Competition watchdog investigates cell phone loan fees

By BRIAN NGUGI
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• The competition watchdog has opened investigations into exorbitant monthly interest rates charged by digital mobile lenders which also push third parties to recover amounts owed by defaults.
• The Kenya Competition Authority (CAK) announced on Friday that it was investigating regulated and unregulated digital lenders whose high lending rates have plunged many borrowers into the debt trap.
• Dozens of unregulated micro-lenders have invested in Kenya’s credit market in response to growing demand for quick loans.

The competition watchdog has opened investigations into exorbitant monthly interest rates charged by digital mobile lenders which also push third parties to recover amounts owed by defaults.

The Kenya Competition Authority (CAK) announced on Friday that it was investigating regulated and unregulated digital lenders whose high lending rates have plunged many borrowers into the debt trap.

Dozens of unregulated micro-lenders have invested in Kenya’s credit market in response to growing demand for quick loans.

Their proliferation has imposed high interest rates on borrowers, which climb to 520% ​​when annualized, resulting in growing defaults and an ever-increasing number of defaults that have been unfavorably listed with credit reference bureaus ( CRB).

CAK’s investigations come amid complaints that digital lenders fail to provide borrowers with comprehensive information on prices, penalties for default and collection of unpaid loans.

Digital lenders have also been accused of misusing personal information collected from the defaulters’ cellphone contact list to bombard relatives and friends with messages about the default and ask third parties to demand repayment.

CAK chief executive Wang’ombe Kariuki said investigations would seek to uncover consumer protection violations. “Increase the transparency and completeness of product information and terms and conditions,” Kariuki said in the Kenya Gazette’s latest notice on the investigation record.

“Increase consumer control over personal information to expand choice and competition… Identify potential risks to consumer protection,” he added.

Most mobile loan takers ignore terms that include the lifespan of SMS notifications, full handing over of their personal data to third parties, and waiving their right to dignity.

In recent months, for example, consumers of the Okash mobile app who have delayed or defaulted on their loan have had the unpleasant experience of the service provider contacting people on their contact list in an attempt to recover funds.

“Hello, please advise XX to pay the 2,560 shillings Okash loan TODAY before proceeding and taking legal action to collect the debt,” read a sample text message the service provider sends to the people listed. in his contact list.

“We tried to call in vain. This is the last call back. Thank you very much, the Okash team.”

The law empowers the competition watchdog to reverse borrowing terms on the basis of misleading statements about loans made to their customers.

The law empowers the regulator to impose a financial penalty of up to 10 percent of the value of sales of the goods or services under investigation.

Last year CAK fined Harambee Sacco, one of Kenya’s largest cooperative societies for customer deposits, and Faulu Microfinance Bank for partially disclosing loans

In both cases, the plaintiffs were compensated by reversal of the effects of the offenses committed by Faulu and Harambee Sacco. In addition, the parties have undertaken to cease any conduct that contravenes the Competition Act.

CBK

The Central Bank of Kenya (CBK) and the Treasury are also preparing a bill that will cover digital mobile lenders for the first time as part of new efforts to reduce their sky-high monthly interest rates and predatory lending.

The push to control the activities of digital lenders comes two months after Kenya lifted the cap on commercial lending rates.

The cap, which was introduced in September 2016, reduced credit growth to the private sector as commercial banks turned their backs on millions of low-income customers as well as small and medium-sized businesses deemed too risky to lend. .

The ensuing credit crunch sparked an appetite for digital lending, prompting dozens of unregulated microlenders to flood Kenya’s credit market in response to growing demand for quick loans.

The ceiling law was abolished last November.

Market leader M-Shwari, Kenya’s first savings and loan product introduced by Safaricom and Commercial Bank of Africa in 2012, charges 7.5% “facilitation fee” on credit regardless of term , bringing its annualized lending rate to 395%. Tala and Branch, other leading players in the mobile digital lending market, offer annualized interest rates of 152.4% and 132% respectively.

CBK Deputy Governor Sheila M’Mbijjewe said a recent suicide incident reported to the regulator highlighted the threat posed by digital lenders and heightened the need for their regulation.

“In November last year, a lady came to the Central Bank to tell us how her husband committed suicide after getting involved with one of these lenders,” she said yesterday.

She added that the alleged predatory loan was linked to the death of the borrower following a default.

“What this lender chose to do when her husband couldn’t pay off the debt was extract the contact list from his phone and start sending messages to all of his contacts, including his mother. , her grandmother and her aunt, ”she said.