Mobile lenders will unveil hidden fees from September

Capital markets

Mobile lenders will unveil hidden fees from September


Mobile phone lenders will be required from September to disclose the total amount of their loans. FILE PHOTO | NMG

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Summary

  • The requirement to disclose hidden charges is part of the conditions for a new license for digital mobile lenders by the Central Bank of Kenya (CBK).
  • President Uhuru Kenyatta signed into law the Central Bank Bill 2021 in December, bringing digital lenders under the supervision of the banking regulator for the first time.
  • The CBK Act of 2021 will see lenders seek central bank approval for the pricing of their loans and products, subjecting them to the same rules as commercial banks.

Cellphone lenders will be required from September to disclose the total charges for their loans, including interest rates, late payments and rollover fees, before disbursing credit to customers.

The requirement to disclose hidden charges is part of the conditions for a new license for digital mobile lenders by the Central Bank of Kenya (CBK).

“We have had issues with mobile lenders and I would like to announce that the law is here and will streamline the industry. Issues of overpricing and misuse of customer data will be addressed in the new law to which they will have to comply by August 2022,” CBK Governor Patrick Njoroge said on Tuesday.

“In this new law, consumers will benefit and it will bring them common sense. We are sure that the CBK will set a minimum fee that will reduce the interest of the credit service offered. »

Most Kenyans are unaware of their rights and do not read loan terms when applying for credit.

This leaves them vulnerable to costly interest rates that increase by up to 520% ​​when annualized, triggering growing defaults.

President Uhuru Kenyatta signed into law the Central Bank Bill 2021 in December, bringing digital lenders under the supervision of the banking regulator for the first time.

The CBK Act of 2021 will see lenders seek central bank approval for the pricing of their loans and products, subjecting them to the same rules as commercial banks.

The new law also grants the banking regulator the power to revoke the authorizations of digital lenders who violate the confidentiality of personal information while prosecuting defaulting borrowers.

It aims to halt a trend where some lenders are resorting to “debt shaming” tactics to collect on loans.

There have been reports of debt collectors suing borrowers by telling their friends and family using contact information extracted from their phones or threatening to tell their employers.

The law requires digital lenders to comply with its rules within six months of the CBK issuing regulations to guide its implementation.

The CBK has not yet published the regulations.

Not disclosing interest charges, late payments and rollover fees has been cited as a major issue for customers turning to digital loans due to their ease of access given that they don’t need collateral.

“An applicant must provide the terms and conditions applicable to digital credit and which must be accepted by the borrower before activating a mobile loan account,” specifies the new law.

The CBK will also have the power to revoke or suspend the licenses of digital lenders who do not disclose full information about loan facilities to borrowers in accordance with consumer protection law.

The Consumer Protection Act requires sellers to disclose to consumers all relevant information related to the purchase of a good or service.

The law also comes amid growing concerns about predatory lending by mobile loan providers, with borrowers not having full access to information on pricing, penalties for default and collection of defaulted loans.

Digital lenders will now set their loan interest rates within CBK-approved parameters in a bid to protect borrowers from the predatory lending that has pushed many into the debt trap.

In recent years, businesses have flooded the local market, attracted by the demand for quick credit without collateral. Borrowers get loans in minutes via their mobile phone, making digital loans a quick fix for everyday bills.

The CBK says borrowers borrowing digital loans from unregulated lenders grew to more than two million two years ago from around 200,000 in 2016, underscoring their popularity.

Data protection law prohibits the sharing of data with third parties without consent and gives individuals the right to be informed when their data is shared and for what purpose.

Borrowers share personal information, including their occupations and monthly income, when registering with digital lenders.

But in addition to pursuing unpaid loans, digital lenders share personal information with data analytics companies and for marketing purposes.

The CBK has previously raised concerns about the abuse of borrowers’ personal data and called on lawmakers to expedite legislation to regulate digital lenders.

Data protection law further requires companies to disclose to individuals and customers the reasons for collecting their data and to ensure that confidential information is safe from breach by unauthorized parties.

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