ASIC has warned it may take legal action if lenders don't stop using small business loan contracts that that fail new laws banning unfair terms and conditions.
Small business loan contracts by major lenders still include terms that don't comply with new laws introduced last November, a joint review by ASIC and the small business ombudsman has found.
The regulator and the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) looked at loan contracts from eight lenders including the big four banks and found a failure to comply with new unfair contract terms (UCT) legislation
This was despite lenders being given a year to change ahead of last year's November implementation deadline.
"I'm firmly of the belief that the loan contract terms as they currently stand, fail to comply with the UCT law," ombudsman Kate Carnell said.
"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."
The federal government in November introduced new laws to protect small businesses, preventing large companies from putting unilateral terms in their standard contracts.
ASIC deputy chair Peter Kell said the regulator had been raising cases of unfair terms with lenders seeking to have the offending conditions removed or changed.
"If the lender refuses to do so we will consider all regulatory options, including taking the matter to court as ultimately a court can decide whether or not a term is unfair," he said.
The review found lenders continue to include terms giving lenders "very broad discretion" to unilaterally change terms and conditions of contracts.
It also found lenders could include terms that allow a loan default to be declared in a broad range of circumstances, rather than where the borrower has materially defaulted on obligations.
Small business contracts were also found with terms absolving lenders from responsibility for conduct, statements or representations made to borrowers outside of the contract, as well as terms that gave too-broad an indemnity to the lender against losses, costs, liabilities and expenses.
