In a survey carried out by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) earlier this year, only 50 per cent of the fintech companies surveyed considered their contracts compliant with existing Unfair Contract Term (UCT) legislation. The finding prompted Small Business and Family Enterprise Ombudsman Kate Carnell to call for all fintechs to move to compliance.
Amongst the first fintech to alter their contract to comply is Prospa, after ASIC found a significant number of clauses in the fintech’s contract that required changes. The fintech has now agreed to remove the unfair clause from its contract and the change will be retrospective to all contracts signed between now and November 2016.
Carnell said she is pleased the fintech has removed the unfair terms from their small business loan contracts but suggested more fintechs need to follow the finance company’s lead.
In March 2016 ASIC published its Report 565: Unfair contract terms and small business loans, outlining the clauses that would be deemed to be unfair. The legislation came into effect in November 2016, yet still, many loan providers have failed to update their contracts to reflect the new UFC legislation.
“We urge all lenders to small businesses to remove clauses outlined in the ASIC Report 565 from their standard form loan contracts,” Carnell said.
“Small business standard loan contracts can no longer contain terms that cause a significant imbalance in rights and obligations or cause detriment to the small business. The message here is very simple – don’t use unfair contract terms. ASIC has made it clear that it will consider regulatory action.”