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Good news for small busi­ness­es in the last week: the big four banks have hon­oured their com­mit­ment to review­ing their small busi­ness loan con­tracts, with changes set to elim­i­nate per­ceived unfair terms.

The Aus­tralian Secu­ri­ties and Invest­ments Com­mis­sion (ASIC) recent­ly announced the changes, con­firm­ing that the banks have act­ed on calls to amend their prac­tices — with banks, in some cas­es, even going fur­ther than required by law in address­ing con­cerns.

The changes mean ASIC has had a win in con­vinc­ing the large lenders it is in their inter­est to treat small busi­ness­es fair­ly.  With lit­tle nego­ti­at­ing pow­er, small busi­ness­es have some­times faced a cri­sis when cred­it facil­i­ties have been with­drawn for no appar­ent rea­son oth­er than the bank wish­ing to re-align its over­all risk pro­file.  The abil­i­ty of the large lenders to do that in future will be more con­strained; if cred­it facil­i­ties are changed or with­drawn in future, small busi­ness should now have ade­quate time to make alter­na­tive arrange­ments.

Accord­ing to ASIC, the changes include:

  • Ensur­ing loan doc­u­ments won’t con­tain ‘entire agree­ment claus­es’ that absolve the bank from respon­si­bil­i­ty for con­duct, state­ments or rep­re­sen­ta­tions they make to bor­row­ers out­side the writ­ten con­tract.
  • Sig­nif­i­cant­ly lim­it­ing the oper­a­tion of the banks’ indem­ni­fi­ca­tion claus­es; for exam­ple, the banks will no longer be able to require small busi­ness cus­tomers to cov­er loss­es, costs and expens­es incurred due to fraud, neg­li­gence or wil­ful mis­con­duct of the bank, its employ­ees or a receiv­er.
  • Remov­ing claus­es which gave banks the pow­er to call in a default for an unspec­i­fied neg­a­tive change in the cir­cum­stances of the small busi­ness cus­tomer.
  • Restrict­ed banks’ abil­i­ty to vary con­tracts to spe­cif­ic cir­cum­stances — and, where such a vari­a­tion would cause a cus­tomer to want to exit the con­tract, the banks must pro­vide a peri­od of between 30 and 90 days for the con­sumer to do so.

The changes will be back­dat­ed to cov­er cus­tomers who entered or renewed con­tracts from 12 Novem­ber 2016 and ASIC will close­ly mon­i­tor the process to ensure the changes are applied.

For more infor­ma­tion con­tact Hadyn Ori­ti on 02 6583 0449, or vis­it the ASIC web­site here.

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