BOQ loan contracts “unfair,” court rules

The Federal Court has voided several terms in the bank’s standard loan contracts for small business customers

BOQ loan contracts “unfair,” court rules

Bank of Queensland used “unfair” contract terms in loans for small businesses, the Federal Court has ruled.

In a far-reaching judgment, the court ruled that the terms it called unfair were void. The judgment comes after the Australian Securities and Investments Commission sued BOQ in 2019, The Australian reported.

ASIC said the terms caused a “significant imbalance” in the rights and obligations of people entering into loan contracts with BOQ, and they were a “detriment” to small businesses if relied upon.

The terms at issue were outlined in standard form loan contracts BOQ entered into with small business customers after Nov. 12, 2016, The Australian reported.

Some of the language in the contracts allowed BOQ to vary the terms and conditions in those contracts without giving borrowers advance notice or a proper exit opportunity. Others included the ability to declare defaults “based on events that did not present a material risk” and indemnification clauses that allowed BOQ to make claims  against customers caused by the bank’s own mistakes or negligence.

The Federal Court declared the terms void from the beginning of the contracts, The Australian reported. Justice Katrina Banks-Smith ordered BOQ to replace the unfair terms with new terms agreed upon by the parties in all standard form contracts from November of 2016.

Banks-Smith said the judgment was appropriate, as it would deter other corporations from attempting similar conduct.

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ASIC commissioner Sean Hughes said the case was a good reminder for insurers to review contracts for fairness.

“Small business owners deserve to be able to enter into fair loan contracts, especially where they have little or no ability to negotiate the terms,” he said.

A BOQ spokeswoman told The Australian that the bank has been reviewing other small business contracts with the intent to remove any similar terms.

“While BOQ will amend these contract terms, the court noted ASIC did not allege BOQ ever relied on the terms in an unfair manner or in a way that caused customers any detriment, loss or damage,” she said.

The spokeswoman said that the bank would contact any customers whose contract terms were affected by the ruling.

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