business owners with loans in place to check their contract terms to ensure they are not breaching the protection rules.
She said that of primary concern are that contracts should remove, or restrict their use of, the following points:
“We will monitor the use of the changed clauses by the big four banks and ensure their existing applicable small business customers are aware of the changes,” Ms Carnell said.
“We will also continue to apply pressure on the rest of Australia’s financial institutions to make sure they, too, meet the unfair contract terms legislation.”
Tas Bindi is the features editor for The Adviser magazine. She writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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