The Central Bank of Kenya (CBK) is seeking a consultant to spy on commercial banks and microfinance lenders in an effort to reveal consumer breaches such as hidden charges, false advertising, reckless lending, and bribery.
The consultant will be expected to conduct covert operations in the banking hall while posing as a customer in search of practices that breach the CBK guidelines on consumer protection.
Banks that break the rules risk withdrawal of licenses, directors’ ousters, and a Sh5 million fine while workers in violation face a Sh200,000 penalty.
“The survey intends…to carry out a mystery shopping survey to confirm banks’ compliance with consumer protection guidelines. The consultancy will be limited to a period of three months from the date of commencement,” says CBK.
“(The consultant will) carry out mystery shopping visits in various institutions licensed under the Banking Act.”
Mystery shopping is an activity of pretending to be a customer while being hired by a third party to check a firm’s products or services.
The CBK checks are aimed at offering greater protection to bank customers, who have been suffering from arbitrary increases in charges and interest on loans as well as numerous fees hidden in fine print.
The guidelines on consumer protection bar banks from engaging in unfair or deceptive practices such as false advertising or humiliating a consumer.
It demands banks to provide full disclosure of their fees and interest rates and display the cost of their service prominently at branches, product promotions, and websites.
The lenders are restricted from reckless lending and are required to follow up on borrowers and ensure they have used borrowed funds for the intended purposes.
The rules, now backed by a data protection law, sets out restrictions on how personally identifiable data obtained by the banks must be handled, stored, and shared.
CBK places security responsibility on banks amid the unprecedented wave of online bank fraud, mainly through scams.
The banks are obligated to advise consumers on how to protect their accounts, cheque books, bank cards, PINs or other documents any information on the accounts.
“An institution shall provide consumers with a dedicated telephone line(s) to enable consumers to report a lost or stolen card, cheque book or passbook or a suspect transaction,” says CBK.
Despite a push by the regulator to infuse transparency in the banking sector pricing, past studies by the Financial Sector Deepening (FSD) Kenya have raised a red flag over hidden costs charged to unsuspecting consumers.
The report found that banks are filing disclosures that fail to fully respect the tariff situation.
“Although banks are required by the Central Bank of Kenya (CBK) to publish “tariff guides” with all their fees and charges, the FSD study found that many were either outdated, incomplete or lacking account-specific information,” said FSD in the study whose findings put the regulator on the spot for failing to protect consumers.
“Despite visiting over 30 bank branches and consulting tariff guides, customer care representatives, bank websites, enquiring from colleagues and friends, over several weeks in 2015 and 2016, we still could not get consistent pricing information,” says FSD in the study.
The report outlines the findings of a two-year study by FSD Kenya, a UK-funded NGO, to understand the costs of banking services in Kenya.
It says two rounds of mystery shopping surveys were completed in October and November of 2015 and 2016 to build a database and measure the costs for basic bundles of transactions such as opening, running and closing bank accounts.
While conducting the study, however, the report says it became clear that bank pricing data is difficult to obtain and that market information is still opaque.
To collect data, researchers visited multiple bank branches posing as customers, as well as customer service call-lines and web searches to collate data.
The researchers said some data was difficult to obtain and validate, even from different branches of the same bank.
Now, CBK is seeking to conduct its own fresh mystery shopping exercise. Last year, it flagged nine unnamed banks for non-compliance with various prudential guidelines and rules, compared with 13 in 2020.