National Australia Bank has written to most of its Australian small business borrowers advising them that the NAB has changed its lending agreements to comply with the unfair contracts act.
Accordingly, many thousands of small businesses around Australia believe that the laws of the Australian Parliament are protecting them.
Unfortunately, the new NAB business-lending contract, in my view, is not only in breach of the act but those small business borrowers whose contracts were changed have been misled. They are not protected.
In making such a definitive statement I make the qualification that I am not a lawyer but a journalist who has been deeply connected with the introduction of the new rules. Ultimately it will be the courts that decide.
However, before making such a strong statement about a leading bank, I showed the new NAB business-lending contract separately to two of the best fair contract legal minds in the country. They could not believe what the bank had done in dictating to small business that they must accept powers that are far too broad, with vicious trigger mechanisms — exactly what the fair contracts act has declared void and was designed to stop.
The legislation was supported by the Coalition, the ALP, the Greens and the crossbenchers in the last Parliament, so NAB is taking the entire Australian political process head on.
More: The contracts that banks forgot
More: Fair contracts a vital change
More: Wake-up call for big business
NAB appears to believe it has found a loophole to spike the will of the Australian Parliament and so has included in its standardised contract a whole series of shockingly unfair powers and then qualified them by saying that the NAB can only apply those unfair powers by “acting reasonably”.
But these are totally unreasonable powers. Again the courts may uphold the “acting reasonably” qualification but my legal advisers say the NAB has Buckley’s chance of winning such a case.
When NAB chief executive Andrew Thorburn reads the agreement he will know just how wrong his bank is. To help him along, here are some links to my past commentaries on the issue:
How parliament has revolutionised the rules of contracting, December 2 2015
Big business needs to get with the contract overhaul program, November 11 2016
The unfair contracts that the banks forgot, November 18
Former NSW Premier Mike Baird has taken on the job of National Australia Bank’s chief customer officer for corporate and institutional banking. He has a huge job ahead of him to change the deep-seated culture in the bank. I don’t envy him.
Baird will need to start by looking into just who made the decision to take on the will of the Parliament of Australia.
To some extent, it’s unfair of me to concentrate on NAB because I understand one or two of the other banks have made similar mistakes. They too have cultural problems.
Before detailing the NAB mistakes, let me share with you some background.
A mate sent me a letter sent out by the NAB to small business customers explaining that they had changed the lending agreement to comply with the new fair contracts act.
I had planned to write a praiseworthy commentary but after requesting detail I was sent a generalised commentary. I asked pointed questions but could not get any reply from NAB.
You could smell concealment so it was time to do my job.
I managed to track down from a NAB customer a copy of the agreement. I could not believe how bad it was.
The first thing you notice about the agreement is that it covers 100 pages. Yes 100 pages! The NAB customers involved are small enterprises with less than 20 employees. They have no ability to hire lawyers to fight banks.
Presenting these small operators with a 100-page lending contract is not a breach of the act but it is a sign that the people at the bank have no cultural understanding of what small business fairness means.
A 10-page contract should be long enough, though three pages would be even better because then the small enterprise would understand the deal.
According to the ACCC, to be unfair under the fair contracts legislation, a term of the contract must cause a significant imbalance in the parties’ rights and obligations; not be reasonably necessary to protect the legitimate interests of the party advantaged by the term, or cause detriment (financial or otherwise) to a small business if it were to be applied or relied upon.
The 100-page NAB contract bristles with clauses that breach those stipulations but always carry the “acting reasonably” tag. Here are a few clauses that, in my view, breach the act:
With the “acting reasonably” qualification the bank can:
(a) Reduce any limit, including any facility limit and/or component limit.
I translate that to mean giving the bank power to tell the small enterprise at any time that their lending limit has been slashed. Any such action would normally send them broke. That’s exactly the sort of power the fair contracts act declares void.
(b) Introduce a new fee charge or premium, vary the amount of a fee charge or premium in the way it is calculated or when it is charged.
What n horrific power to be thrust down the throats of NAB small business clients.
(c) NAB can change the interest rate at will although remember if such a power is limited to market fluctuations it is perfectly fair.
(d) The bank can change the way interest or default interest is calculated and when it is debited. What an awful power to seek.
But then the NAB triple whammy:
“Power to change a client’s repayment obligations including the amount of any repayment.”
So, as a small business person, if I am required to pay NAB $1,000 a week and I rigidly stick to the deal, some rooster in the bank “acting reasonably” can jack up my payment to $2,000 and send me broke.
The bank then has the most horrendous clauses as to what they can do in the event of a default.
Almost certainly I will lose not only my business but probably my house. This is exactly what the Australian Parliament sort to stop.
When it comes to banks, the law is administered by ASIC (the ACCC in most other areas). The time for handling banks with kid gloves is over.
Footnote: The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell was asked by the Senate estimates hearing this week about the impact of current banking practices on the small businesses examined as part of the ASBFEO inquiry. Ms. Carnell said that many were now bankrupt.
“There are people who used to be running successful businesses living in garages; we got a pretty good view of what actually happened in a range of these cases and the impact is huge.
“In a good number of the cases these were people who hadn’t missed a payment on their loan; so they weren’t in financial default, the default came as a result of non-financial default”, she said.