Beneficiaries of the Higher Education Loans Board (HELB) loan who defaulted on repayments can now sigh with relief after the High Court in Nairobi termed the interest rates charged as illegal.
According to the full ruling seen by Kenyans.co.ke and which was delivered on Friday, August 19, the Board is not entitled to recover interest exceeding double the amount advanced.
"A declaration hereby issues that the respondent is not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the in duplum rule," read the ruling in part.
Benjamin Njeru, the lawyer who handled the case on behalf of three petitioners, explained to Kenyans.co.ke that the rule meant that if a beneficiary borrows Ksh100,000 from HELB, they are only entitled to repay a maximum of Ksh200,000.
"That is the judgement of Friday. It simply means if you borrowed Ksh100,000, you are supposed to pay back the Ksh100,000 but then there are issues of interest because it is a loan and there is a fine they impose of Ksh5,000 per month.
"In the event that you stop paying and this loan becomes non-performing and the interest surpass Ksh100,000. The law just caps the interest and fines at Ksh100,000 so you will never pay anything over Ksh200,000," he explained.
The three defaulters, Anne Mugure, Davis Nguthu and Wangui Wachira filed a suit challenging the exorbitant interest rate in March 2021 after the board threatened to publish their images in newspapers to compel them to settle the loans.
In their petition, the three decried that the board contravened the duplum rule and awarded all defaulters a monthly fine of Ksh5,000 whenever they failed to remit their payments. This, in turn, multiplied the interest rate to more that double the principal amount.
The duplum rule is to the effect that interest ceases to accumulate upon any amount of loan owing once the accrued interest equals the amount of loan advanced.
Mugure who received Ksh82,980 in July 2004, saw her defaulted loan balloon to Ksh540,464 in 2016 while Nguthu, who got Ksh146,090 in July 2016, saw her loan shoot to Ksh335,207 as of March 2021.
For Wachira, the Ksh135,000 borrowed rose to Ksh336,573 by February 2021.
"The petitioners contended that the respondent had violated the Constitution and the law. That the charging of interest, fees and penalties had increased the debt to more than double the principal," read the petition in part.
In defense, HELB argued that the three petitioners had defaulted in their payments at some point in their careers and failed to notify the board leading to the exorbitant monthly fines.
Rachel Kipkech, who swore an affidavit on behalf of the board, argued that the interest rates were imposed in line with the law which provides for loan repayment within one year of completion of studies and a fine of not less than Ksh 5,000 on each unpaid loan deduction.
The board had also argued that the duplum rule was only applicable in the banking sector noting Helb was not operating as a bank.
The court, however, declared that by imposing interest amounts and penalties or fines that exceed the principal amount, HELB was in contravention of the Kenyan Constitution.