Bankers seek key court ruling on loan charges in class action suit

Commercial banks have asked the High Court to rule on whether they have been levying illegal charges on borrowers over the years, in a pivotal ruling that could determine the direction of two class action suits filed against the lenders.

The Kenya Bankers Association (KBA) wants the court to examine all evidence provided by an Equity Bank depositor who has filed a second class action suit against the lenders and determine whether lenders have been increasing charges without approval from the finance minister as provided for by law.

Godfrey Okutoyi, in a suit filed on behalf of all bank account holders, wants the court to appoint independent experts to determine how much each customer should be compensated for the alleged illegal charges they have been slapped with by the banks over the years.

But KBA’s chief executive Habil Olaka says that Mr Okutoyi’s petition does not specify which provision of the Constitution on consumer rights the banks have allegedly flouted. He also argues that revealing account information to the said independent experts will be a violation of customers’ rights to privacy.

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“There is no identification of which provision of Article 46 of the Constitution (consumer rights). The ruling of Justice Francis Gikonyo …My approach would therefore be to make a finding of fact and law based on careful analysis of evidence that will be provided in this case on whether banks have been levying illegal charges in Kenya rather than to treat this as a violation of the Constitution,” Mr Olaka says.

Minister's approval

The KBA is in a separate case battling a class action suit filed by businesswoman Rose Florence Wanjiru in 2003 that also accuses the lenders of levying charges on customer accounts without prior approval from the Finance Minister.

Section 44 of the Banking Act compels banks to seek the Finance minister’s approval before increasing lending rates.

Ms Wanjiru’s suit is before the High Court following a failed bid by lenders to have the Supreme Court dismiss her case. Justice Francis Gikonyo last August allowed 191 account holders to join Ms Wanjiru’s suit. Mr Okutoyi has also challenged banks’ move to increase interest rates without the Treasury’s approval.

But the KBA insists that section 44 of the Banking Act only relates to banking charges and fees and not to lending rates. The lobby also holds that Mr Okutoyi has not given any evidence that banks have increased charges.

The lobby also holds that Mr Olaka cannot be sued on behalf of all banks.
Mr Okutoyi, who is an Equity Bank customer, argues that commercial banks have the best lawyers and external auditors to advise clients on the risks involved in flouting banking laws.

He also faults the CBK for negligence, arguing that the regulator has failed to take action against institutions violating banking laws.

“The CBK has failed to supervise KBA’s members in their continued arbitrary deprivation of customers’ property. It would be in the interest of justice if all the illegally levied rates of banking and other charges were ordered to be clawed back to respective customers’ accounts,” Mr Okutoyi says.

Justice Isaac Lenaola will mention Mr Okutoyi’s suit on April 27.