Kenyan banks cornered as floodgate of lawsuits open on legality of charges

Ms Rose Wanjiru has sued her bank, Standard Chartered, for deductions on her account. [PHOTO: FILE /STANDARD]

NAIROBI, KENYA: Bank managers are clutching on their calculators wondering what loads of cash will move out of their vaults. This is if the industry loses in a suit filed in court challenging legality of various charges levied on bank customers without authority from the National Treasury.

This follows one bank customer’s move to sue her bank, Standard Chartered, for deductions on her account. Ms Rose Wanjiru, through a newspaper advertisement, has invited the public to be enjoined in the suit as interested parties. A call centre has been set up to deal with all queries from those interested.

Costs that a borrower may be charged in addition to the interest rate include commitment fees, processing fees, early repayment fees, negotiation fees, valuation fee, insurance, appraisal fee and legal fee. Others include fees for special clearances, retrieval of cheques and bounced cheques, card issuance, standing order set up and processing, transfers (electronic funds transfers, interbank etc.), bills payment, cash withdrawals, statements and balances and bankers cheques issuance.

It is the legality of these charges, levied on customers without approval from the Treasury, as per the law, that is before the High Court. “The matter is in court and rules of sub judice do not permit me to discuss the suit public. We have a legal team that is dealing with all the allegations made and I would not like to speculate on the outcomes,” said Habil Olaka, chief executive officer, Kenya Bankers Association (KBA).

While interest rate charged on fixed loan products is usually specified in a contract and does not charge, rates charged on floating rate loans vary depending on the prevailing 91-day Treasury Bill rate or the base rate. With the new Kenya Bank Reference Rate (KBRR), banks will now be required to price their loans after loading the KBRR rate, now at 9.13 per cent.

This level of the KBRR will be effective from July 8, 2014 until its next review in January 2015, if conditions do not drastically change.

Enjoined in the case

In the suit filed against Standard Chartered Bank (SCB) Kenya Limited, one Ms Rose Wanjiru is suing the bank for deductions on her account, made without authority from the Treasury according to Section 44 of the Banking Act. “No institution shall increase its rate of banking or other charges except with the prior approval of the Minister,” states Section 44 of the Banking Act on restrictions on increase in bank charges. In 2003, Ms Wanjiru moved to the High Court, demanding Sh38,960 refund from Standard Chartered Bank for charges on her account. Her claim was that the charges were illegal since the bank had not received approval from the Finance Minister, as required by the Banking Act.

“There is no bank that has over the years applied to the Finance Minister to be allowed to increase charges from say 0 to 20 per cent. When we first got the debit cards, they used to be free. Now customers are paying for them,” said Gichuki Waigwa, lawyer representing Ms Rose Wanjiru in the suit.

It has taken more than 10 years since this matter first appeared in court. This follows dismissal by the high court, forcing the plaintiff to seek for redress at the court of appeal. It is now back to the High court with the suit now involving all the 43 banks. A notice has been issued to anyone who was subjected to charges by any bank to be enjoined in the case.

“This suit opens the floodgates and anyone who has been charged all manner of fees can be enjoined in the suit to have their money refunded,” said Waigwa.

Commercial banks make regular returns on interest rates, fees and charges to the Central Bank of Kenya (CBK). Using these figures and the number of transactions which the average user makes in a month, CBK did surveys in 2007 and 2008 to calculate the average cost of using the service for each bank.

A 2007 CBK survey on Bank charges and lending rates, conducted by Financial Sector Deepening, identified high bank charges as one of the barriers that affect customers in accessing banking services. Others include mistrust and lack of awareness by the consumer, lack of clear information by banks to customers, lack of transparency in costs, poor branch networks and a product driven rather than a market driven approach.

The 2007 CBK survey ranked Equity Bank as offering the lowest cost for operating a current account, based on average usage patterns. The most expensive of these larger banks was Standard Chartered Bank.