By: Jim Bulling
Expanding both the scope of the UCT regime and regulator enforcement powers
On Wednesday 9 February 2022 a bill was introduced to Parliament which seeks to amend the Australian Consumer Law and the Australian Securities and Investments Commission Act (ASIC Act) to extend the Unfair Contract Terms Regime (UCT Regime).
Section 12BF of the ASIC Act currently prohibits unfair terms in standard form consumer and small business contracts as they relate to financial products and financial services.
Under the proposed changes, the UCT regime for small businesses under the ASIC Act will apply where the upfront price of the standard form contract (price threshold) does not exceed AU$5 million and one party to the contract is a business that either employs fewer than 100 people (employee threshold) or has an annual turnover of less than AU$10 million. These changes substantially expand the current law where the price threshold is AU$300,000 (or AU$1 million in a multiyear contract) and the employee threshold is 20 people. As such, the changes are likely to cause the UCT regime to apply to many more financial services business to business contracts.
The bill also seeks to increase ASIC’s enforcement strength as contravention of the UCT regime would allow ASIC to seek a penalty the higher of AU$11 million, three times the benefit of the conduct or 10% of a company’s turnover.
Financial services contracts exempt from the UCT regime
As part of the proposal, contracts exempt from the UCT regime under section 12BL of the ASIC Act will be extended to include:
- Insurance: contracts for the replacement and renewal of life insurance policies made on or after 5 April 2021. All other insurance contracts, except medical indemnity, will be included under the UCT regime.
- Payment and settlement systems: contracts that establish, contain or incorporate rules governing the operation of real-time gross settlement (RTGS) systems and multilateral netting arrangements.
- Licensed financial markets: contracts made under, or in existence because of, the operating rules of a licensed market or a licensed clearing and settlement facility; and contracts between operators of a licensed market and specified parties including entities included in the market’s official list.
Any UCT regime changes will apply 12 months after the bill receives royal assent and will apply to contracts made, varied, or renewed after that date.