Bank of Queensland, Bendigo and Adelaide Bank sued by ASIC over ‘unfair’ contracts



Posted

September 04, 2019 15:10:12

Michael Sanderson is “ecstatic” that the corporate regulator is taking the Bank of Queensland (BoQ) and Bendigo and Adelaide Bank to court for imposing “unfair” contract terms on their small business customers.

Key points:

  • Many banks had “non-monetary default” clauses in their loan contracts, particularly for business customers
  • ASIC is taking BoQ and Bendigo and Adelaide Bank to court, alleging such clauses are unfair and should be unenforceable
  • There are no penalties for companies that include unfair terms in their contracts

The ex-timber supplier said he was left “destitute” with “nowhere to go” in February 2013, after BoQ repossessed his 1,000-acre farm south of Childers, Queensland.

This was despite the fact that had never missed a loan repayment.

“I was ready, willing and able to continue paying, but the bank refused to roll over the [loan] facility,” Mr Sanderson told the ABC.

He said it was because BoQ initially “over-valued” his property (at $900,000), before deciding to slash its value to less than half ($435,000) five years later.

BoQ relied on a “non-monetary default” clause in his loan agreement.

It allows the bank to declare the loan is in default, even if the borrower is on time with their repayments and meeting all their obligations.

In Mr Sanderson’s case, it was due to his “change of circumstances” — as the value of his property had fallen below the amount he borrowed ($462,500).

‘Significant’ power imbalance

That is one type of “unfair” term that BoQ and Bendigo and Adelaide Bank — via its subsidiaries Rural Bank and Delphi Bank — allegedly put in their contracts, the Australian Securities and Investments Commission (ASIC) will argue.

ASIC is accusing both regional banks of causing “detriment” by abusing a “significant [power] imbalance” with customers who signed up to loan agreements that included such terms between November 2016 and June 2019.

Unfair contracts also give banks a one-sided discretion to alter the terms — without the consent of the borrower.

If the Federal Court decides that the banks’ loan agreements were “unfair”, it can declare those offending terms “void and unenforceable”, so the bank cannot rely on them.

In a statement, Bendigo and Adelaide Bank said the impugned terms appeared in “previous versions of small business loan contracts”, which had been since updated in July.

“The bank is cooperating with ASIC in relation to the court proceedings with a view to reaching a mutually agreed outcome,” it added.

BoQ said that it would compensate any small business customers who have been “adversely affected”.

It also said it believes the “potential total compensation will be limited and not impact BoQ’s financial performance in any material way”.

No penalties for ‘unfairness’

Under Australian law, there are no penalties for companies that impose unfair contracts on a “take it or leave it” basis.

In mid-July, Uber Eats agreed to amend its allegedly unfair terms, which shifted most of the blame for ruined deliveries onto restaurant owners.

The Australian Competition and Consumer Commission’s (ACCC) chairman Rod Sims was frustrated that Uber was able to avoid being sued by relying on a “loophole”, despite his one-year investigation into the food delivery company.

“It should be illegal to have these clauses in the contract in the first place,” Mr Sims said at the time.

“If it was illegal, then we’d be taking Uber Eats to court [and] they would face large penalties.

“That would force them to make sure their contracts with restaurants are appropriate — rather than wait for us to come along after the event and threaten to go to court.”

Topics:

banking,

small-business,

business-economics-and-finance,

company-news,

courts-and-trials,

regulation,

australia,

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