Defaulters of digital loans will be notified prior to CRB registration

By JOHN MUTUA
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Summary

• Defaulters of digital loans will receive 30 days notice before their names are forwarded to the Credit Reference Bureaus (CRBs).
• Central Bank of Kenya (Digital Credit Providers) regulations prohibit digital lenders from submitting the names of defaulters for registration without their knowledge.
• Currently, digital lenders notify defaulters of their planned registration with the bureaus as a tool to push loan repayments and are not required to give 30 days notice.

Defaulters of digital loans will be given 30 days notice before their names are forwarded to Credit Reference Bureaus (CRBs) under regulations that give the Central Bank of Kenya (CBK) the power to limit lending rates and breaches of consumer privacy.

Central Bank of Kenya (Digital Credit Providers) regulations prohibit digital lenders from submitting the names of defaulters for registration without their knowledge.

Like commercial banks, digital lenders will be required from September 18 to notify defaulters in writing or electronically of their rating one month before sharing their status with CRBs.

Currently, digital lenders notify defaulters of their planned registration with the bureaus as a tool to push loan repayments and are not required to give 30 days notice.

“A digital credit provider who intends to submit negative information to a bureau regarding a customer must, in writing or electronically, notify the customer of its intention to submit the negative information at least 30 days prior to submitting the information. negative in the office,” the regulations say.

Digital lenders were ordered to stop filing reports with CRBs in April last year in response to reports of widespread abuse of the credit information sharing system. Lenders, including those who extend credit via mobile phones and the internet, have been accused of aggressive tactics, including threatening borrowers with negative listings.

But changes to the CBK law brought digital lenders under the control of the banking regulator and allowed them to share borrower data with CRBs.

The CBK will oversee their use of credit information sharing, as is the case for banks, saccos and other entities currently using the system. Sharing credit information is one of the most powerful risk management tools for micro-lenders who typically do not take collateral from borrowers when granting short-term loans.

A negative listing makes it almost impossible for a person to take out a loan from another credit provider, which acts as a deterrent against default.

Digital lenders will now set interest rates on their loans within CBK-approved parameters in an effort to protect borrowers from the predatory lending that has pushed many into the debt trap.

The proliferation of lenders has burdened borrowers with high interest rates that are rising up to 520% ​​per year, leading to growing defaults and an ever-increasing number of defaulters.

The new law also grants the banking regulator the power to revoke the authorizations of digital lenders who violate the confidentiality of personal information to prosecute defaulting borrowers. It aims to halt a trend where some lenders are resorting to “debt shaming” tactics to collect on loans.

There have been reports of debt collectors suing borrowers by telling their friends and family using contact information extracted from their phones or threatening to tell their employers.

Digital lenders have until September 18 to comply with all requirements and obtain operating licenses from the CBK. The CBK will also have the power to revoke or suspend the licenses of digital lenders who do not disclose full information about loan facilities to borrowers, in accordance with consumer protection law.

The Consumer Protection Act requires sellers to disclose to consumers all relevant information related to the purchase of a good or service.

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