Mobile loan rates now under CBK control

President Uhuru Kenyatta signs Bills

President Uhuru Kenyatta signs parliamentary Bills into law at State House, Nairobi on December 7, 2021. PHOTO | PSCU 

The Central Bank of Kenya (CBK) will start controlling the interest rates of mobile digital loans and ban lenders who share personal data of defaulters under a new law that seeks to protect Kenyan borrowers from predatory lending.

President Uhuru Kenyatta on Tuesday signed into law the Central Bank Bill, 2021 in legal changes that bring digital lenders under the watch of the banking regulator for the first time.

The CBK Act, 2021 will see the lenders seek approval of the central bank for the pricing of their loans and products, subjecting them to the same rules as commercial banks.

The new law also grants the banking regulator powers to revoke the permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers.

It aims to stop a trend where some lenders resort to “debt shaming” tactics to recover loans.

There have been reports of debt collection agents pursuing borrowers by informing their friends and family using contact information scraped from their phones or by threatening to tell their employers.

The law also comes amid growing concerns over predatory lending by the mobile loan providers, with borrowers not getting full access to information on pricing, punishment for defaults and recovery of unpaid loans.

“The amended Central Bank Act, 2021, gives the Central Bank of Kenya powers to license digital lenders in the country as well as ensure the existence of fair and non-discriminatory practices in the credit market,” said a statement from State House on Tuesday afternoon.

Digital lenders will now set interest rates for their loans within parameters approved by the CBK in an effort to protect borrowers against predatory lending that has thrown many into debt traps.

The firms have in recent years flooded the local market, attracted by demand for quick credit that does not require collateral. Borrowers get loans within minutes via their mobile phones, making digital loans a quick fix for daily bills.

The CBK says that borrowers tapping the digital loans from the unregulated lenders grew to more than two million two years ago from an estimated 200,000 in 2016, highlighting their popularity.

The proliferation of lenders has, however, saddled borrowers with high interest rates that rise up to 520 percent per year, leading to mounting defaults and an ever-growing number of defaulters.

“The bank may suspend or revoke a licence by written notice to the holder of the licence if the licensee (digital lender) is in breach of subsection (2A) or the conditions of the Data Protection Act or the Consumer Protection Act,” says the new Act.

The Data Protection Act bars sharing of data with third parties without consent and gives individuals the right to be told when their data is being shared and for what purposes.

Borrowers share personal information, including their professions and monthly earnings, when registering with digital lenders.

But besides the pursuit of unpaid loans, digital lenders share personal information with data analysing firms and for marketing.

The CBK has previously raised concerns about the abuse of the personal data of borrowers and called on lawmakers to fast-track legislation to provide for the regulation of digital lenders.

Lobbies that had petitioned Parliament during the review of the Bill also said that loan applications are private affairs that should be treated as confidential information.

The Data Protection Act further compels firms to disclose to individuals and customers the reasons for collecting their data and ensure that the confidential information is safe from infringement by unauthorised parties.

The CBK will also have powers to revoke or suspend the licences of digital lenders who do not disclose full information on loan facilities to borrowers, in line with the Consumer Protection Act.

The Consumer Protection Act requires sellers to disclose to consumers all relevant information tied to the purchase of a good or service.

New laws

The President also assented to the Public Private Partnerships Bill, which repeals the 2013 legislation by providing an elaborate legal framework to cover both national and county level PPP projects.

Further, the new law expands the role of the private sector in PPP initiatives beyond financing to include construction, operation and maintenance of the projects.

Also signed into law was the Trustees (Perpetual Succession) (Amendment) Bill, which simplifies the registration of trusts by, among other reforms, shifting the administration of the process to the new office of the principal registrar of documents.

*Story updated.

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