Bankers lobby on the defensive over illegal charges accusations

The bankers’ lobby has defended its members against mounting accusations that they are loading illegal charges on customers to cushion themselves against the recent law capping the cost of loans.

The Kenya Bankers Association (KBA) said that the charges that borrowers are complaining about have been in force and that some may not have known about them due to a “lack of customer awareness.”

The association, which represents 45 banks, claims its members have complied with the new law.

“We have aligned our members to ensure there is compliance,” said KBA chief executive officer Habil Olaka in an interview Wednesday.

“If a bank has not got approval from the central bank for a new charge, then the charge does not stand. However, if the charge has been there and it has been approved by the central bank and only that the customer has not been made aware and now he has been made aware then that charge is legal.”

Borrowers who had hoped that their monthly loan repayments would drop with the cap in interest rates have complained that their banks have introduced new charges that have left their instalments unchanged.

The Central Bank of Kenya (CBK) on Monday ordered banks to reverse any new charges without regulatory approval.

READ: Banks ordered to stop charging borrowers new transaction fees

CBK director in charge of Bank Supervision Gerald Nyaoma said in the Monday statement that the regulator had received mounting complaints over new arbitrary charges since the Banking (Amendment) Act 2016 came into force on September 14, nullifying any gains from the new to customers.

“The CBK has received a number of complaints from bank customers stating that their banks have imposed arbitrary charges or unilaterally converted their savings accounts into transactional accounts, and thereby losing the benefits that were accruing from their savings accounts,” Mr Nyaoma said in the circular to chief executives of commercial banks and mortgage finance companies.

Mr Nyaoma warned banks and institutions that violate the new law would face harsh sanctions, including hefty fines and even loss of bank licences.

But Mr Olaka, speaking on the sidelines of the inaugural sustainable finance awards ceremony in Nairobi, attributed the complaints to a possible misunderstanding of the charges among the borrowers.

“What may have happened is the fact that now when most products are on the spotlight when a bank clarifies to the customer... a customer feels that that’s a new charge that has come in. They are not new charges,” he said.

The World Bank had in a previous research argued that the interest rate caps need to be accompanied by regulation of fees and charges.

Kikuyu MP Kimani Ichung’wa said last month the National Assembly will consider further amendments to the Banking Act to close the loopholes.