As Australia continues its probe into small business banking, reports this week said small- and medium-sized businesses (SMBs) may have scored a win as banks agreed to cut unfair terms from their contracts.
The Sydney Morning Herald reported Wednesday (Aug. 23) the Australian Securities and Investments Commission (ASIC) and the Australian Small Business and Family Enterprise Ombudsman have proposed rules for the country’s banks, and the banks have accepted.
Specifically, reports said, banks will now cover total loan facilities for SMB borrowings up to $3 million (about $2.4 million USD), up from $1 million (about $790,000 USD). Business contracts with clauses that are considered “unfair” must be cut, reports explained, including “entire agreement clauses” that remove any liability from the banks for “conduct, statements or representations they make to borrowers outside the written contract.”
Banks will also be unable to terminate a loan as the result of a change in a small businesses’ circumstances, the Sydney Morning Herald added. SMBs will no longer have to cover losses and expenses as a result of fraud or bank misconduct, and the article also noted banks’ ability to alter contracts will be further limited.
According to Ombudsman Kate Carnell, the banks’ agreement is a win after nine months of work, but the process still reflects financial institutions’ unfair motives. New legislation aimed at protecting small business borrowers was introduced last year, but Carnell noted it’s taken a long time for banks to get on board with the new rules.
“The banks’ initial underdone response to the legislation serves as a reminder that [they] were once again trying to ‘game’ the rules, and this erodes trust,” she said in a statement. “It’s hard to understand why all these things are like pulling teeth. It came into effect last November, and it has taken my office and ASIC until now to take them to where they are pretty close to complying with a law that has been in effect for eight months.”
Carnell added, “There are now very positive signs that the Big Four banks are demonstrating industry leadership in embracing best practice.”