The Australian Securities & Investments Commission (ASIC) has warned insurers to review the terms of their contracts for fairness, following a recent court decision that declared that the Bank of Queensland (BOQ) had used unfair terms in its contracts with customers.
In its decision, the Federal Court said BOQ used unfair terms in its standard form loan contracts with small business customers – including the addition of unilateral variation clauses which allowed the lender to vary the terms and conditions of their contracts without giving borrowers advance notice or an opportunity to exit the contract without penalty.
The court voided the contracts and ordered BOQ to replace the unfair terms with new, fair terms agreed by the parties.
ASIC commissioner Sean Hughes said in a statement that the decision was a timely reminder for insurers to review their own contracts, following government reforms extending unfair contract term protections to consumer and small business insurance contracts from April 05, 2021.
The decision also comes on the heels of an announcement by the Australian Prudential Regulation Authority (APRA), which is looking to review the risk management frameworks of the country’s insurers.
“Now that unfair contract term protections apply to insurance contracts for consumers and small business, we expect all insurers to have reviewed all standard form contracts for fairness,” said Hughes.
