Several terms within six small business contracts used by Bendigo and Adelaide Bank have been declared unfair by the Federal Court of Australia, following an investigation by the Australian Securities and Investments Commission (ASIC).
ASIC said the contracts were standard form small business loan contracts which the bank entered into with its customers after 12 November, 2016. The regulator was also successful in having the court declare the same terms as unfair in other standard form small business contracts.
An ASIC announcement said the bank would give an undertaking to the court not to use or rely on any of the impugned terms in a manner that was unfair, or cause customers to suffer loss or damage.
Justice Gleeson said the unfair terms:
- Caused a significant imbalance in the parties’ rights and obligations under the contract;
- Were not reasonably necessary to protect the legitimate interests of Bendigo and Adelaide Bank; and
- Would cause detriment to the small businesses if the terms were relied on.
“ASIC’s investigation revealed that some of the unfair terms gave the bank broad discretion to unilaterally vary the terms and conditions of the contract without giving the borrower advance notice, or an opportunity to exit the contract without penalty,” the announcement said.
“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 by calling a default based on events that do not present any material risk to the bank.”
The court also ordered the terms to be void from the outset, and that the unfair terms be replaced.
ASIC Commissioner Sean Hughes said: “Yesterday’s judgment shows that ASIC will take the necessary steps to enforce the law. Importantly, insurance firms should be preparing to extend these obligations in insurance contracts.
“We are pleased the Government backed us with additional funding that was ear-marked to enforce this area of the law.”