Banks finally to treat small businesses fairly

Hundreds of thousands of small businesses with bank overdrafts are set to receive a new “fair contract” overdraft agreement.

Commonwealth Bank CEO Ian Narev found the time to take a step forward that the other bank CEOs would not do. Picture: AFP.

Last night I toasted Australian democracy and free speech. Thanks to the unfair contracts legislation, hundreds of thousands of Australian small businesses with bank overdrafts are now set to receive a new “fair contract” overdraft agreement.

An overdraft agreement where the bank can’t pull the rug out from under them when they are making their payments on time. In combination ASIC and the Australian Small Business and Family Enterprise Ombudsman, Kate Carnell not only convinced the big banks to obey the law but to go further. ASIC and Carnell will quickly extend the agreement with the big banks to smaller banks and other lenders to small business. The non-bank part of the act is handled by ACCC and they will now drive law-breaking CEOs and boards to comply with the act.

In all, more than eight million standardised non negotiated contracts signed after November 12 must be changed — it’s an immense enforcement task but it is part of a series of steps the community must take to prepare for a world where fewer people are employed by large organisations and therefore must be more entrepreneurial.

I believe with a passion that we also need to have large organisations pay small business in 30 days and an independent tax appeal system for small business, which is currently being unfairly treated by the ATO.

The current bank overdraft agreements are outrageously unfair to small business. They were changed because of a wide ranging unfair contracts act that was passed by the last Parliament with the support of Malcolm Turnbull, Bill Shorten and the cross benchers.

In past years my poor readers must have tired of the countless commentaries I wrote on the subject of unfair contacts in an attempt to get Parliament to change the law. .At the time no other journalist followed so I had to make up for the absence of others. It would not have been possible but for the equally relentless lobbying of politicians carried out by Ken Phillips, head of Self-Employed Australia (formerly Independent Contractors of Australia).

Lined up against us were two of the most powerful lobby groups in the land — the Business Council and the Franchise Council headed by Seven 11.

Both Malcolm Turnbull and Bill Shorten could see that businesses employing less than 20 people needed fair standardised contracts (involving up to $300,000 for one year) rather than having grossly unfair contracts thrust before them on a “sign or else “ basis.

In the bank overdraft stipulations of the act the law covers loans under $1million but the banks have agreed to lift the limit to $3million as a result of strong pressure from Kate Carnell. She wanted bank loans of up to $5million to be covered or settled for $3million.

There are four major changes for overdrafts signed after November 12 and I must emphasise that small enterprises that fall behind in their payments are usually not protected.

• First, the banks have agreed to remove all the clauses that make discussions leading up to the contract irrelevant and of no account. Under current agreements all that counts is the exact wording of the standardised loan documents, which are outrageously unfair. It is routine for bank officials to make all sorts of assurances and promises to small business, which never reach the agreement even though they might be mentioned in a letter or email. These bank-negotiating statements are of no legal validity under the current unfair overdraft agreements. Now the pre- loan negotiations can’t be excluded by banks but of course the small businessperson would need to refer to evidence of what was said in the negotiation.

• Second, most of the bank loans have nasty clauses that make the small businessperson responsible for events where the small business has no responsibility whatsoever. Good riddance.

• Thirdly, the small business loan agreements allow the banks to call in loans on almost any pretext. It makes no difference that the unfortunate business was paying all the payments on time. For example some bank official in head office might take a set against an industry and the banks have the right to pull the plug on an unfortunate who operates in that industry. The banks claimed they rarely used these powers. If that was the case there is no harm in removing them.

• Fourthly, currently if a bank wants to make a significant change to the contract — like raise base interest rates or charges, they can make the change effective almost immediately. Now they have agreed to give 30 days notice. But the Commonwealth Bank has gone further than the ANZ, NAB and Westpac and will give 90 days notice. CBA chief Ian Narev has a bag full of problems but he found the time to take a step forward that the other bank CEOs would not do. Well done Ian.