The big four banks had earlier bowed to pressure from the ASBFEO and ASIC to agree to a series of comprehensive changes to ensure that all small business loans up to $3 million will be protected from unfair contract terms.
In a release by ASIC today, the regulator said that the banks will enact changes to their practices through different approaches.
For example, NAB will take an industry-leading position about the application of non-monetary default clauses, while the Commonwealth Bank will provide an industry-leading 90 calendar days' notice for any changes to loan contracts that the small business customer does not wish to accept.
All four banks have limited the use of financial indicator covenants in small business contracts to certain classes of loans, for example, property development and specialised lending such as margin loans, while property investment loans will not be covered.
ASIC deputy chairman Peter Kell said more detailed information about the changes would be released shortly so other lenders could consider whether changes to their contracts may be required.
“ASIC welcomes the significant improvements made by the banks to their small business lending agreements,” Mr Kell said.
“The improvements have raised small business lending standards and provide important protections for small business customers.
“ASIC will be following up with other lenders to ensure that their small business contracts do not contain unfair terms, and we will continue to work with the ASBFEO on these issues.”
The Ombudsman, Kate Carnell welcomed the changes but criticised the banks’ delayed response to the legislation.
“This reflects nine months of hard work by ASIC working with the big four banks to meet the expectations of the unfair contract term legislation,” Ms Carnell said.
“The banks’ initial underdone response to the legislation serves as a reminder that banks were once again trying to ‘game’ the rules and this erodes trust.
“There are now very positive signs that the big four banks are demonstrating industry leadership in embracing best practice.”
The four banks will shortly commence contacting all relevant small business customers who entered into or renewed a loan from 12 November 2016, about the changes to their loans.
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.