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ASIC is suing Bank of Queensland and Bendigo and Adelaide Bank for unfair contract terms

The Bank of Queensland Limited (ASX: BOQ) share price has come under pressure on Wednesday and is trading lower in morning trade.

At the time of writing the regional bank’s shares are down 1.5% to $8.92.

Why is the Bank of Queensland share price under pressure?

As well as general market weakness, investors have been hitting the sell button today after the Australian Securities and Investments Commission (ASIC) commenced proceedings against it in the Federal Court of Australia.

According to the regulator’s media release, it alleges that certain terms used by Bank of Queensland in contracts with small businesses are unfair. If the court agrees with ASIC, the specific terms will be void and unenforceable by the Bank of Queensland in these contracts.

It believes certain terms cause a significant imbalance in the parties’ rights and obligations under the contract, were not reasonably necessary to protect the Bank of Queensland’s legitimate interests, and would cause detriment to the small businesses if the terms were relied on.

Bank of Queensland response.

The regional bank was quick to respond to the allegations and revealed that it has taken immediate action to address the vast majority of ASIC’s concerns.

It also reiterated that it takes compliance with its legal and regulatory obligations seriously and has proactively commenced a review of all small business lending contracts entered into from November 2016.

If the bank identifies any small business customers who have been adversely affected, it will compensate them accordingly.

However, although the review is ongoing, management believes that the potential total compensation will be limited and should not impact its financial performance in any material way.

Bendigo and Adelaide Bank.

In addition to Bank of Queensland, ASIC has served fellow regional bank Bendigo and Adelaide Bank Ltd (ASX: BEN) with court proceedings for the application of the unfair contract terms. These proceedings relate to a version of its small business loan contracts under each of its Delphi Bank and Rural Bank brands in place between 2016 and June 2019.

The bank advised that it is cooperating with the regulator with a view to reaching a mutually agreed outcome. Its shares are trading over 1% lower this morning.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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