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Digital lenders named the worst offenders in consumer complaints
The public outcry over predatory lending practices, harassment of borrowers and abuse of personal information pushed the CBK to bring digital lenders under its regulatory umbrella.
Complaints by consumers against digital lenders accounted for the biggest increase in cases filed at the Competition Authority of Kenya (CAK) the year to June 2024, highlighting their continued violation of rules barring predatory lending, poor disclosures and harassment of borrowers despite enhanced regulatory oversight.
The CAK said in its annual report for 2024 that the financial sector accounted for 29.5 percent or 197 of the 668 consumer cases filed by Kenyans in the period, up from 100 cases or 19.2 percent of 521 cases in the previous year.
Wholesale and retail trade accounted for the second highest number of complaints at 193 cases (28.9 percent of total), up from 102 cases (19.6 percent) in the year to June 2023.
The CAK highlighted the prominence of digital lender related issues within the volume of consumer cases filed against players in the financial sector, who include banks, microfinance institutions, Saccos and fund managers.
Within this sector, digital lenders accounted for 63 cases in 2024, up from 16 cases a year earlier, replacing microfinance institutions (57 cases from 44 the previous year) as the biggest offenders.
“Generally, there has been an upward trajectory in the number of complaints relating to digital credit concerning exorbitant interests, lack of disclosure of terms and conditions (T&Cs), unilateral alteration of T&Cs, aggressive and harsh loan recovery methods, including harassment of customers’ mobile phone contacts,” said the CAK in the annual report.
“This scenario persists despite the enactment of the Central Bank of Kenya Digital Credit Providers (DCPs) Regulations, 2022 that contain provisions regulating DCPs’ commercial conduct, including provisions on lending, pricing, consumer protection, debt collection, and anti-money laundering.”
The public outcry over predatory lending practices, harassment of borrowers and abuse of personal information pushed the CBK to bring digital lenders under its regulatory umbrella.
The number of such lenders in the market ballooned to more than 400 due to the rising popularity of digital loans due to their ease of application.
Latest CBK disclosures show that by the end of October 2024, there were 85 licensed digital credit providers in Kenya, meaning that the majority of those that were operating before 2022 have either paused activity pending licensing, or are lending illegally.
Delays in issuing the licences was attributed to the wide range of documentation required by CBK, including details on directors and funding sources.
Engagement between the CBK and other regulators and agencies such as the Office of the Data Protection Commissioner also contributed to the lengthy wait.
Under the regulations that were enacted in 2022, the lenders would be required to disclose to customers all the charges and fees, interest rates and total cost of credit—rules that also apply to the other lending institutions regulated by the CBK.
Similarly, the regulated digital lenders are also barred from varying the rates they charge without first seeking approval from the CBK.
