The competition watchdog has punished several banks for overcharging borrowers charges they had not disclosed during lending amid a growing number of Kenyans who are taking on the institutions over their misconduct.
At least five leading banks are involved in active and concluded cases that involve probes into providing misleading information to borrowers, flouting agreements with customers and unilateral imposition of additional charges.
During the year ending June 2023, three banks had to refund money they had wrongly charged their customers, the Competition Authority of Kenya (CAK) revealed in its annual report.
The banks in the crosshairs of the competition watchdog are KCB, Stanbic, Family Bank, DIB Bank and NCBA.
More cases are under active investigation by the authority, while others have been forwarded to other government agencies, including the Central Bank of Kenya (CBK) and the Insurance Regulatory Authority (IRA).
Credit card
KCB Bank Kenya had to refund a customer Sh21,581, admitting that it had not disclosed full information on its website regarding payment terms for a credit facility.
Mr Anthony Nderitu, the affected customer, had borrowed Sh240,000 through a KCB Platinum Credit Card on a six percent interest that was charged in advance.
“Information on the bank’s website indicated that Platinum Credit Card holders were entitled to a 45-day interest-free period. Therefore, the complainant expected this period to lapse on 30th April, 2022. On 23rd April, 2022, the complaint settled the full amount due (Sh254,602), inclusive of the aforementioned six percent cash advance interest. Upon interrogating the statement of the credit card, the complainant discovered the bank had charged a late payment interest of Sh12,724 and a debit interest of Sh8,857, totalling Sh21,581,” CAK notes in its report.
The authority adds that after enquiring about the “unexplained charges”, Mr Nderitu was informed that credit card billing is conducted on the 15th day of every month and that payment ought to be done on or before the 30th day of every month.
He was told that his failure to make any payment by March 30, 2022 resulted in the late payment fee and debit interest.
“The complainant had not been informed of the billing and repayment cycles beforehand,” CAK noted.
Investigations by the regulator established that the bank had not fully disclosed the terms of the loan to its borrowers, which caused them to incur additional charges.
“KCB entered into a settlement agreement with the Authority committing to waive and refund the late payment interest and debit charges of Sh21,581.98 and update its website by providing a clear explanation that the 45-day interest-free period offered to their credit card holders,” CAK stated.
In a similar case, Stanbic Bank had to refund a customer, Mr Phillip Manje, Sh7,282 excess interest he had been charged on his credit card on an unpaid amount of Sh811.
“The complainant alleged that he paid Sh247,000 against the amount due of Sh247,811.33 on his credit card. The unpaid amount on the due date of 3rd May, 2022 was Sh811.33. However, by 8th May 2022, an interest charge of Sh7,282.69 had been levied on the card,” the competition watchdog stated.
Unilateral fees
The banks’ actions flout banking and competition laws, which require that lenders shall not provide misleading information, or impose unilateral charges on loans of which a borrower has not been informed.
“A person shall not, in the provision of banking, micro-finance and insurance and other services, impose unilateral charges and fees, by whatever name called or described, if the charges and the fees in question had not been brought to the attention of the consumer prior to their imposition or prior to the provision of the service,” the Competition Act states.
The Act also indicates that a consumer shall be entitled to be informed by a service provider “of all charges and fees, by whatever name called or described, intended to be imposed for the provision of a service.”
The Banking Act also makes it an offence for lenders to deceive borrowers or intentionally fail to disclose material facts and false and material representation.
“An institution shall not in Kenya grant any advance or credit facility or give guarantee or incur any liability or enter into any contract or transaction or conduct its business or part thereof in a fraudulent or reckless manner or otherwise than in compliance with the provisions of this Act,” the banking law states.
The small figures point to a possible proliferation of similar cases across the banking industry, which could be seeing more Kenyans losing their money to banks through non-disclosure of critical information while lending, which is against the law.
Sh1.4m refund
Family Bank had to refund a former employee Sh1.4 million relating to a mortgage loan that the lender had assured her a 20 percent waiver on the loan even after she exited employment in 2015, only to renege on the promise and charge it after she was unable to pay the loan as agreed for some time.
CAK noted that in 2017, the bank “unilaterally debited and overdrew” her account with Sh399,800, to settle legal fees relating to court injunction proceedings initiated by the former employee.
“The Bank entered into a settlement with the Authority and waived the interest rates and refunded the complainant (the former employee) with a total sum of Sh1,415,604. Family Bank compensated the complainant and the case was closed,” CAK stated.
Cost of credit platform
Kenya Bankers Association (KBA) Acting CEO, Raimond Molenje, says banking customers are advised to first visit a website it co-hosts with the CBK to guide applicable rates and charges by different banks before borrowing since the banks disclose all charges at the platform.
“The KBA, in collaboration with CBK, hosts a Total Cost of Credit (TCC) website; a platform that enables customers to compare the cost of credit and other charges across all the banks. All banks disclose their relevant charges for the loan products they offer on this TCC website fully, and non-disclosure of charges does not arise at this level,” Mr Molenje says.
He, however, observes that “not all customers visit the TCC before applying for a facility or comparing the rates.”
“We invite customers and the public to visit the website before they approach a bank for a loan, and also ask for clarity on any term or charge to be explained further, including additional charges before they sign up for any loan,” Mr Molenje says.
Ongoing investigations
In an ongoing case, an NCBA Bank customer has accused the lender of running misleading advertisements “in which they claimed that the process of getting asset financing approval from them would take only 15 seconds” but when he sought it “it took him more than four weeks to get the approval.”
A customer of the DIB Bank, Irene Njenga, also accuses the lender of non-disclosure of information regarding credit facilities. The CAK referred the matter to CBK.
In another ongoing investigation, Mr John Mugo Kinuthia accuses Faulu Bank of imposing charges it had not informed him of when he took a Sh4.5 million loan.
“The complainant took a loan of Sh4,500,000 of 23 percent on reducing balance per annum. The bank demanded payment of debt collection fees as a condition to release the title to the charged property. However, the complainant was not informed about the charges prior to signing the loan documents,” CAK said.