Who will protect Borrowers who fall behind in payments? CBK take a stand

Times have been hard for many since we came through the pandemic season of Covid-19. Battered businesses that could not survive the sudden loss of clientele, the strangled supply of exports or the increasing cost of doing business, simply folded up and called it a day.

The auction pages in our daily newspapers continue to become the thickest part of the newspaper. What is being auctioned? Anything and everything under the sun. From high end shopping malls to premier schools, manufacturing enterprises to family-owned businesses. Several large, medium-sized and small firms just called it a day.

Most Borrowers have had to go to court to simply gain access to the bank statements and the calculation their bank has relied upon to calculate interest. Is this information supposed to be a secret? Absolutely not.

Borrowers are not beggars. They never were, in the first place. Borrowing was, and still is, a business transaction where both parties have responsibilities. It is sad that Lenders still see themselves as some sort of Your Royal Highness lording over Borrowers who they make jump through endless hoops.

Borrowers are frustrated while seeking information they should rightfully have. A circus, it has become.


HOW CAN SANITY BE RESTORED?

How can the dignity of defaulting borrowers be preserved?

The first frontier for protection is education.
And the second frontier is legislation.

Borrowers must know the processes for Debt Recovery right from the beginning; well before they fall on hard times and fail to meet their loan payments.

As it stands, getting one’s head around their arrears situation often requires a law degree and multi-tasking pedigree!

CRB Act, Land Act 2012, Land Registration Act 2012, Contract Law, Auctioneer’s Act, the Banking Act, CBK Prudential Lending Guidelines to mention but a few, are some of the pieces of legislation that Borrowers must peruse in order to understand what options they may have.

Did you know that all contracts with your Bank are subject to the current laws of the land?

And what does current legislation say about your situation? What rulings have judges passed that speak to your case? What precedence has been set? Kindly seek competent financial advisory and legal counsel and begin to chart your path through this valley of temporary stress.

Yes, the stress is temporary.
You will be fine.
Just don’t walk alone, OK?


ONE SOURCE OF TRUTH

Central Bank of Kenya urgently needs to set an industry standard for the solid steps that Financial Institutions must follow when bearing down on Borrowers to settle their arrears.

These steps must be set in law, so that the loan contracts drawn and the registered charges are subject to the laid down statutory FAIR debt collection procedures.

It is now time to put it all into one document – for ease of reference, to both Lenders and Borrowers. This would save the Courts’ time ensuring all parties are playing by the same rules. Mediation would be dispensed faster and, most importantly, Borrowers would be well guided in their dealings with Lenders.

Extending statutory debt collection procedures to mobile lenders, credit card issuers and pay-later commercial institutions would then be the next step. Consumers, for instance, would benefit from seeing the total cost of credit upfront – well before swiping their credit card, or taking that washing machine home.

“Your purchasing decision today will affect your future financial wellness.” This is something every consumer ought to know. Making an informed decision is what we are aiming for. It is high time all parties behaved responsibly and with transparency at the point of sale.


IS IT TIME FOR A FORECLOSURE ACT?

This specific legislation exists in other jurisdictions and distressed Kenyans would greatly benefit from removing the stress caused by arm-wrestling bankers and auctioneers.

Very often, Borrowers are presented with 30 to 40 pages of paragraph after paragraph of voluminous legalese. What does it all mean? Who has the patience to read all this text? Can I just sign and get my mortgage approved?

At a minimum, it is time that Debt Recovery Procedures were explicitly articulated in Banking Facility Letters, much the same way General Terms and Conditions form part of the executed Loan documents, Insurance Policy Documents and Account Opening documentation.

Here are useful examples from other jurisdictions where governments are concerned about harassment of Borrowers who fall on hard times.


NIGERIA
draft guidelines on responsible business conduct.pdf (cbn.gov.ng) >>

The Central Bank of Nigeria (CBN) has in place Consumer Protection Guidelines for Responsible Business Conduct. In these guidelines, the Central Bank requires that customers are informed of debt recovery procedures in all loan contracts (see p.9).

