The financial services regulator has commenced proceedings against Bank of Queensland as well as Bendigo and Adelaide Bank over allegations that certain small business contracts included “unfair contract terms”.
BOQ has confirmed that the Australian Securities and Investments Commission (ASIC) has commenced proceedings against it in the Federal Court of Australia.
The proceedings relate to contract terms in certain small business contracts entered into between November 2016 and June 2019 which ASIC alleges included unfair contract terms.
The details of the terms have not yet been released.
In a statement, BOQ stated that it “takes compliance with its legal and regulatory obligations seriously” and has “sought to respond in a constructive manner and has taken immediate action to address the vast majority of ASIC’s concerns”.
BOQ added that it has now “proactively commenced a review of all small business lending contracts entered into from November 2016”.
It continued: “If BOQ identifies any small business customers who have been adversely affected, it will compensate them.
“While BOQ’s review is ongoing, it currently believes that the potential total compensation will be limited and not impact BOQ’s financial performance in any material way.”
It said that it would notify the ASX should this change.
Bendigo and Adelaide Bank also faces court
Fellow listed regional bank Bendigo and Adelaide Bank revealed separately to the ASX that it, too, is being taken to court over its contract terms.
“Bendigo and Adelaide Bank Limited has been served with court proceedings commenced by ASIC against the bank in relation to the application of the unfair contract terms legislation,” the bank said in its statement to the stock exchange.
“The proceedings relate to a version of its small business loan contracts under each of its Delphi Bank and Rural Bank brands in place between 2016 and June 2019.”
The bank said that it had already amended its contracts in July this year, in response to ASIC’s concerns.
“The relevant terms and conditions appear in previous versions of small business loan contracts. These contracts were updated in July 2019 in response to additional guidance provide [sic] by ASIC via Report 565 released last year and the new Banking Code of Practice,” it said.
“The bank is cooperating with ASIC in relation to the court proceedings with a view to reaching a mutually agreed outcome.”
Bendigo and Adelaide Bank concluded by stating: “We remain committed to keeping our customers at the centre of everything we do and ensuring we satisfy all regulatory requirements and guidelines.”
ASIC cites ‘significant imbalance’ in its allegations
The banks’ revelations to the ASX were followed by formal announcements by ASIC around an hour later.
ASIC noted that if its prosecutions are successful, the particular terms to which it objects “will be void and unenforceable” by the banks.
These include allegations that certain clauses “give lenders, but 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, even if the small business owner has met all of its financial obligations”.
In both cases, ASIC said it believes the terms under contention:
- cause a significant imbalance in the parties’ rights and obligations under the contract.
- were not reasonably necessary to protect the banks’ interests.
- would cause detriment to the small businesses if the terms were relied on.
The regulator has put increasing pressure on lenders over unfair contract terms for SME loans and other financial products.
Australia’s major banks were the first in ASIC’s sights, with changes to their respective contracts flagged in August 2017.
More information and background can be found on My Business’ sister publication, The Adviser.
Annie Kane is the editor of The Adviser and Mortgage Business, Australia’s leading source of news, opinion and strategy for mortgage brokers and third-party mortgage distribution.
Before joining Momentum Media in 2016, Annie wrote for a range of business and consumer titles, including The Guardian (Australia), BBC Music Magazine, Elle (Australia), BBC Countryfile, BBC Homes & Antiques, and Resource magazine.