ASIC grilled over lack of legal action against breaches of unfair contract terms

THE corporate cop has launched no court action against breaches of unfair contract terms, despite acknowledging lenders did not comply with new rules following their introduction, the banking royal commission has heard.

Royal Commission into the Financial Services Industry commissioner Kenneth Hayne. Picture: Eddie Jim

THE corporate cop has launched no court action against breaches of unfair contract terms, despite acknowledging lenders did not comply with new rules following their introduction, the banking royal commission has heard.

The commission is this morning probing the Australian Securities and Investments Commission’s approach to enforcement by looking at how it dealt with the extension of unfair contract terms legislation to cover small businesses in 2016.

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Both senior counsel assisting the commission, Michael Hodge QC and Commissioner Kenneth Hayne, have grilled ASIC senior leader Michael Saadat about why the agency has not launched legal action on the issue.

Unfair contract terms legislation was extended to cover small business in November 2016.

A joint press release by ASIC and the Australian Small Business and Family Enterprise Ombudsman released in March 2017 noted that the corporate cop believed major lenders were still entering lending contracts with small business which breached the new rules.

The release also said ASIC would work with lenders to ensure they complied with the new rules.

Commissioner Hayne asked Mr Saadat: “Why work with the lender — why not just say do it?”

Mr Saadat replied: “We have to balance the different options. If a lender is prepared to make change in response to the concerns we have raised that can often be a faster and more effective way of getting that change in place.”

Mr Saadat added he believed the language in the release made it clear that ASIC expected the banks to make changes.

Commissioner Hayne observed: “Or to come and talk to you about the changes that were required to me made.”

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Mr Hodge probed Mr Saadat about why the Australian Competition and Consumer Commission had taken legal action to enforce the new rules but ASIC had not.

He suggested the ACCC was more willing to take a legal action as compared to ASIC which preferred to work with industry rather than challenge it in the courts.

Mr Saadat denied this, saying ASIC was willing to take a court action where businesses refused to change unfair terms in their contracts after they had been identified by the corporate cop.

The hearing continues.