Commercial banks in Kenya risk being slapped with a heavy fine for failing to disclose the true cost of credit to customers.
Kenyan banks to be slapped with hefty fines for deceiving customers
Kenya's Central Bank says it will impose hefty penalties on banks that fail to disclose total cost of credit or charges to customers
The Central Bank of Kenya (CBK) has published new regulations which will see it impose a penalty of Ksh20 million ($192,307) on banks, mortgage companies and credit reference bureaus for every violation arising out of customer complaints on charges and other cases of non-compliance with the Banking Act and Prudential Guidelines.
“Specific violations, which may be subject to assessment of monetary penalty under these regulations, include paying interest or return on deposits below the prescribed statutory minimum; failure to disclose total cost of credit or charges to a customer; imposition/increase of any charge on any product or service without prior written approval,” the CBK regulations say.
The new rules are meant to bring into force the Finance Act of 2016 that increased the fines for violation of the laws from the previous Sh5 million.
The rules also promise greater protection to bank customers, who have been suffering from arbitrary increases in charges and interest on loans as well numerous fees hidden in fine print.
CBK says that any fine imposed will take into account the financial condition of the institution being fined so as not to paralyse it as a result.
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Furthermore, banks will be fined for charging interest on loans or other credit in excess of the prescribed statutory maximum and for recovering interest or other charges on non-performing loans in excess of the prescribed limit.
The rules come in the wake of the banks’ quest to impose higher levies above the legal cap of 14 per cent on loan defaulters.
The rate cap law introduced last year is silent on levies to be charged on defaulters, a position the banks saw as a loophole to charge additional interest on credit.
A number of bank customers have since last year complained to the CBK that the lenders had imposed what Dr Njoroge termed as “nuisance fees” e.g. arbitrary charges all of which have had a significant negative effect on them.
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