Coalition policy on small business creates lending

uncertainty for banks

Sydney, 8 July 2010: The Australian Bankers’ Association (ABA) said the Coalition’s proposal to extend unfair contracts terms protections to small businesses could increase the risks banks face when lending to small businesses and could therefore be counter-productive.

The ABA was responding to the Coalition’s policy¹ announcement on small business outlined in a joint media release from Opposition Leader, Tony Abbott, and the Shadow Minister for Small Business, Bruce Billson.

Steven Münchenberg, Chief Executive of the ABA, said: “The proposal from the Coalition looks superficially attractive but could end up harming the very small businesses which it’s seeking to protect.”

“A fundamental principle of contract law is certainty of contract. This principle is an essential element of all commercial transactions because it allows the parties to adequately allocate and price risk.”

“The proposal affects business standard form contracts which form the base of banks’ contractual arrangements to ensure certainty of compliance with laws affecting banks and management of risk, especially credit risk. It could result in increased risk for banks and higher costs for businesses.”

“This proposal for further regulation, which creates uncertainty, would need to be taken into account when banks consider lending to small businesses and could end up impacting on credit availability to the sector.”

The Coalition’s policy would also put Australia out of step with approaches in other countries and does not assist with the goal of making Australia a financial services centre in the Asian region.

The Government made the decision to exempt business-to-business transactions from laws banning unfair contract terms in the national consumer laws.

For further information: 

Heather Wellard, ABA PR
Phone: 02 8298 0411
Mobile: 0409 830 439
 
ENDS

[1] Joint press release “A Fair Go for Small Business” by the Hon. Tony Abbott MHR, Leader of the Opposition; The Hon. Bruce Billson MHR, Shadow Minister for Small Business, Deregulation, Competition Policy and Sustainable Cities.