Big Four bow to ASIC over small business loan contracts
The major banks have all agreed to eliminate unfair contract terms but have differed in their approaches.
Today is a win for small businesses as well as the Australian Securities and Investments Commission (ASIC) and the Small Business Ombudsman Kate Carnell, with the Big Four banks agreeing to specific changes regarding the elimination of unfair small business contract terms.
Today's announcement follows months of work by both ASIC and Carnell's office to have the banks comply with the changes, which they were required to do by 12 November 2016.
While ANZ is the only major bank to formally announce the change in a statement, ASIC has outlined the changes that the Big Four have agreed to. These include:
- Loan documents will not contain "entire agreement clauses" which absolve the bank from responsibility for conduct, statements or representations it makes to borrowers outside of the contract.
- The operation of the banks' indemnification clauses will be "significantly" limited. ASIC provided the example that banks will now not be able to require SMEs cover losses or costs incurred due to fraud or willful misconduct of the bank.
- Banks will no longer have the power to call in a default for an unspecified negative change in the circumstance of a small business customer.
- Banks will be restricted to how they can vary contracts to specific circumstances. If these variations make the customer want to exit the contract, they will have a 30-90 day period to do so.
In its statement, ASIC said that the banks have differed in their approaches to the changes and some have "gone further than the law requires".
"For example, NAB has taken an industry-leading position about the application of non-monetary default clauses, while the CommBank will provide an industry-leading 90 calendar days' notice for any changes to loan contracts that the small business customer does not wish to accept," the statement read.
To ensure the changes operate well in practice, ASIC will monitor the banks' application of the clauses. The Small Business Ombudsman will also work with ASIC when assessing the results of this monitoring.
Any customers entering into or renewing contracts from 12 November 2016 will benefit from changes outlined above.