School director sues Co-op Bank for credit blacklist

A businessman has moved to court seeking Sh215.8 million compensation from Co-op Bank after the lender allegedly blacklisted him over a loan default without his knowledge.

In a suit filed at Milimani High Court, Obadhia Gitonga Micheu says Co-op Bank blacklisted him with the Credit Reference Bureau (CRB) for alleged default on a facility for which he was a guarantor, blocking his access to credit for seven years.

The suit raises pertinent questions on the liability of guarantors in the event of default. Kenyans routinely guarantee loans for each other, and sometimes clear arrears or have their assets attached after the borrowers default.

“The plaintiff avers that the listing is illegal, unlawful and malicious as he has never received any adverse notice from the defendant as required under the provisions of regulation 28 of Legal notice No 97, the Banking (Credit Reference Bureau) regulations, 2008 of Banking Act Cap 488,” says Mr Micheu in documents filed in court on Wednesday.

Mr Micheu argues that blacklisting him when he was just a guarantor infringed on his rights because he had not applied for any loan from Co-op Bank.

He says he guaranteed Chogoria Junior School, where he was a director, for the loan from Co-op Bank. He claims the bank later recovered the money by selling off the school land by private treaty.

He says he discovered that he has been blacklisted with the CRB by Co-op Bank, when he applied to KCB for a loan to upgrade his Chogoria College.

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The application was rejected causing him loss of millions of shillings in earnings.

“Listing the plaintiff to the Credit Reference Bureau yet he was merely a guarantor and had not applied for any loan from the defendant (is malicious and defamatory),” he adds.

Co-op Bank head of marketing and public relations Ngumo Kahiga told Business Daily on the phone that the company had not been served with the court papers.

The businessman wants Co-op Bank to pay him Sh215.8 million, being the estimated loss he incurred after other banks rejected his loan application for expansion of business because of the blacklisting.

Mr Micheu’s claim comes a year after a former MP lost a case in which he accused the CRB of inaccurate listing of his financial transaction details.

Mr Kennedy Odhiambo Nyagudi, the former Kisumu Town West MP, claimed that Barclays Bank of Kenya and KCB gave the information to the CRB without his knowledge, prompting other banks to deny him credit.

Following the adverse credit report, Mr Nyagudi said he had been denied credit by Equity Bank, Family Bank and Ecobank.

Justice David Majanja in his decision on March 2013, exonerated the banks of any wrongdoing, noting that they were complying with the law.

The judge further said that even if sharing of the information with the CRB were unconstitutional, the banks could not be held liable for any harm caused by a law or regulations that they did not participate in enacting.

But the judge declined to rule on the constitutionality of regulations in which the CRB is anchored because the State represented by the Attorney-General, organ or institution promulgating the regulations was not party to the proceedings.

The former legislator was told to pay the bank Sh30,000 as cost incurred by the two banks defending the suit.

Mr Micheu’s suit, however, introduces a separate issue altogether — that of guarantors being listed for defaults they were not directly accountable for.

Mr Micheu claims that in May 2008 he received a statutory notice from the bank, as a guarantor, indicating that the unpaid loan advanced to the school was in arrears for Sh1, 014,627.

He claims he negotiated with the bank as a director of the school and was allowed to sell one of the two parcels of land charged as security for the loan through private treaty to settle the outstanding arrears.

He says as part of the agreement the land was sold through the bank’s lawyer and the proceeds channelled towards settling the debt and the second title was discharged.

Mr Micheu argues the lender has never acknowledged the receipt of the cash or released the other title.

“The defendant bank has never given him as the director of Chogoria Junior School the bank statements in respect of the loan account despite several demands from the plaintiff contrary to the provisions of Banking Act,” he says in court documents.

He claims that in 2012, he applied for loan from KCB to expand his hotel in Chogoria which operated restaurant, outside catering, and KCB and Coop agency services.

The businesses, he says, earned a monthly profit of Sh73, 000. He was targeting Sh90, 000 monthly with the expansion.

Mr Micheu says KCB rejected his application on the grounds that he had been blacklisted, forcing him to abandon the hotel and agencies businesses for lack of capital.

He says in 2010, he established a college known as Chogoria College and in May 2012 entered into discussion with St Paul University to convert the college into a constituent campus.

The university, after inspection, asked him to renovate and upgrade the college. He again applied for a loan from KCB, which was denied.

“The plaintiff’s loan application was rejected on account of the CRB listing by the defendant citing indebtedness to the defendant bank amounting to Sh952,262, which amount the plaintiff had paid to the defendant bank and the loan fully discharged on November 17, 2008,” reads the documents filed in court.

He says he lost the opportunity to partner with the university, which could have earned him Sh30 million annually.

He claims the bank has failed to give an amended notice to the CRB. He wants the court to intervene so that he can access bank loans. Under the rule, a defaulter can only access new facilities seven years after being blacklisted.

The loss of reputation, he says, has forced him to resign from the directorship of Chogoria College, losing his right to a decent living.

He is seeking Sh210 million, being the foregone seven-year income from St Paul University and a further Sh5.88 million — the estimated earnings from his hotel and agency business that collapsed.

He further wants Co-op Bank compelled to recall his blacklisting with the CRB and ordered to release the second title they are holding.