Family Bank in tussle with firm over loan charges

Family Bank towers, Nairobi. [PHOTO: EDWARD KIPLIMO/STANDARD]

Family Bank is embroiled in a legal battle with a private firm over interest charges accrued on a bank loan taken in 2010. Olive Farm accuses the lender of shifting the interest rate charged on the loan contrary to the Banking Act.

“The defendant is currently charging the plaintiff an interest rate of 24.5 per cent, which is totally unreasonable and illegal,” the court heard. The firm through its lawyer Kihara Muruthi narrated that it had borrowed Sh5 million from Family Bank in 2010 and ought to have paid an interest rate of 18.5 per cent per year and if it defaulted the loan would accrue a further 0.6 per month on top of the agreed rate.

But he now says that the bank has added the interest charged on the account by 6 per cent. The case was before Justice Francis Gikonyo who was told that Olive Farm had allegedly paid close to Sh11.8 million whereas the principal sum rose to Sh8.2 million.

The private company lamented that it was compelled to pay the outstanding loan on the higher interest rate in October last year after the bank threatened to auction its security. “The plaintiff was unhappy with the levies of interests charged on the account and indeed had a meeting with the defendant’s senior officers. The plaintiff executed the agreement simply to save the security,” the court heard.

In the case filed this year, Mr Kihara told the court that the bank had on October 7, 2014 returned Sh750,000 to the loan account but did not communicate the same with Olive’s Managing Director Charles Njoroge.

Applicable interest

“This was clearly an admission on the part of the defendant that they were indeed overcharging interest on the loan account. It was the plaintiff’s view that the defendant ought to have reimbursed much more than was credited,” lawyer Kihara said. On the other hand, the bank denied the claims and told the court that the monies charged on the firm were as a result of defaulting to service the loan.

According to Family Bank’s legal officer attached to debt collection and recovery unit Bernard Kiprotich, the company allegedly never paid in 2010.

“It was a material term of the loan facility contained in the letter of offer that the period of the overdraft secured by a registered charge was 12 months and applicable interest was 18.5 percent per annum and the plaintiff did not service the overdraft facility in 2010 and the bank attempted to recover,” the told the court.

Mr Kiprotich told the court that by the time the loan’s lifespan was expiring, the company had paid Sh1.35 million and that it was charged Sh3,953,147.42 for failure to honour its end of the bargain. “The amount that was paid to the auctioneer was Sh302,046 and the balance was converted to term loan Sh8,953,147.42,” he said.

He continued: “The plaintiff’s failure to make repayments on the overdraft facility during its term as and when required precipitated to the plaintiff’s current predicament where penalties for default applied, thereby escalating the rate of interest applicable.”