Consumer lobby to challenge court verdict on cheap loans

Consumer Federation of Kenya Secretary General Stephen Mutoro in Nairobi in December 2018. [Jonah Onyango, Standard]

Consumer Federation of Kenya (Cofek) plans to appeal the recent ruling declaring the law on interest rate cap unconstitutional.

The consumer lobby yesterday filed a notice of appeal challenging the March 14 ruling that declared some sections of the Banking (Amendment) Act that put a ceiling on the price of loans null and void. Debate on the ruling, which caught many borrowers by surprise, will now move to the Court of Appeal and not to the floor of the National Assembly as had been directed by the High Court.  

“Take notice that the Consumers Federation of Kenya, the second interested party, being dissatisfied with part of the argument of Justices Tuiyot, Kamau and Ngetich, J J, delivered at the High Court of Kenya and Nairobi on the 14th day of March 2019 intends to appeal to the Court of Appeal against the said judgement,” read in part the notice.

Cofek termed the ruling grossly defective, adding that the Central Bank of Kenya (CBK) and Kenya Bankers Association (KBA) - the two respondents in the petition by Boniface Oduor - might have had a hand in the case.

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“Indeed it is clear that the petitioner, one Boniface Oduor, does not represent the interest of bank customers but those of CBK and KBA,” said Cofek Secretary General Stephen Mutoro in the notice.

“Further, it is public knowledge that both CBK and KBA have had several press conferences and skewed mainstream media commentaries in their bare-knuckled constant attacks on the interest rate capping. To then turn around to sue CBK over the Banking (Amendment) Act, 2016 is to confirm that the suit was not only defective but mischievous.” 

The High Court ruling is the latest attempt at ending the era of cheap loans by institutions led by banks, Treasury and CBK.

Analysts say unlike in 2016 when the proposals might have found the groups unprepared, this time around they will deploy their best lobbying machinery as they seek a liberal price setting regime on loans.

MPs, however, insist they are only championing public interest and will do even more when they start debating the law. Kiambu Town MP Jude Njomo, the man who brought to Parliament the amendments that resulted in the Banking (Amendment) Act, 2016, said Parliament has the mandate to address matters of public interest, and a cap on the price of loans was one of them.

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“The court did not consider the spirit of the law, they considered the technicalities,” he said at the weekend.

Boniface Oduor, the petitioner, has asked the court to determine the constitutionality of the provisions of the Banking (Amendment) Act No. 25 of 26, which criminalises charging of interest rate by financial institutions at more than four percentage points above the Central Bank Rate (CBR) set and published by Central Bank of Kenya.

The court agreed with the petitioner but gave Parliament a year to iron out the unconstitutionality in the law, setting the ground for a fierce economic battle between protectionists and liberals in the country.

“Mindful of the possible ramifications and disruption on existing contractual relationships between banks and their customers, the court suspends the effect of the declaration for 12 months from the date of this decision to give the National Assembly an opportunity to reconsider the provisions,” the judges ruled.

They said section 33B (1) and (2) of the Act, providing for CBK to regulate how much lenders can earn from customers, was “vague, imprecise, ambiguous and indefinite.”

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