A new report by the Australian Securities and Investment Commission (ASIC) and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) suggests the nation’s largest banks aren’t complying with rules to protect small business borrowers.
Reports Thursday (March 9) said a review of small business lending practices among top banks suggest these FIs have “substantial work to do” to meet obligations outlined in legislation aimed at protecting borrowers and combating unfair contract terms. Regulators had previously expanded that legislation in order to protect consumers and small businesses when they enter into loan contracts after November 12, 2016, according to reports. But eight banks reviewed by the ASIC and ASBFEO are reportedly failing to comply with those rules against unfair contract terms.
“I’m gob-smacked really,” said ASBFEO’s Kate Carnell in a statement. “The banks all rush to take out full page ads and billboards about how much they love small business but they are failing to comply with these legislative requirements.”
According to the review, financial institutions continue to use language in their contracts with small business borrowers that enable the banks to change terms and conditions of those deals and remove themselves from responsibility for behavior with SMEs outside of their contracts.
Banks were also found to still be using non-monetary loan “default” clauses, leading the ASIC and ASBFEO to call on banks to end that practice for small businesses that are meeting their contractual agreements. The banks should also provide a 90-day notice for small businesses when loan facilities won’t be extended and to provide easier access to SMEs to the financial ombudsman service.
“Once again, repeated calls for the banks to amend their practices are falling on deaf ears, despite inquiry after inquiry highlighting major flaws in the way they treat their small business customers,” Carnell said, adding that in many cases banks revised their SME contract practices but “made them worse and more convoluted.”
She added that the ASBFEO and ASIC will consider pursuing legislation to force banks to change their behavior if they fail to comply with their latest demands.