The Australian Securities and Investments Commission (ASIC) issued a statement indicating all four of the nation’s major banks have agreed to eliminate unpopular ‘unfair terms’ from their contracts.
ASIC said the changes will mean:
- Loan documents will not contain ‘entire agreement clauses’ that absolve the bank from responsibility for conduct, statements or representations they make to borrowers outside the written contract.
- The operation of the banks’ indemnification clauses will be significantly limited. For example, the banks will now not be able to require their small business customers to cover losses, costs and expenses incurred due to the fraud, negligence or wilful misconduct of the bank, its employees or a receiver appointed by the bank.
- Clauses which give banks the power to call in a default for an unspecified negative change in the circumstances of the small business customer (known as ‘material adverse change event’ clauses) have been removed, so that the banks will now not have the power to terminate the loan for an unspecified negative change in the circumstances of the customer.
- Banks have restricted their ability to vary contracts to specific circumstances, and where such a variation would cause a customer to want to exit the contract, the banks will provide a period of between 30 and 90 days for the consumer to do so.
ASIC noted that while each bank has taken a different approach to address concerns about these clauses, all have now made changes to their contracts – and in some cases, gone further than required by law.
“For example, NAB has taken an industry-leading position about the application of non-monetary default clauses, while the Commonwealth Bank 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 said.
“The banks have agreed that all customers who entered or renewed contracts from 12 November 2016 – when the protections for small businesses began – will have the benefit of the changes agreed with ASIC.”
The changes, according to ASIC deputy chairman Peter Kell, will now be rolled out more widely.
“ASIC welcomes the significant improvements made by the banks to their small business lending agreements. The improvements have raised small business lending standards and provide important protections for small business customers,” he said.
“ASIC will be following up with other lenders to ensure that their small business contracts do not contain unfair terms, and we will continue to work with the ASBFEO on these issues.”