Borrowers have been handed a lifeline from unregulated interest rates after the National Assembly, on Tuesday, formally petitioned to amend the Consumer Protection Act Cap 501.
Specifically, Parliament was petitioned to enshrine a legal provision called the in duplum rule, designed to shield borrowers from excessive interest charges on loans.
The in duplum rule is currently provided for under Section 44A of the Banking Act and states that once a loan becomes non-performing, the interest charged should not exceed the outstanding principal amount.
However, in practice, lenders have continued to subject borrowers to mounting interests, penalties and other charges which exceed what they initially borrowed.
Wetan'gula informed the House of the petition, confirming it had been committed to the Public Petitions Committee for review. The petition was initially brought forth by one Allen Waiaki Kishore, a Senior Counsel.
In his petition, Kishore argued that despite the in duplum rule being part of the Banking Act, it did not have sufficient clarity, thus making enforcement a challenge. This, in turn, resulted in continued exploitation of borrowers by banks, digital lenders and microfinance institutions.
“The purpose of the rule is to protect borrowers from exploitation, prevent endless accumulation of interest, and encourage fair lending practices,” the petition reads.
Further, concern was raised over constant pestering by debt collectors, inconsistent judicial interpretations regarding when rules should apply and confusion over whether penalties and default charges should be considered as part of the "interest".
In the petition, the senior counsel also noted that many lenders, particularly those from microfinance outfits, deliberately flouted the provisions of the law by taking advantage of the ignorance of some borrowers.
Wetang'ula informed MPs that the petition primarily requested a clear legal framework which specified when the in duplum rule takes effect and whether it covers penalties and fees.
The petition also sought to know how debt restructuring and recovery should comply with this rule.
Further, the petition also called for the establishment of redress mechanisms to offer refunds or settlements to borrowers who have been unlawfully overcharged.
Finally, there was a proposal that amendments to the law be done with transparency, accountability and social justice in line with Article 10 of the constitution, which outlines the national values and principles of governance.
Wetang'ula affirmed that since the matter was not before any court or constitutional body, it was admissible under parliamentary procedures.
