Companies

Jamii Bora ordered to follow rules on payment of interest

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Jamii Bora Bank branch in Nakuru. FILE PHOTO | NMG

A court has directed Jamii Bora Bank to comply with banking guidelines in calculating interest of a loan it advanced to a regional vehicle leasing company in May 2015.

Justice Onesmus Makau ordered the lender, which loaned Sh600 million to Vehicle and Equipment Leasing Limited (Vaell), to come up with the right figure that is based on Banking Act.

The tier-3 lender admitted that it had overcharged Vaell the interest rate by Sh8 million and acted contrary to their contractual agreement.

“Should the court shut its eyes on such a matter and let the bank continue benefiting from a ruling that was obtained through misleading the court and unjustly?” the judge asked.

He ruled that “as long as Section 33B of the Banking Act is in force and there is in existence a credit facility, a bank is obligated to observe the provisions of the law as to statutory rates of interest.”

In directing the bank to follow the law, the judge noted that the lender had concealed material facts and misled the court to believe the interest rate charged was pre-determined and pre-charged.

The court had earlier directed the firm to repay the loan but it filed a fresh application for review of those orders, saying the bank did not furnish it with a full statement of its account regarding the interest charged and the amount owing.

When the company was supplied with the statement, it then discovered that the interest rate charged was above the banking rule cap.

The led to Justice Makau to order the bank to calculate fresh interest of the amounts owed as per Section 33B.

In his ruling after hearing both parties, the judge said Vaell discovered after reading its statement that the “bank was charging interest at its sole discretion and that it was also charging interest on the facilities at different discretionary rates, some as high as 28 per cent.”

It emerged that the bank had slapped Vaell an interest of 25 per cent against the Central Bank of Kenya’s 14 per cent interest cap.

The company, through lawyer Stella Muraguri, had prayed that the bank be compelled to return motor vehicles it had taken away in the exercise of statutory powers to recover its monies after a default on loan repayment.

Vaell said it defaulted on repayment due to different charges on interest rate thus compelling it to move to court to fight for its rights.