A review by the Australian Securities and Investments Commission and the Australian Small Business and Family Enterprise Ombudsman has found the big four banks have "substantial work to do" to comply with their obligations under unfair contract terms legislation.
One of the government's key measures for small business was the extension of the unfair contract term protections for consumers to cover standard form small business contracts entered into or renewed after November 12, 2016.
But the review by ASIC and ASBFEO of small business loan contracts from eight lenders found they had failed to eliminate unfair terms from their loan agreements.
"I'm gobsmacked really," ASBFEO Kate Carnell says.
"The banks all rush to take out full page ads and billboards about how much they love small business but they are failing to comply with these legislative requirements".
ASIC and the ASBFEO found the banks continue to use clauses that give them broad discretion to unilaterally vary terms and conditions of the contract, provide for non-monetary loan "default" in a broad range of circumstances and absolve the banks from responsibility for conduct, statements or representations that the banks make to borrowers outside of the contract.
ASIC and ASBFEO are calling on the banks to prohibit non-monetary default clauses where the borrower is meeting their obligations under the contract, provide a 90 days' notice period where a loan facility will not be extended and to provide more comprehensive access to the Financial Ombudsman Service.
Carnell says she is "firmly of the belief" that the loan contract terms as they currently stand, fail to comply with the unfair contracts law.
"Once again, repeated calls for the banks to amend their practices are falling on deaf ears, despite inquiry after inquiry highlighting major flaws in the way they treat their small business customers."
Carnell says the banks had attempted to amend their contracts but "in many cases they have made them worse and more convoluted".
If the banks fail to comply Carnell said ASBFEO and ASIC will consider using their powers to litigate against the banks.
ASIC deputy chairman, Peter Kell, says the regulator is "committed" to ensuring the unfair contract term provisions help raise small business lending standards.
The banks all rush to take out full page ads and billboards about how much they love small business but they are failing to comply with these legislative requirements.
Kate Carnell
"Where we identify a potentially unfair term we will work with the lender to remove or amend the term, and we have already started to raise these issues with lenders," he said. "If the lender refuses to do so we will consider all regulatory options, including taking the matter to court as ultimately a court can decide whether or not a term is unfair."
MySmallBusiness has contacted the Australian Bankers Association for comment.
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