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The mortgage and finance industry has welcomed the legislation to ban unfair contract terms to protect small businesses and consumers.
The Labor government announced it was delivering on its election commitment to make “unfair contract terms illegal” by introducing the updated legislation to Parliament (28 September).
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The legislation introduces civil penalty provisions “prohibiting the use of, and reliance on, unfair terms in standard form contracts”. This will enable a regulator to seek a civil penalty from a court.
Given, small businesses and consumers often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts, the amendments will stop the use of unfair terms.
Previously, the Australian Competition and Consumer Commission (ACCC) could not issue civil pecuniary penalties against businesses imposing unfair contract terms, resulting in inadequate protection for some small businesses.
For example, if a term in a contract signed by a small business is found to be unfair by a court or tribunal, the clause will be void and the small business will no longer be required to comply with it. But there are no rules or penalties against including unfair terms in the first place and the steps to have the term voided can be a “drawn out and costly process”.
Managing director of the Finance Brokers Association of Australia (FBAA), Peter White, said it was “another positive step” for small businesses to ensure they are not unfairly treated in such agreements.
The law will also increase the small-business eligibility threshold for the protections from less than 20 employees to fewer than 100 employees and introduce an annual turnover threshold of less than $10 million as an alternative threshold for eligibility.
Minister for Small Business Julie Collins said this was a “vital step” in addressing the power imbalance that exists for small businesses and will help support them following significant challenges in recent years.
“Small business has been at the centre of the Albanese Labor Government’s decision making, and progress on issues like unfair contract terms is emblematic of the support the sector can continue to expect,” Ms Collins said.
“These reforms are a critical part of this agenda.”
Assistant Minister for Competition, Charities and Treasury Andrew Leigh added Australians had enough to deal with without facing “legal bullying” from big companies.
Welcoming the move Australian Small Business and Family Enterprise Ombudsman Bruce Billson said the bill will help “crack down” on unfair contract terms and increase penalties for anti-competitive behaviour.
“These are real problems for small and family businesses and rebalancing the relationship imbalances between small business and large enterprises will promote economic growth,” Mr Billson said.
Mr Billson explained many small businesses had highlighted these issues as an impediment as they don’t have the power or resources to stop unfair terms from being imposed on them.
“We see in many contracts we review, examples of unfair terms,” Mr Billson said. “Too often a large business with relative superior bargaining power acts unfairly against a small business or multiple smaller businesses.
“We have seen contracts where a big company is allowed to cancel or vary the contract with two days’ verbal notice, but the small business is required to provide 90 days’ notice in writing.
“We have seen contracts where the big company is able to keep deposits for at least 12 months after the agreement with a small business ends with no fixed end date.
“What is also crucial, however, is that these new laws be enforced by regulators to defend the economic interests of small business owners.”
[Related: Government unveils draft reforms for unfair contract terms]
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