Digital loan defaulters will get a 30-day notice before their names are forwarded to credit reference bureaus (CRBs) under regulations that give the Central Bank of Kenya (CBK) powers to rein in the lending rates and abuse of consumer privacy.
The Central Bank of Kenya (Digital Credit Providers) Regulations bar digital lenders from submitting the names of defaulters for listing without their knowledge.
Like commercial banks, digital lenders will be obligated from September 18 to inform defaulters in writing or through electronic means about their listing a month before sharing their status with the CRBs.
At present, digital lenders inform defaulters of their planned listing with the bureaus as a tool to push for loan repayments and are not obligated to give the 30-day notice.
“A digital credit provider who intends to furnish negative information to a bureau with respect to a customer shall, in writing or through electronic means, notify the customer of the intention to submit the negative information at least 30 days before submitting the negative information to the bureau,” say the regulations.
Digital lenders were ordered to stop filing reports with CRBs in April last year in response to reports of widespread abuse of the credit information sharing system. The lenders, comprising those issuing credit through mobile phones and the Internet, were accused of aggressive tactics, including threatening borrowers with negative listings.
But changes to the CBK Act brought digital lenders under the control of the banking regulator and allowed them to share borrowers’ data with the CRBs.
The CBK will supervise their use of credit information sharing as is the case for banks, saccos and other entities currently using the system. Credit information sharing is one of the most powerful risk-management tools for micro-lenders who typically don’t take collateral from borrowers when issuing short-term loans.
A negative listing makes it nearly impossible for one to take a loan from another credit provider, serving as deterrence against default.
Digital lenders will now set interest rates for their loans within parameters approved by the CBK in an effort to protect borrowers against predatory lending that has pushed many into a debt trap.
The proliferation of lenders has saddled borrowers with high-interest rates that rise up to 520 percent per year, leading to mounting defaults and an ever-growing number of defaulters.
The new law also grants the banking regulator powers to revoke the permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers. It aims to stop a trend where some lenders resort to “debt shaming” tactics to recover loans.
There have been reports of debt collection agents pursuing borrowers by informing their friends and family using contact information scraped from their phones or by threatening to tell their employers.
Digital lenders have until September 18 to comply with all the requirements and get operating licences from the CBK. The CBK will also have powers to revoke or suspend the licences of digital lenders who do not disclose full information on loan facilities to borrowers, in line with the Consumer Protection Act.
The Consumer Protection Act requires sellers to disclose to consumers all relevant information tied to the purchase of a good or service.
By Business Daily