Earlier this month, ASIC announced Bendigo and Adelaide Bank was found to have sold contracts with unfair terms to small businesses in November 2016, but instead of a financial penalty, the Federal Court of Australia has barred the bank from using any of the impugned terms in a manner that is unfair or causes damage to customers.
Commending ASIC for holding to account Australia’s fifth largest retail bank, the IPA stressed that it has been a long-time advocate for levelling the playing field when it comes to unfair contract terms for small business.
“In the case of the Bendigo and Adelaide Bank, the Federal Court found that the unfair terms in the small business loan contract had caused a major imbalance in the parties’ right and obligations under the contract, and further, the terms would cause detriment to the small businesses involved if the terms were utilised,” IPA group executive policy and technical,Vicki Stylianou said.
“ASIC pursued the case, noting that some of the unfair terms provided the bank with the ability to vary the terms and conditions of the contract without giving the small business borrower due warning, as well as the capability to exit the contract without penalty.”
Ms Stylianou opined that this case should herald a sharp warning to other financial institutions and corporations, that the insertion of unfair contract terms is potentially breaking the law.
“It is also a telling factor that legislation around unfair contract terms is only as good as the enforcement that prevails as was this case with the bank,” said Ms Stylianou.
“Small businesses should also be wary in entering contracts, ensuring they understand the terms and conditions and where necessary seek advice from their trusted adviser before signing.”
According to ASIC’s investigation, the unfair terms gave the bank the power to unilaterally vary the terms and conditions of the contract without giving the small-business borrower advanced notice or an opportunity to exit the contract without penalty.
Other terms allowed the bank to take disproportionate actions in response to a breach by the borrower; for example, by calling a default without giving the borrower an opportunity to remedy a breach, or based on events that do not present any material risk to the bank.
