Mobile Loan Lenders Barred from Threatening Defaulters Under New Regulation

The Central Bank of Kenya (CBK) has officially gazetted the new regulation that restricts mobile loan lenders from sharing the borrower’s information with third parties to harm their reputation.

According to CBK, the new directive is part of the laid conditions for fresh licensing of the digital mobile lenders, which will help in remitting cases involving loan overpricing, misuse of customers’ data, and unethical debt collection practices.

CBK governor Patrick Njoroge said the Digital Credit Providers regulations seek to address public concerns and provide for consumer protection and credit information sharing.

“The regulations provide for, among other things, the licensing, governance, and lending practices of DCPs. They also provide for consumer protection, credit information sharing, and outline the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) obligations of DCPs,” Njoroge said.

The lenders have been accused of hiding full terms of their credits to customers leading to costly interest rates.

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Mobile phone lenders must now register under the new CBK regulation before September or cease operations. In addition, they will be required to set interest rates for their loans within parameters approved by the CBK to protect borrowers against predatory lending that has driven many into the debt trap.

Some of the major players in digital lending include M-Shwari, Tala, Branch, and IMoney.

In a public notice dated March 18, CBK says a DCP shall not invite or collect deposits in any form, including the taking of cash collateral as security for loans, in carrying out digital credit business. Failure to honor this rule will attract suspension of licenses.

In a move to protect customers’ reputations, the law requires digital credit providers to put appropriate policies, procedures, and systems to ensure the confidentiality of customer information and transactions.

In addition, digital credit providers shall not share customer information with any other person except with the customer’s consent.

The new rule will subject digital lenders to the same rules as commercial banks.

The new directive follows the signing of law the Central Bank Bill 2021 by President Uhuru Kenyatta that brought digital lenders under the watch of the banking regulator for the first time in December.