Digital lenders on tight leash as new regulations kick in

The Central Bank of Kenya has officially gazetted the digital lenders regulations paving way for their oversight and supervision.

It focuses on addressing high-interest rates, unethical debt collection practices, and the misuse of personal data by some digital lenders.

CBK governor Patrick Njoroge said the Digital Credit Providers regulations seek to address public concerns given the significant growth of digital lending, particularly through mobile phones.

Major players in the digital money lending space include Tala, Branch, M-Shwari, M-Coop and IMoney.

"The regulations provide for inter alia 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.

He said that the regulations will sanitise the sector prone to consumer abuse in total disregard of the country's  National Payment System. 

In a notice published on 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 the course of carrying out digital credit business.

In a move to protect the confidentiality of all digital credit seekers, CBK forbids lenders from sharing customer information with any other person except with the customer’s consent, or seek permission under any written law.

All DCPs are not allowed to submit negative credit information of a customer or any other person to a Credit Reference Bureau where the outstanding amount relating to the credit information does not exceed Sh1,000.

A lender who intends to furnish negative information about a customer to a bureau is now required to notify the customer of at least thirty days prior.

They have been barred from using threat, violence or other means to harm the debtors, their reputation or property if they do not settle their loans.

Recently, there has been increased complaints on digital lenders using agents to threaten customers in the course of debt collection.

Debt shaming and high-interest rates made borrowers shy away from unregulated digital loans, with applications dropping by 6.2 per cent in 2019.     

Use of obscene or profane language sent to the customer or the customer's references for purposes of shaming them could now lead to the suspension of the lender's operation licence.

Lenders are no longer allowed to access the customer’s phone book or contacts list and other phone records for purposes of sending them messages in the event of untimely payment or non-payment.

Posting customer’s personal or sensitive information online or on any other forum or medium shaming purposes has also been prohibited.

CBK says it will take action on any lender opting for improper or unconscionable debt collection tactic, method or conduct whose consequence is to harass, oppress, or abuse any person in connection with the collection of a debt.

In a move to combat money laundering CBK now requires all digital credit providers to issue evidence and sources of funds invested or proposed to be invested in the business and demonstrate that the funds are not proceeds of crime.

According to the regulations,the Central Bank of Kenya may disqualify any person from holding a senior position in a digital credit provider if that person is determined not to meet the fit and proper criteria.

Upon licence suspension of a digital lender, the bank  publish the lender's names in a Gazette within thirty days of the suspension or revocation.

Chairman Digital Lenders Association of Kenya (DLAK) Kevin Mutiso told the Star the association will comment on the final draft of the regulations after deliberations with lawyers.

DLAK is conducting various activities to sensitise consumers and the general public on financial discipline.