The government has introduced a new rule aimed at shielding borrowers from expensive mobile loans in the latest regulations.
According to the Central Bank of Kenya, (CBK), mobile phone lenders will now be required to reveal all the hidden charges before approving loans.
The hidden charges they must disclose include interest rates, late repayment fees, rollover fees, and other fees introduced to defaulters.
According to CBK, this new rule will be pivotal in approving licenses of mobile phone lenders which will take effect from September 2022.
The new directive would see digital lenders operate the same way as commercial banks in remitting loans to borrowers. Their interests rates parameters would be determined by the CBK in an effort to protect borrowers against predatory lending that has driven many Kenyans into the debt holes.
Speaking on Tuesday, March 15, CBK Governor Dr. Patrick Njoroge, noted that the new rule would address cases of loan overpricing and even misuse of customers' data.
"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 stated.
He added, "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."
The new rules align with the Consumer Protection Act that requires sellers to disclose relevant information tied to the purchase of goods or acquisition of services.
CBK argued that most Kenyans acquiring digital loans are not aware of their rights, therefore, fall victim to overpriced credit limits. This leaves them vulnerable contributing to ever increasing cases of default, with millions of Kenyans already having nonperforming loans.
The new rule follows the signing of law the Central Bank Bill 2021 by President Uhuru Kenyatta that brought digital lenders under the watch of CBK, although after years of resistance.
The Bill gave CBK power to approve the pricing of loans and subjecting mobile lenders to the same rules as commercial banks.
The law grants the regulator powers to revoke permits of digital lenders who breach rules on confidentiality while pursuing defaulters.
The introduction of the punitive laws comes after Kenyans raised complaints on the unconventional ways used by lenders to pursue defaulters. In some instances, the lenders were accused of getting into borrowers phone books and calling random people to shame defaulters.
"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," the law stipulates.
