INTEREST CAP REMAINS

High Court suspends interest cap law

In Summary

• Parliament given 12 months to amend the law that capped interest in 2016 or banks to effect new interests.

• Petition by Bonface Oduor involved seeking to establish the constitutionality of the provisions of the Banking (Amendment) Act No. 25 of 26.

Central Bank of Kenya./COURTESY
Central Bank of Kenya./COURTESY

The High Court has declared the law that capped bank interests at four per cent above the Central Bank rate in 2016 as unconstitutional.

This is a victory for the banks which have consistently blamed the law for dwindling returns in the sector and negative spiral effect on the economy.

However, the court did not immediately suspend the law but gave a 12-month window period for Parliament to reconsider provisions.

''Mindful of possible ramification and disruption on existing contractual relationships between banks and customers, the court has suspended the effect of this declaration for 12 months from the date of this decision,'' the ruling reads. 

The petition by Bonface Oduor involved seeking to establish the constitutionality of the provisions of the Banking (Amendment)Act No. 25 of 26, which introduced section 33B into the Banking Act

The court found the provision of Section 33B (1) and (2) of the Banking Act to be vague, imprecise, ambiguous and indefinite.

''The declaration in respect to Section 33B (3)  of the Banking Act takes effect forthwith. In the meantime, the court notes that there will be no lacuna because, pending further consideration by the National Assembly, any offenders can be dealt with under general Penalty Provisions of Section 49 of Banking Act,'' the ruling read.