Prospa was scheduled to start trading on the Australian Securities Exchange (ASX) at midday on Wednesday (6 June), with a market capitalisation of $576 million after raising $146.5 million through its initial public offering.
However, minutes before listing, the lender revealed in a disclosure to the ASX that there would be a 48-hour delay so that it can “clarify queries raised by ASIC [on Tuesday] in relation to Prospa’s small business loan terms”.
The lender further noted that these questions are “in the context of an industry-wide review” into unfair small business loan terms.
Speaking to Mortgage Business on Wednesday (6 June), a spokesperson from ASIC said that the regulator had sent communications to a wide range of bank and non-bank lenders in April and May as part of its efforts to ensure the industry is compliant with amendments to the Australian Consumer Law, which extended consumer protections to small business loan contracts of up to $1 million.
The spokesperson noted that ASIC has been in contact with Prospa in recent days, along with other lenders, and clarified that there was no pressure on the regulator’s part to defer the listing on short notice.
Prospa acknowledged the amended legislation in its prospectus, dated 21 May 2018, stating that it had reviewed its loan contracts in July 2015 (prior to the amendments coming into effect) and in September 2017.
The prospectus says the lender has “appropriate programs in place to comply with a number of laws and regulations including the requirements of Anti-Money Laundering and Counter-Terrorism Financing Act 2006, Financial Sector Collection of Data Act 2001 and the Australian Consumer Law”.
“We will continue to review our loan contract as and when required in light of relevant case law and regulatory guides that may be issued,” the lender said in its prospectus.
The Unfair Contract Terms and Small Business Loans report released in March by ASIC outlined changes to be implemented by Australia’s major banks, following a joint investigation with the Australian Small Business and Family Enterprise Ombudsman that found that they “had not done enough” to bring small business loan contracts in compliance with the Australian Consumer Law.
As such, the changes that were required by the banks to be compliant with the law include:
- Entire agreement clauses:
- The removal of clauses that prevent lenders from being held contractually responsible for conduct, statements or representations made to SME borrowers outside the written contract.
- The removal of clauses that require borrowers to cover losses, costs and expenses incurred due to the fraud, negligence or wilful misconduct of the bank, its employees or agents or a receiver appointed by the bank.
- Event of default clauses:
- The removal of clauses that allow lenders to treat a loan as being in default because of any unspecified “material adverse change”.
- The banks have also considerably limited the specific events of default listed in the loan contract that could allow the bank to call a default.
- Financial indicator covenants: The limiting of some financial indicator covenants such as loan-to-valuation ratio in small business loans to trigger a default and enforcement of the loan.
- Unilateral variation clauses: The limiting of clauses that give lenders a broad ability to vary contracts without agreement from the small business borrower.
ASIC cautioned in March that it will continue to monitor the implementation of the reforms and investigate unfair contract terms issued by other banks and non-banks.
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Tas Bindi is the features editor on the mortgage titles and writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.