The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has called for all financial institutions to adopt contracts that use plain English following the release of ASIC’s report on Unfair contract terms and small business loans
The report is a result of a review by ASBFEO and ASIC of standard small business loan contracts which were found to be overly complex. The review found the big four banks had failed in their obligations to ensure small business loans would be protected from unfair contracts.
“The major four banks have failed to take the necessary steps to comply with their obligations under unfair contract terms (UCT) legislation,” Carnell said. “This was after a generous one year transition period to meet the November 2016 implementation deadline.
“Shortly after our UCT review, the big four banks committed to a series of changes to make sure small business loans of up to $3 million entered into or renewed from 12 November 2016 would be protected from unfair contract terms.”
Carnell said despite the new legislation covering all financial institutions across Australia, the rest of the financial services industry had been slow to follow suit.
“Often small businesses do not understand the significance of what they are signing,” Carnell said.
The unfair contract terms removed provide small businesses with more transparency when it comes to their loan in regards to defaults, indemnification or termination clauses.
“We will monitor the use of the changed clauses by the big four banks, and ensure their existing applicable small business customers are aware of the changes,” Carnell said
“We will also continue to apply pressure on the rest of Australia’s financial institutions, to make sure they too meet the unfair contract terms legislation.”