Unlike the 14 days Kenyan defaulters have – between Auction Notice in the press and the Auction Date – Nigerian defaulters have six months to figure things out. Two weeks versus six months. Which is less stressful? It is a no-brainer.


AUSTRALIA
Debt collection guideline: for collectors and creditors (accc.gov.au) >>

These Australian guidelines by their consumer protection body merge procedure (from the law), practice (good common sense) and precedence (court rulings). The responsibilities and obligations of debt collectors are spelt out clearly. Have a look at p.58 and smile.


THE UNITED STATES
https://www.marincounty.org/~/media/files/departments/da/consumer-guides/dc2.pdf >>

In the US, the Fair Debt Collection Practices Act was adopted by Congress as far back as 1977. This federal law applies to all the states in the US. It regulates the form and content of communications by debt collection agencies to debtors and others; while according specific rights to defaulters.

The State of California (USA) has in place its own Fair Debt Collection Practices Statutes which extends everything under the federal act beyond Debt Collection Agencies, to the original Lenders and Creditors. This was necessary as banks would aggressively go after defaulters in a way debt collection agencies were forbidden from behaving.

The most important legal rights of defaulting Borrowers include (turn to p.5):

– the right to dispute the debt
– their right to stop communication
– their privacy must be respected
– they must be protected from unfair collection practices
– no obscene, profane or abusive language is to be used
– no reporting of the debt to the debtor’s employer, family members (with the exception of their spouse) and third parties


THE EUROPEAN UNION
Cross-border debt recovery (EAPO) – Your Europe (europa.eu) >>

The EU has introduced changes to bring about a uniform procedure common to all Member States; removing any barriers that exist Cross-Border Debt Collection. The two specific procedures, the European Order for Payment Procedure and the European Small Claims Procedure, have eased the burdens of defaulting parties while providing clarity for all parties (including courts).

For instance, if any EU firm owes you money, you can apply for a European Account Preservation Order (EAPO) to have funds in the company’s bank accounts frozen. This EAPO procedure is applicable across the EU except Denmark.


KENYA
PGs (centralbank.go.ke) >>

Take a look at Central Bank of Kenya’s (CBK’s) Prudential Lending Guidelines. They appear almost as-if to pacify Lenders. Terms are couched in non-instructive, escapism, soft language.

Check out p.493 “it is advisable that borrowers and their guarantors are frequently notified…” What does this mean? Is it a requirement? CBK does not want to “tell” Lenders what responsibilities and obligations they have towards Borrowers, yet that is their role when it comes to consumer protection – tell Lenders exactly how to behave responsibly. Borrow from the Californian template; be very specific.

Another one on the same page p.493 “Institutions shall develop procedures for notifying their consumers generally of the need to check their loan repayment status to avoid disputes…” Can someone decipher what this sentence means?

CBK’s language is particularly onerous on the part of Borrowers; placing the task of knowing and seeking out information on the Borrower and not placing enough emphasis on the Lender to be fair, transparent and proactive in providing much needed financial information.

Dear Central Bank of Kenya – It is time to have in place uniform Fair Debt Collection Practices that all Lenders must follow. The federal law in the US is a great template from which to kick off this journey. It is time to protect consumers. It is time to protect borrowers. Accept the challenge.


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EXPLAINER VIDEOS

If Kenyan Lenders were truly honest with their clientele, they would have explainer videos of how interest is calculated on their loan facilities. In this day and age of social media where teenagers turn into masterchefs from following online mentors, is it not time for responsible lenders to use the same social media power to explain the most frequently experienced problems?

Dear Lenders – Upload a YouTube video showing how your interest, on daily overdrawn balances, is calculated on a reducing balance basis; a video explained in a manner any Borrower can understand. That’s your mission, should you accept it.