The High Court has given the Central Bank of Kenya the green light to monitor interest rates on digital lending platforms after ruling that laws supporting the regulation of digital lending providers are constitutional.
Madam Justice Margaret Muigai, in a judgment delivered on behalf of Court of Appeal Judge George Odunga, has declared that the Central Bank of Kenya Act 2021 is valid. The case against the Association of Micro Finance Institutions was dismissed.
The regulator together with the Secretary of the Ministry of National Treasury, Ukur Yatani and the Parliament, have complied with all the laws and constitutional requirements before the bill was passed. “Therefore, the petitioner proposed that the law was not followed in passing the amendment and Ordinance. I did not have such evidence before me in this petition,” she said
The CBK Bill 2021, signed into law by retired President Uhuru Kenyatta on December 7 last year, will see the emergence of online lending industries, such as commercial banks, receiving approval from the Central Bank to rate their loans under the rules. The law comes amid concerns about predatory lending by digital lenders, where borrowers do not have full access to information about rates, debt penalties and unpaid loan payments.
CBK now empowers digital lenders to explicitly prohibit digital lenders from threats, violence, “indecent or embarrassing references or communications to customers” while lending. The law also prohibits digital lenders from entering customer phone book and send messages if default. Digital lenders will set interest rates for their loans within CBK-approved parameters in an effort to protect borrowers from predatory lending that traps many people in debt.
Additionally, you are not permitted to post personal or sensitive customer information online or receive unsolicited calls or messages to contacts in your phone book.
According to the regulation, the CBK will revoke the license of such digital lenders and their directors will be fined Sh500,000 or face five years in prison. Both lenders are barred from submitting borrowers’ names up to Sh1,000 to the CRB. The move eased thousands of borrowers’ credit scores thanks to loans to meet basic needs like food and rent.