Digital lenders risk ban on revealing borrowers

By JOHN MUTUA
More from this author

Summary

• Dishonest digital lenders who share the personal data of defaulting debtors will have their business licenses revoked if Parliament passes proposed changes to the law to tackle the abuse of confidential documents.
• The proposed law aims to stop a trend where some lenders are resorting to “debt shame” tactics to collect loans.
• There are reports of debt collectors suing borrowers either by informing their friends and family using the contact information retrieved from their phones, or by threatening them to tell their employers.

Dishonest digital lenders who share the personal data of defaulting debtors will have their business licenses revoked if Parliament passes proposed changes to the law to tackle the abuse of confidential documents.

The National Assembly’s finance and national planning committee added a clause to the 2021 Central Bank amendment bill, granting the banking regulator the power to revoke the authorizations of digital lenders who violate the confidentiality of information to prosecute defaulting borrowers.

The proposed law aims to stop a trend where some lenders are resorting to “debt shame” tactics to collect loans.

There are reports of debt collectors suing borrowers either by informing their friends and family using the contact information retrieved from their phones, or by threatening them to tell their employers.

“The bank may suspend or revoke a license by written notification to the licensee, if the licensee (digital lender) violates paragraph (2A) or the conditions of the Data Protection Act or the Data Protection Act. consumer protection, ”says the bill.

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 being shared and for what purposes.

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

But besides chasing unpaid loans, digital lenders share personal information with companies for data analysis and marketing purposes.

The Central Bank of Kenya (CBK) has previously raised concerns about the misuse of borrowers’ personal data and called on lawmakers to speed up legislation to provide for regulation of digital lenders.

Lobbies that petitioned parliament when considering the bill also said loan applications are private matters and should be treated as confidential information.

Digital lenders have imposed high interest rates on borrowers, which increase by up to 520% ​​when annualized, leading to an increase in defaults and an ever-increasing number of defaults.

Tala and Branch, some of the major players in the mobile digital lending market, offer annualized interest rates of 84-152.4% and 156-348% respectively.

Market leader M-Shwari, Kenya’s first mobile savings and credit product introduced by Safaricom and NCBA in 2012, charges a 7.5% “facilitation fee” on credit regardless of term. which brings its annualized loan rate to 90%.

Data protection law further obliges 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.

The CBK will also have the power to revoke or suspend the licenses of digital lenders who do not disclose complete information on loan facilities to borrowers, in accordance with the Consumer Protection Act.

There are concerns that digital lenders may not reveal complete information on prices, penalties for default, and collection of unpaid loans.

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

The parliamentary committee also added a clause that will require digital lenders seeking licenses to obtain authorization from the data commissioner, highlighting the strict measures the state is considering to protect the misuse of borrower information.

The National Planning and Finance Committee backed the bill in August, paving the way for its passage as law.

The enactment of the law will see digital lenders operate under the same rules as commercial banks, including having to seek CBK approval for new products and prices that include loan fees.

The bill gives the CBK the power to oversee digital lenders for the first time and reduce the high rates on digital loans that have plunged many borrowers into the debt trap.

Digital lenders will cap nonperforming loans at no more than twice the past due amount if the bill becomes law.

Dozens of unregulated micro-lenders have invested in Kenya’s credit market in response to growing demand for quick loans, where borrowers can get loans in minutes via their mobile phones.

Digital lenders without a business license will be banned from activity in an effort to kick dishonest gamers out amid concerns of unethical practices.