Banks clamped down on unfair foreclosures
The Federal Government will crack down on banks and other financial institutions that use unfair contract terms and non-monetary default conditions to foreclose small to medium enterprise customers.
The Government has referred the matter to the Parliamentary Joint Committee (PJC) on Corporations and Financial Services for inquiry, to deliberate on recommendations from the Financial System Inquiry.
Assistant Treasurer Josh Frydenburg, said he asked the PJC to examine whether borrowers are given a chance to fix any genuine default event and how much time they get to do it.
"In undertaking its inquiry, the PJC will take evidence on the incidence and history of loan impairments and the forced sale of property, and the effect of forced sale of property in depressed market conditions and drought," Frydenburg said.
"The inquiry will also look at the adequacy of legal obligations on lenders and external administrators to obtain fair market value for the forced sale of property, and any related matters."
Small businesses faced sudden foreclosures when the Commonwealth Bank took over Bankwest in 2008 and used non-monetary covenant defaults on customers to improve its own financial position.
Similarly, ANZ foreclosed on a farmer using non-monetary covenant default despite the farmer never missing mortgage payments.
Recommendations 34 and 36 of the Inquiry supported the Government's move to extend unfair contract term protections to small businesses, and it urged the financial services industry to develop standards on the use of non-monetary default covenants.
Protections from unfair contract term provisions do not cover small business loans or business-to-business lending.
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