Changes in the regulatory regime are shifting the power towards small businesses and consumers, writes Prof Bob Baxt AO FAICDLife.

    The recent finalisation of the agreement between Commonwealth, state and territory governments for uniform national consumer law is an important step forward in the protection of business and consumer rights. It ensures they are given a better deal when battling unfair, unconscionable practices and similar complaints regarding one-sided agreements/arrangements.

    Improving dispute resolution

    The Australian Financial Complaints Authority (AFCA), which begins operating in July 2018, has been set up in response to the recent Ramsay Review of external dispute resolution and complaint arrangements in the financial and related industries.

    The AFCA will consolidate the operations of three separate schemes: the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. Regulatory bodies are also consciously combining policies to ensure that these sectors are better protected.

    There has been a significant increase in the number of cases being brought by the Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC) in their efforts to tackle unfair contract practices, broader consumer protection and the enforcement of rights introduced in the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 — and addressed in the Australian Consumer Law and Competition and Consumer Act 2010 (Cth).

    As well as the introduction of the Government’s proposed Banking Executive Accountability Regime (BEAR) regulations, high on the list of positive action is the targeting of unfair contract terms, with special emphasis on financial and related transactions. Other recent initiatives include:

    1. Loan documents will no longer contain the “entire agreement clauses” that absolve the banks from responsibility for making submissions to consumers and borrowers generally to ensure that they understand fully the reach of the arrangements.
    2. The indemnification clauses that the banks usually relied on will be significantly limited. So, for example, they won’t be able to compel customers to cover losses, costs and expenses incurred due to the fraud, negligence or wilful misconduct of the bank, its employees or a bank-appointed receiver.
    3. The previous wide powers given to banks to call in a default for an unspecified change in the circumstances of a small business customer (described as a “material adverse change” clause) have been removed and they will no longer have this power to move against their customers.
    4. The ability to vary contracts in specific circumstances will be significantly limited. Banks and other financial institutions will be required to provide particulars to their customers (30 to 90 days has been suggested as the appropriate timing) to enable them to take appropriate action if they are unhappy with the proposals to vary their contracts.

    Regulators in court

    ASIC has been successful in two actions against major trading banks in relation to market-rigging allegations concerning the overnight bank bill swap rate between 2010 and 2012. These were settled, with the banks agreeing to pay penalties totalling $50m each. The third action, against Westpac, is continuing in the courts. The Commonwealth Bank — currently a major target — faces actions not only by ASIC but also the Australian Prudential Regulation Authority and the Australian Transactions and Reports Analysis Centre.

    Interestingly, the National Australia Bank’s position on non-monetary default clauses means it will adopt a much more tolerant and compassionate approach towards customers. CBA has also indicated that it will provide 90 calendar days’ notice to any changes it may make to loan contracts.

    The heavy reliance on harsh clauses in contracts, especially where property investment is involved, will be discontinued and contracts will be more flexible, giving consumers and small businesses greater opportunities to negotiate more favourable terms.

    The banks have generally agreed that they will publish more detailed information about potential changes and how these might impact small business and consumer transactions.

    It’s important that regulatory bodies continue to pursue remedies under the Competition and Consumer Act, the unfair contracts regime and related legislation in common law cases. This is because Australia does not have the US’s contingency fee arrangements, which enable plaintiffs to bring cases in the hope that they may succeed and to “share in the spoils” with the lawyers acting for them. It is unlikely that we’ll ever see the use of these arrangements in Australia.

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