The requirement to disclose hidden charges is part of the conditions for fresh licensing of the digital mobile lenders by the Central Bank of Kenya (CBK).
President Uhuru Kenyatta in December signed into law the Central Bank Bill, 2021, bringing 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.
Mobile phone lenders will from September be required to disclose the total charges for their loans, including interest rates, late payment and rollover fees, before disbursing credit to customers.
The requirement to disclose hidden charges is part of the conditions for fresh licensing of the digital mobile lenders by the Central Bank of Kenya (CBK).
“We have been having issues with mobile lenders and I would like to announce that the law is there and it will streamline the industry. Arising issues of overpricing, misuse of customers’ data will be taken care of in the new law with which they have to comply by August 2022,” CBK Governor Patrick Njoroge said on Tuesday.
“In this new law, consumers will benefit and it will bring sanity. We are sure CBK will set minimum charges which will lower interests of the credit service offered.”
Most Kenyans are not aware of their rights and do not read the terms of the loans when signing up for credit.
This leaves them vulnerable to being saddled with costly interest rates that rise up to 520 percent when annualised, triggering mounting defaults.
President Uhuru Kenyatta in December signed into law the Central Bank Bill, 2021, bringing 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 while pursuing 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 requires the digital lenders to comply with its rules within six months of CBK publishing regulations to guide its implementation.
The CBK is yet to gazette the regulations.
Failure to reveal interest charges, late payment and rollover fees has been cited as a major problem bedevilling customers who turn to digital loans due to their ease of access given that they do not require collateral.
“An applicant shall provide the terms and conditions applicable to the digital credit and which must be accepted by the borrower before activation of a mobile loan account,” says the new law.
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 law.
The Consumer Protection Act requires sellers to disclose to consumers all relevant information tied to the purchase of a good or service.
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.
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 driven many into the debt trap.
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 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 purpose.
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.
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.
