ASIC alleges that certain terms used by the regional banks in contracts with small business are unfair and if agreed to by the court the terms will be made void and unenforceable.
ASIC is currently seeking that the terms are declared void from the outset, as if the terms never existed in contracts, and not from the time of the court’s declaration which will still see the parties bound together by the remainder of the contract.
ASIC alleges these terms cause a significant imbalance in the parties’ rights and obligations under the contract, were not reasonably necessary to protect the bank’s legitimate interests and would cause detriment to the small businesses.
Some of the unfair terms include clauses that give lenders, not borrowers broad discretion to vary the terms and conditions of the contract without the consent of the small business owner, along with clauses that allow the bank to call a default.
The ASIC release did not mention that it had also brought about proceedings against the Bank of Queensland, but a release to the ASX by the Queensland bank revealed that it too had received court proceedings.
“BOQ has sought to respond in a constructive manner and has taken immediate action to address the vast majority of ASIC’s concerns,” said Bank of Queensland.
Bendigo and Adelaide acknowledged that court proceedings had commenced and related to a version of its loan contracts under its Delphi Bank and Rural Bank brands between 2016 and June 2019.
“These contracts were updated in July 2019 in response to additional guidance provided by ASIC via Report 565 released last year and the new Banking Code of Practice,” said the banks in an ASX release.
All three banks said it was cooperating with ASIC in relation to the proceedings.
Background
Since 2010 ASIC has administered the law to deal with unfair terms in standard consumer contracts including loans and since 2016 the unfair contract term provisions that applied to consumers were extended to cover standard form “small business” contracts.
Small businesses are often offered financial product contracts on a “take it or leave it” basis leaving many to fall into contracts where they have limited opportunity to negotiate.
These are known as standard form contracts, with the unfair contracts law applying when the contract is for the supply of financial goods such as loan contracts, at least one of the parties is a small business and the upfront price payable under contract does not exceed $300,000 or $1 million if contract is for more than a year.
The Report 565 from ASIC identified the types of terms in these contracts that raised concern, provided details about specific changes that had been made by the big four to ensure compliance and provided guidance to lenders to help them assess whether contracts met the law.
