Big Four to change unfair SME contract terms
The big banks have bowed to months of pressure from the small business ombudsman and ASIC.
Following a roundtable discussion last week, the Big Four banks agreed to a series of comprehensive changes to small business loan contracts entered into or renewed from 12 November 2016.
This announcement follows months of mounting pressure from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) and the Australian Securities & Investments Commission (ASIC) to get the banks to change their small business loan contracts, having been given a one-year transition period.
The banks committed to the following changes which will apply to all small business loans entered into or renewed from 12 November 2016:
- Removing "entire agreement clauses". These are terms that absolve a lender from responsibility for conduct, statements or representations they make to borrowers outside of the contract.
- Removing material adverse to event clauses from all small business contracts. These give lenders the power to default borrowers for an unspecified negative change in the borrower's circumstances.
- Significantly limiting the operation of indemnification clauses. These terms aim to broadly protect the lender against losses, costs, liabilities and expenses that can arise out of the borrower's control.
- Significantly limiting the operation of unilateral variation clauses. Banks limit the circumstances in which these clauses can be made as well as provide a minimum 30 days notice for contract changes.
This announcement follows the move by all of the Big Four to remove non-monetary default clauses in their small business lending contracts, an announcement that was welcomed by ASBFEO Kate Carnell.
In light of today's move, Carnell said her role was to consider the interests of small businesses and ensure that the unfair contract term legislation was working across all industries.
“The banks have been given every opportunity, including a one-year transition period, to eliminate unfair contract terms from their loan agreements and their response has been unsatisfactory,” she said.
ASIC deputy chairman Peter Kell echoed Carnell's comments, saying it had to be made clear that lenders had to improve lending agreements to small businesses to ensure they meet the new rules.
“It is important that the banks have committed to improving their small business loan contracts. ASIC will be following up with the big four banks – and other lenders – to ensure that small business contracts do not contain unfair terms," he said.