1,238 borrowers join interest rates battle against banks
The Standard Chartered Bank, which was originally the target of the class action suit over interest rates, has so far not made any provisions for the case in its financial statements. PHOTO | FILE
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Lawyers representing Rose Florence Wanjiru, the woman who initially went to court in 2003 challenging the legality of bank interest rates, said the advertisement they posted on local newspapers at the beginning of July had attracted 1,238 applicants.
Borrowers had 45 days beginning July to register for inclusion in the suit whose hearing is expected to begin in the last quarter of the year.
The Consumer Federation of Kenya said it was seeking to be enjoined in the case having received requests from individuals to represent them.
More than 1,200 past borrowers have joined the long-running suit challenging the legality of interest rates that commercial banks charged without the authority of Finance minister — setting the stage for an epic court battle in the coming months.
Lawyers representing Rose Florence Wanjiru, the woman who initially went to court in 2003 challenging the legality of bank interest rates, said the advertisement they posted on local newspapers at the beginning of July had attracted 1,238 applicants.
Borrowers had 45 days beginning July to register for inclusion in the suit whose hearing is expected to begin in the last quarter of the year.
Ms Wanjiru’s suit was initially filed against Standard Chartered Bank but the court’s directive allowing other aggrieved borrowers to join in opens the possibility that the local subsidiary of the UK bank will not be a lone respondent when the hearing of the case begins.
The litigants are seeking a refund of all money that the lenders levied without the approval of the Finance minister as provided for by the Banking Act of 1989.
The law provides that “no institution shall increase its rate of banking or other charges except with the prior approval of the minister”.
Ms Wanjiru initially filed the case in 2003 challenging the legality of interest rates charged over a span of 25 years and in early July sought to have other affected borrowers enjoined in the suit.
The Business Daily was unable to establish the total amount of money that the litigants will be seeking from banks but the high interest rate regime that has dominated the Kenyan loans market and the long period of time they were charged means the lenders would be facing a multi-million-shilling suit.
But that is not all. Any court decision in favour of the litigants would set a precedent that could see thousands of other aggrieved borrowers seek redress over the high cost of past loans.
The Business Daily Monday learned that Ms Wanjiru’s charged every applicant seeking to be joined in the suit Sh1,160.
“We filed our application on Friday but we are yet to get dates to progress,” said Samuel Gichuki, Ms Wanjiru’s lawyer.
Lawyers for the applicants said they had received complaints on the longevity of some loans that the borrowers had serviced for years but were still under pressure from the lenders who have even issued notices of intention to auction property used to secure the loans.
The Consumer Federation of Kenya (Cofek) said it was seeking to be enjoined in the case having received requests from individuals to represent them.
“We are in the process of being enjoined and hope to do this by end of the week,” said Stephen Mutoro, the Cofek chief executive.
Mr Mutoro said there was a large number of consumers who did not want to be enjoined in Ms Wanjiru’s suit for fear of being asked to pay exorbitant legal fees.
Ms Wanjiru is demanding, among other things, that banks produce evidence that they sought and obtained the minister’s permission to levy the interest rates charged.
The Kenya Bankers Association (KBA), the Central Bank of Kenya (CBK) and Standard Chartered Bank, who are the respondents in the case, had opposed the public invitation.
Ms Wanjiru accuses StanChart of failing to seek the minister’s approval to charge interest rates and the CBK of failing to regulate banks and allowing them to arbitrarily increase rates.
Ms Wanjiru’s lawyers, however, said that even those locked out could use any decision arising from the suit to file fresh suits.
Ms Wanjiru’s petition had earlier been dismissed on a technicality before being reinstated last October when the appeals court ruled that the High Court erred in its decision to dismiss it.
Stanchart has so far not made any provisions for the suit in its financial statements, underlining the directors’ confidence in its ability to win the court battle.
“Although there can be no assurances, the directors appear to believe, based on the information available and legal advice, that the claims can be successfully defended and therefore no provision has been made in the financial statements,” the bank’s annual report published this year says of the lender’s legal exposure.
The suit is even more defining in the fact that an order requiring banks to compensate the customers for illegal charges levied since 1989 would affect the financial results that commercial banks have declared for 25 years and ultimately the taxes charged on corporate profits.
Banks have previously received harsh criticism from the public for the pricing of their credit services that have helped them record high profits even during hard economic times.
Recently the central bank introduced a standard pricing formula for the industry in efforts to tame the interest rates.
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