The CEO of the Australian Bankers’ Association, Mr. David Bell, testified before the Senate Economics Committee yesterday, requesting an extension of time by one year, from January 2010 to January 2011, before initiation of the new laws regarding unfair contract terms and conditions. The reason given was to allow bankers additional time to review and amend their standard forms for security instruments and other financial products.

Mr. Bell also requested clarification of definitions utilised within the new laws, specifically the definition of “unfair.”

The standard forms stating terms and conditions that are utilised by banks are considered contracts under law. As clarity of terms is the basis of contract law, if words and phrases used within these forms are vague, then the law becomes unclear. This costs banks large amounts of money as the laws are tested within the courts or by regulators investigating possible infringements. Mr. Bell held up as an example the change in unfair contracts laws in Victoria, where a lack of clarity caused disruptions and high costs for businesses and banks as the laws were sorted out.

The Productivity Commission’s recommendation was that a bank’s terms and conditions would be considered unfair only if it caused material harm to the consumers involved. The ABA’s stance is that the law as currently written and slated to take effect in January 2010 do not state this clearly enough.

The extension of time until January 2011 would allow the banks to review and amend their many current forms and contracts to achieve compliance with the new laws. This is a considerable task and the ABA does not feel it can realistically be accomplished within the time frame currently allowed.

Making the task even more difficult, other changes in law are scheduled to take effect January 2011, dealing with consumer credit and personal property securities. These changes in regime also require contract review and amendation. The ABA holds that if all the regulatory changes were to take effect at the same time, it would allow greater efficiency during the process, reducing costs at a time when banking profits have been hit hard by the global financial crisis.

Source: Bankers :  Banking sector needs new start date for proposed unfair contract terms