Your Rights as a Loan Borrower in Kenya

Debt is a divisive subject. Some individuals believe debt is necessary for one to excel financially. However, others believe that a life debt-free is more fulfilling. While everyone is entitled to their own opinion, debt is just a financial instrument.

An instrument is just as efficient as the user. Hence, debt can be properly utilised to grow one's wealth. There are many avenues for accessing debt. The easiest is from family and friends but that can be limited. Typically, most people acquire debt in the form of loans from financial institutions such as banks, microfinance, and saccos.

When borrowing, the power dynamics might seem skewed. The lending institution might seem to have the power to exert more power. However, the Kenyan law has ensured that the power dynamics are harmonised. The laws ensure that the lenders (banks, saccos, and microfinance) do not take advantage of the borrowers. 

In this article, we shall explore borrower rights provided for by Kenyan law.

Read Also: How to Create a Debt Repayment Plan

Transparency

Any mutually beneficial and well-balanced relationship starts with transparency. Every party has to be well informed of the transaction that is taking place. They have to be made aware of the conditions they need to fulfill and what they expect to get in return before they agree.

Unilateral charges

Section 56 of the Competition Act restricts banks, microfinance, and insurance companies from imposing unilateral charges and fees. This section demands that the borrower be informed of any changes in fees in total before they take a loan. In the case that the charges and fees need to be adjusted while the consumer is still servicing the loan, the consumer has to be informed before these charges and fees are effected. The prior information, before effecting the fees, gives the consumer time to seek further guidance, consider alternatives, or seek the intervention of the court.

Once all the information is transparent, the borrower can make an informed decision.

Fair Treatment 

Once the borrower has decided to take a loan from said institution, there is a set code of conduct that is rooted in fairness.

According to the Central Bank of Kenya (CBK) Consumer Protection Guidelines, every institution is mandated to conduct its business fairly and reasonably with its consumers. The guidelines continue to stipulate that the consumer should be treated humanely, either in face-to-face or virtual dealings.

For instance, when one is not able to pay off their loan and the bank needs to liquidate the provided-for assets as security, the process should not be dehumanising. If it is, the bank is overstepping, and the borrower has a right to seek fair treatment.

To further emphasize the requirement for fair dealings, the guidelines prohibit the lenders from taking specific actions.

Lending institutions should not:

• Threaten or intimidate borrowers
• Abuse or humiliate a borrower, either by being non-responsive or violent.
• Offer or accept bribes from a consumer
• Discriminate on grounds such as sex, race, colour, tribe, religion, disability, belief, dress, and any other grounds.
• Take advantage of a consumer's lack of understanding of certain terms
• Include unreasonable terms in an agreement
• Coerce a consumer to enter a transaction either through influence or duress
• Mislead or misadvice a consumer
• Lend recklessly and negligently
• Hide information by putting it in small print, in voluminous paperwork, or in complex language.

These guidelines help level the playing field for both the borrower and the lender. As a borrower, it is helpful to know what rights you have before taking a loan, because then when a lender is overstepping, you can protect yourself from being taken advantage of.

Read Also: 6 Steps to Get Out of Debt in 2024

Privacy and Confidentiality

Now that a borrower has been furnished with all the information they need through the transparency requirement, the dealings have been conducted fairly and an agreement has been reached, there is a need for privacy and confidentiality.

For lending institutions to advance a loan, they require personal information that should be kept confidential. Hence, lending institutions are mandated to ensure they protect consumer information.

According to the Central Bank of Kenya's (CBK) Consumer Protection Guidelines, there are three major requirements when it comes to consumer data protection.

• Consumer information should be properly and appropriately protected
• The purpose of data collection, processing, storage, and disclosure (to third parties) should be made clear.
• Consumers should be informed about data sharing and should be allowed to make necessary corrections.

Dispute Resolution

In the case that there is a complaint from a borrower, what rights does the borrower have?

First of all, the lending institution should have a complaints procedure that should be promptly communicated to the borrower before the signing of the agreement. Once a borrower files a complaint, either at the branch, on the website, or any other means of communication the lending institution is mandated to investigate the complaint.

Complaint Resolution Process

The investigations should be competent, prompt, and impartial. Upon determination of the complaint, the institution should offer a remedial action, a redress, or both that are subject to agreement from the borrower. The redress or remedial action should be properly and sufficiently explained to the complainant for their agreement. If they agree, the institution is expected to comply promptly with the redress or remedial action.

Complaint Resolution Timelines

Once a complainant files a complaint, the institution should, within at least 7 days, acknowledge in writing that it has received the complaint and is dealing with it. In the case that a complaint was submitted orally and it is not resolved within 48 hours, there should be communication to the consumer that the complaint is still being handled. 

Nonetheless, the resolution of various types of complaints might take different durations. The lending institution should have the timelines stipulated and communicated to the borrower.

Read Also: 9 Reasons Why Kenyans Struggle With Debt in Their 30s

Fair Debt Collection Practices

If a borrower has not been able to pay back their loan (defaulted), Section 44A of the Banking Act provides for the process that should be adhered to when engaging in debt collection services. 

Mark you, there are fairness rights that a borrower has that have to be adhered to even at this stage.

The lending institution is limited to what it can collect from a borrower. According to section 44A, they can only collect to the maximum amount of

• The outstanding principal
• The agreed interest but not exceeding the outstanding principal
• The expenses incurred during the debt recovery: These expenses should be realistic and not extortionary.

However, if a loan becomes non-performing and the borrower resumes paying and then becomes non-performing again, the recovery stipulation shall be applied from the time the borrower defaulted last.

Read Also: 10 Unhealthy Debt Practices You Should Avoid

Wrapping Up

As a borrower, there is a temptation to feel powerless when transacting with lending institutions. The Kenyan constitution and its subsequent laws have envisaged this and provided guidelines and regulations to protect borrowers against being taken advantage of. Hence, as a borrower, it is beneficial to familiarise yourself with these laws, as they are your rights when applying for loans, servicing loans, and, in case of default, when the lender is collecting their debt. 

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