Following its review of Prospa Advance Pty Limited (Prospa) earlier this year, ASIC has announced that Prospa has agreed to change the loan terms in its standard form small business loan contract. The changes are to redress those terms considered to be in breach of the unfair contract terms provisions of the ASIC Act. Prospa has also agreed that any customer who entered into or renewed a contract from 12 November 2016 will receive the benefit of the changes.
In March, ASIC indicated that, in addition to monitoring the big four banks, it would be reviewing loan contracts from smaller providers to ensure their compliance with the unfair contract terms provisions.
Prospa is an online lender to small businesses offering loans between $5,000 and $250,000. In June, Prospa was scheduled to list on the ASX, however, its float was delayed so that it could clarify queries raised by ASIC. Prospa’s float was expected to be one of the more significant listings of 2018, with the fast-growing business aiming to raise $409 million.
ASIC had expressed concern that some of Prospa’s loan terms were in breach of unfair contract terms legislation.
The result of ASIC’s review
Prospa has made a number of changes to its small business loan terms as a result of ASIC’s review. The changes include:
This is yet another salutary reminder of the application of the unfair contract terms in small business contracts and, in particular, its application to the financial services sector and non-bank financial institutions.
In the aftermath of the Prospa review, ASIC has now issued a call to the fintech industry body FinTech Australia, calling on it to prompt its members to consider the Prospa outcomes and assess their own loan contracts for compliance. In a letter to the lobby group, ASIC has expressed its concerns with the terms used by online lenders and reiterated its message that regulatory action will be taken where appropriate, if fintechs fail to comply. ASIC’s message comes as the US Senate’s banking committee raises similar questions in hearings on the fintech industry.
In light of ASIC's ongoing surveillance in this area, we recommend that all businesses, particularly those operating in the technology and financial sectors, review their standard form contracts.
Authors: Darren Pereira & Olivia Pasternak
Darren Pereira, Partner
T: +61 2 8083 0487
Dan Pearce, Partner
T: +61 3 9321 9840
Trent Taylor, Partner
T: +61 7 3135 0668
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Published by Darren Pereira, Olivia Pasternak