The Bank of Queensland (AS:BOQ) share price will be on watch this morning after the bank's small business loans were found to be unjust.
The Federal Court made the finding against the bank's small business contracts yesterday. The issue was first flagged by the Australia Securities Investment Commission (ASIC).
The Bank of Queensland share price finished yesterday's session trading at $9.57.
Let's take a closer look at the Federal Court's ruling.
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Federal Court ruling
The Bank of Queensland share price is in the spotlight after the bank was ordered to replace loan contracts.
Bank of Queensland must now work with its small business customers to renegotiate contracts both parties believe to be fair.
The court found in favour of ASIC's claims Bank of Queensland's small business loans contravened Australian Consumer Law and the ASIC Act.
The Bank of Queensland didn't respond to The Motley Fool Australia's request for comment in time for publication.
The loans' contracts allowed the bank to change a loan's terms without notice and default loans without proper evidence.
Small business customers could also face penalties for leaving contracts because of newly implemented terms.
Additionally, customers couldn't address issues that led the bank to find they had defaulted on their loan.
The Bank of Queensland had also placed a clause in the contract stating whatever they believed the borrower owed was the true amount. If the bank erred, the borrower was responsible for proving their true debt.
Both ASIC and the court didn't claim the bank had used the unfair terms against any of its small business customers. However, the bank agreed the terms were likely to financially harm its customers.
The court found similar clauses within the bank's other small business customers' loan contracts. It ordered the Bank of Queensland to replace all instances of unfair terms with new, fair terms.
It isn't the first time an ASX-listed bank had been pulled up on its loan contracts. In 2010, the Federal Court found the Bendigo and Adelaide Bank Ltd (ASX: BEN) had used unfair clauses in its contracts for small business loans.
Bank of Queensland share price snapshot
The Bank of Queensland share price is performing well on the ASX.
It has gained 27% since this time last year. It is also 59% higher than it was this time last year.
The bank has a market capitalisation of around $6.1 billion, with approximately 639 million shares outstanding.
