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ASIC puts insurance industry on notice over unfair contract terms

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The Australian Securities and Investments Commission (ASIC) has warned insurance companies to prepare for upcoming unfair contract terms reform, after securing a court victory over a bank.

The Federal Court of Australia yesterday declared several terms within six small business loan contracts used by Bendigo and Adelaide Bank to be unfair.

ASIC says the bank will give an undertaking to the court "not to use, or rely upon, any of the impugned terms in a manner that is unfair, or causes any customers to suffer loss or damage".

ASIC’s investigation revealed that some of the unfair terms gave the bank broad discretion to unilaterally vary the terms and conditions of the contract without giving the borrower advance notice, or an opportunity to exit the contract without penalty.

Other terms allowed the bank to take disproportionate actions in response to a breach by the borrower.

Commissioner Sean Hughes says ASIC is committed to protecting the small business owners of Australia from unfair terms, and that insurance companies should be aware.

“Yesterday’s judgment shows that ASIC will take the necessary steps to enforce the law,” he said.

“Importantly, insurance firms should be preparing to extend these obligations in insurance contracts.”

As insuranceNEWS.com.au has reported, the National Insurance Brokers Association has urged brokers to get ready for the new unfair contract terms regime that will commence next April.