Weeks after Australia alternative lending platform Prospa cancelled its IPO, amid backlash over contractual agreements with borrowers, the company has bowed to regulators’ demands that it remove those contract clauses in question.
On Friday (Sept. 7), the Australian Securities and Investments Commission (ASIC) “significantly limited” Prospa’s conduct with small business customers, reports said in the Australian Financial Review. Actions taken by the regulator include banning Prospa from holding small business borrowers accountable for its own misconduct, and requiring the company to provide greater notice about any fee changes.
The company had planned to raise more than $409 million by going public on the Australian Securities Exchange, but pulled its float in June after regulators raised concerns about Prospa’s treatment of customers. At the heart of the criticism are interest rates, which can run as high of 41 percent for borrowers.
Former contracts reportedly required small businesses to compensate Prospa for any losses related to the company’s own “fraud, negligence or willful misconduct.” Other contractual clauses, including an “entire agreement” clause and “cross-default” clause, have been removed in response to ASIC requirements. The company has also amended a clause that previously prohibited small businesses from repaying their loans early.
The company must allow 60 days of notice before changing any fees, reports added.
“The amendments [that] agreed with ASIC do not have any material impact on the company financial or operationally,” Prospa said in a statement. The company added, “Some of these terms have, historically, not been relied upon, and other terms were amended to clarify or reflect existing policies.”
Prospa had previously signed the Online Small Business Lenders Code of Practice, an initiative from the Australian Finance Industry Association that enables online lenders to improve transparency in borrower costs.