digital lenders regulation

President Uhuru Kenyatta of Kenya has signed a new law to reign in digital lenders who have been operating in an unregulated regime and violating consumer privacy.

These lending companies have been growing at a very fast rate partly due to people’s desperation for cash, healthcare or school fees. Since the industry was not regulated, people have been locked into financial agreements that have plunged them into a debt trap.

Their proliferation has saddled borrowers with high-interest rates, which rise up to 520pc when annualized, leading to mounting defaults and an ever ballooning number of defaulters who have been adversely listed with CRBs.

The COVID-19 pandemic only worsened the situation. According to data by Metropol; one of the three licensed CRBs along with TransUnion and Creditinfo International, the number of loan accounts in arrears for more than 90 days had jumped to 14,035,718 by January 2021, up from 9,673,258 in August 2020.

Stories have been heard on how digital lenders have been hounding customers and abusing the rights of those that defaulted in repayment of their loans. Digital lenders would go as far as calling people’s contacts and posting about their debts on their customers’ social media profiles. There was even a story of a middle-aged man who took his life after failing to withstand harassment and public shaming by an unnamed digital lending application.

With the new law, the Central Bank of Kenya has been given the authority to regulate the industry and take action on the lenders that violate consumer rights. A statement from the Kenyan Presidency reads that “The amended Central Bank Act, 2021, gives the Central Bank of Kenya authority to license digital lenders in the country as well as ensure the existence of fair and non-discriminatory practices in the credit market.

Under the new legislation, digital lenders are required to apply for licenses from the CBK and they only have within the next six months to do so. Previously, these lenders only had to register to set up operations in the country.

“Any person who before the coming into force of this Act was in the digital credit business and is not regulated under any other law shall apply for a license… within six months of publication of the regulations,” so says the new law.

Lenders will also have to honor existing consumer and data protection laws. They will also have to maintain the confidentiality of customer information They’ll need to disclose pricing, the consequences of defaulting on loans, and outline debt recovery.

Some of the major apps present in Kenya are OKash, Branch, and Tala.

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Nigel Jr.
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