Australia’s big banks finally agree to certain changes outlined by the Australian Securities and Investment Commission (ASIC) and the Australian Small Business and Family Enterprise Ombudsman to remove unfair terms from their contracts.
Enterprises should have a place to go when they feel aggrieved by their dealings with banks.
The pressure comes after the banks failed to comply with their obligations under the unfair contracts legislation that came into effect November of last year.
The banks now agree to cover small business total loan facilities up to $3 million, which is an increase from the $1 million limit they initially specified. The ombudsman aims for a $5 million benchmark, though, but this agreement to eliminate unfair terms is already a huge win for small businesses.
Unfair clauses include entire agreement clauses which absolve banks from responsibility for conduct, statements or representations they make to borrowers outside the written contract.
Banks also agree to remove material adverse event clauses which means they won’t be able to terminate the loan in an event that their small business customer experiences a change in circumstances.
The banks’ indemnification clauses will also be limited. They won’t be able to ask small business customers to cover costs, expenses and losses incurred from fraud, negligence or willful misconduct of the bank or its employees.
They won’t be able to vary contracts except for specific circumstances and should a small business customer want to exit a contract, the banks will allow the customer to do so within 30 to 90 days.
ASIC will monitor the banks to see if the clauses are being applied in an unfair way. Positive signs indicate that the country’s big banks are now willing to demonstrate industry leadership in embracing best practices.
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