The move by the Central Bank of Kenya (CBK) to hire a consultant to spy on commercial banks and microfinance lenders over consumer breaches such as hidden charges, false advertising, reckless lending, and bribery is welcome.
But it must be followed up with stern action. Banks have been getting away with consumer violations while making billions of shillings from arbitrary increases in charges and interest on loans as well as numerous fees hidden in fine print.
Previous red flags on hidden costs raised in Financial Sector Deepening (FSD) Kenya surveys have not elicited any punishment from the banking regulator.
The failure to punish bankers for consumer rights violations has led to entrenched bad behaviour among them to the detriment of their consumers.
Findings of a two-year study by the UK-funded NGO FSD Kenya showed that bank pricing data was difficult to obtain and that market information was still opaque. Although banks are required by the CBK to publish “tariff guides” with all their fees and charges, the FSD study found that many were either outdated, incomplete or lacking account-specific information.
Some data was difficult to obtain and validate, even from different branches of the same bank. The guidelines on consumer protection bar banks from engaging in unfair or deceptive practices such as false advertising or humiliating a consumer.
They require 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 institutions are restricted from reckless lending and are required to follow up to ensure borrowers have used the funds for the intended purposes. We hope the CBK's snooping will be followed up with tough sanctions for banks found to have breached the consumer protection guidelines.
The law provides for the regulator to hit banks in breach with withdrawal of licences, directors’ ousters, and a Sh5 million fine while workers in violation face a Sh200,000 penalty.
It is only with severe action that banks will be forced to change their practices.
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