Alert

Who does this affect?

All financial services providers using standard form (non-negotiated) contracts in Australia.

What do you need to do?

Identify and review your standard form consumer contracts and identify terms that may be 'unfair'. Determine if and how they can be amended to comply with the new regime by the proposed 1 January 2010 commencement date.

Authors
Jim Boynton  
Partner

Michael Hung  
Solicitor

---

Jim Boynton  
Partner
T +61 2 9296 2086

---

Sydney
Jim Boynton  
Martin James  
Michelle Levy  
Mark McFarlane  
Damien Richard  
Philip Ward  

Melbourne
Amanda Bodger  
Caroline Coops  
Katherine Forrest  
John Malon  

Perth
Nicholas Creed  

Brisbane
Aaron Bourke  

Canberra
Stephen Jaggers  

---

Financial services providers will be regulated under a proposed national unfair contracts regime (“regime”) from 1 January 2010. The regime will apply to new contracts entered into after 31 December 2009, and also affect contracts that are varied after that date (but only to the extent of the variation). The first step will be to identify the affected products and services.

What’s in?

The proposed regime will cover business-to-consumer ‘standard-form’ contracts that are financial products or for the supply of financial services. This include contracts for:

• bank deposits

• banking services

• lending products, including related guarantee and security documents

• non-cash payment facilities

• margin lending facilities

• wrap accounts

• managed discretionary account services

• custody services

• brokerage services

• contracts for difference

• options

• futures

• warrants, and

• deferred purchase agreements.

Terms and conditions associated with financial products and services are also covered, eg a direct debit authorisation or terms for fax, email or internet use.

There are some limited exceptions in the current bill before Parliament.

What’s out?

The proposed regime will not apply:

• (non-individuals) - if none of the parties to the contract is an individual (ie natural person)

• (not acquiring for personal use) - to a contract that is not for the acquisition of a financial service or product “wholly or predominantly for personal, domestic or household use or consumption” (we expect that this exception will have limited application for financial products and services provided to individuals)

• (non-contractual products) - if there is no contract concerned (eg, where the legal relationship that constitutes the product is purely trust-based such as an interest in a typical superannuation fund)

• (constitutions) - to a contract that is a constitution of a company, managed investment scheme or other kind of body, or

• (insurance contracts) - to a contract of insurance covered by the Insurance Contracts Act.

Even if the proposed regime does not apply to a particular product, it still might apply to a contract for the supply of financial services in relation to that product (eg financial planning terms or share purchase or buyback terms).

An ‘unfair’ term in a regulated contract is void and ASIC has a wide range of enforcement powers.

Click here to see our general alert about the proposed regime which sets out further detail about its operation.