Win for borrowers as CBK ties noose on unregulated lenders
Borrowers are currently required to clear their outstanding loans and also typically pay Sh2,200 for clearance from the CRBs before being given a clean bill of health to borrow.
What you need to know:
- Digital lenders will be required to notify customers at least a month earlier before listing them as defaulters.
- The CBK aims to bar the lenders from making unauthorized calls and messages to the contacts of borrowers.
Mobile lenders will now have to seek your consent before they forward your information to be listed on Credit Reference Bureaus (CRBs) in new regulations by the Central Bank of Kenya (CBK) meant to finally put the unregulated lenders in check.
This after the amendments in the Central Bank of Kenya (Amendment) Act, 2021 that bring unregulated digital lenders under the supervision of the CBK came into effect on Thursday.
President Uhuru Kenyatta assented to the amendment early this month in a significant win for borrowers as the CBK has now been given powers to license and oversight digital lenders that have proliferated in the country in recent years introducing an unprecedented wave of predatory lending.
The CBK has issued draft Digital Credit Providers Regulations that provide frameworks for licensing, governance and operations of the digital lenders as well as consumer protection and credit information sharing in line with the amendment.
Should the regulations be approved, digital lenders will have to seek the consent of defaulters before they are listed on CRBs.
Millions of Kenyans are listed on the three major licensed CRBs – TransUnion, Metropol and CreditInfo - for defaulting on amounts as little as Sh200 locking them from accessing loans from other lenders.
Borrowers are currently required to clear their outstanding loans and also typically pay Sh2,200 for clearance from the CRBs before being given a clean bill of health to borrow.
Now, digital lenders will be required to notify customers at least a month earlier before listing them as defaulters.
“A digital credit provider who furnishes negative information to a bureau with respect to a customer shall, in writing or through electronic means, notify the customer of the intention to submit the negative information at least thirty days before submitting the negative information to the bureau,” say the regulations.
“A digital credit provider shall ensure that the customer’s consent is obtained before the submission or sharing of credit information with a credit reference bureau,” they say.
They will also be required to inform defaulters that they have been blacklisted to avert the current situation where defaulters typically realise they have been negatively listed when they are seeking a new loan.
But borrowers have been handed a further boost with the regulations limiting digital lenders from listing defaulters on low-value loans of less than Sh1,000 on CRBs.
This sets the stage for exit of millions of defaulters negatively listed on CRBs for defaulting on low-value loans.
“A digital credit provider shall not submit to any credit reference bureau any negative credit information of a customer or any other person where the amount related to the credit information does not exceed Sh1,000,” say the regulations.
But one of the biggest wins for borrowers is the limitation of the amount of interest that lenders can charge on loans.
Thousands of Kenyans have fallen foul of exorbitant interest rates and penalties slapped on loans by the unregulated digital lenders often ending up paying multiple times the principal amount they received.
Now, the CBK has limited interest and penalties payable to not exceed the principal loan amount.
However, lenders will be allowed to add on the costs they incurred to recover loans from defaulters.
“A digital credit provider shall be limited in what it may recover from a customer with respect to a non-performing loan the principal owing when the loan becomes non-performing…interest, in accordance with the contract between the customer and the digital credit provider, not exceeding the and expenses incurred in the recovery of any amounts owed by the customer,” the regulations read.
The CBK has also put a limit on the extent to which digital lenders go to recover loans from borrowers which has caused millions of borrowers untold anguish and embarrassment.
The lenders have become notorious for bombarding calls and messages to a borrower’s contact list as well as use of threats in pursuit of recovery of loans.
The CBK now aims to bar the lenders from making unauthorized calls and messages to the contacts of borrowers.
“A digital credit provider, its officers, employees or agents shall not in the course of debt collection engage in use of threat, or violence or other criminal means to physically harm the person, or his reputation or property, obscene or profane language…make unauthorized or unsolicited calls or messages to a customer’s contacts,” say the regulations.
