The big four banks have instituted a litany of changes to their small business loan contracts in order to comply with the unfair contract terms law, according to a report by the Australian Securities and Investments Commission (ASIC) released on Thursday.
The banks committed to do so in August last year. At that time, a review by regulators found the banks had not done enough to bring their small business loan contracts into compliance with key provisions under the Australian Consumer Law.
Small business loans are defined as loans of up to $1m provided in standard form contracts to firms employing fewer than 20 staff, according to ASIC. Contracts entered into or renewed from 12 November 2016 were placed under protection of unfair contract terms provisions of the Australian Consumer Law.
“The UCT [unfair contract terms] report provides further guidance to help banks and other lenders ensure that their small business loans are fair, and do not breach the rules prohibiting unfair contract terms,” ASIC Deputy Chair Peter Kell said.
Among other things, the banks have confirmed that their contracts do not contain clauses that prevent lenders from being held contractually responsible for representations made to small business borrowers outside the written contract. The banks have also removed terms that require borrowers to cover losses, costs and expenses incurred due to the fraud, negligence, or wilful misconduct of the bank.
Moving forward, ASIC said the banks will advise small business borrowers about the changes, including directly contacting all relevant small business borrowers who entered into or renewed a loan from 12 November 2016.
“ASIC will review small business lending contracts across the market. There are no excuses for failure to comply with the UCT laws, and we will consider all regulatory options available to us if we identify lenders whose unfair contracts break the law,” Kell said.