ASIC sues Bendigo and Adelaide Bank, alleging unfair contract terms

The Australian Securities and Investments Commission has started proceedings against Bendigo and Adelaide Bank in the Federal Court, alleging certain terms the bank used in contracts with small businesses are unfair.

ASIC claims some of the terms in the standard form contracts include clauses that give lenders, not borrowers, broad discretion to vary the terms and conditions of the contract without the small business owner's consent.

It also alleges some clauses allow the bank to call a default, even if the small business owner has met all its financial obligations.

ASIC alleges the terms subject to the legal action cause "a significant imbalance" in the parties' rights and obligations under the contract.

It also claims the terms are not "reasonably necessary" to protect the bank's interests, and would cause detriment to the small businesses.

ASIC said the specific terms would be void and unenforceable by the Bendigo and Adelaide Bank, if the court agreed with its case.

"ASIC is also seeking a declaration from the Federal Court that the same terms in any other small business contract are also unfair," the commission said in a statement.

Bendigo and Adelaide Bank said it was cooperating with ASIC in relation to the court proceedings with a view to reaching a mutually agreed outcome.

"We remain committed to keeping our customers at the centre of everything we do and ensuring we satisfy all regulatory requirements and guidelines," the bank said in a statement to the ASX.

Bendigo and Adelaide Bank said the proceedings related to a version of its small business loan contracts in place between 2016 and June 2019 under each of its Delphi Bank and Rural Bank brands.

"The relevant terms and conditions appear in previous versions of small business loan contracts," the bank said.

It said the contracts were updated in July 2019 in response to additional guidance provided by ASIC in a report on unfair contract terms and small business loans, as well as the new Banking Code of Practice.

Bendigo and Adelaide Bank entered into almost 3500 standard form contracts with businesses for under $1-million between November 16, 2016, and June 30, 2019, which incorporated the Delphi conditions.

The bank had 15,529 standard form contracts on foot with businesses for under $1-million at the end of the past financial year which incorporated the Rural conditions

ASIC has also taken the Bank of Queensland to court for unfair contract terms.

Shares in each lender were dented in early trade, with BoQ down 1.43 per cent to $8.94 and Bendigo down 0.89 per cent to $10.615 by 1037 AEST.

- With AAP.

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