The New Consumer Protection Bill: Will it adequately address the challenges of Kenyan microfinance borrowers?

Consumer protection has come into the spot light in Kenyan parliament with the introduction of the new Consumer Protection Bill.  If the new bill is passed, consumer advocacy organizations will have something to celebrate during the New Year.  The rights of all Kenyans will be expanded, but this bill is especially important for financial based consumer rights in Kenya.

After hearing similar consumer concerns during interviews with microfinance borrowers over the past five months, I have discovered that this bill is especially important for consumers of financial products. 

As a stranger to the Kenyan microfinance borrowers whom I have met and interviewed, I found that asking about the two Ds [debt and default] is difficult.  For many Kenyans, defaulting and becoming indebted is often like becoming an outcast in his or her community.  Borrowers always seem to know someone or heard of another borrower who defaulted.  It is never the interviewee who experiences such hardships.  While my interview questions did not directly ask about consumer concerns, I have found that interview responses discuss the lack of protection of borrowers.  

As I comb through the interviews conducted with over sixty-five borrowers, I find that some of their consumer rights and protection concerns will be addressed while others will not in the new Consumer Protection Bill.

-What the consumer protection bill protects: Summary of eight important financial based consumer rights that will protect borrowers of “closed credit.”

1.   At or before the time a borrower enters into a credit agreement, every lender must deliver to the borrower a disclosure statement of the credit agreement.

2.   Thirty days after the lender increases the annual interest rate 1% or more than the most recently disclosed rate or changes the amount of the loan payments (not the number of payments), the lender must submit a new disclosure statement to the borrower.

3.   A borrower may purchase insurance, if required, from any insurer of the borrower’s choice.

4.   A borrower may terminate optional service of continuing nature provided by the lender.

5.   If lender allows for period of loan deferral, the lender must state whether if interest will accrue.

6.   Default charges are limited to responsible charges in respect to legal costs incurred in collecting   payments and realizing or protecting security after a borrower defaults.

7.   A borrower can pay the full balance of the loan amount at any time without penalty.

8.   No lender can release or make representations of any credit agreement in any form unless complying with the prescribed requirements. Thus, providing privacy of information for borrowers. 

Despite these transformational new rights, there are seven more financial based consumer rights that need to be protected under the new bill.  These suggestions are based on the concerns and obstacles that borrowers discussed during interviews that I conducted, including concerns of transparency and not understanding their loan agreement, requirements and terms.

-Needed Improvements to the Consumer Protection Bill: Summary of seven more financial based consumer rights for borrowers of “closed credit” that NEED to be protected under the new bill.

1. Every borrower should receive a copy of his or her loan agreement before entering into an agreement.
2. Every borrower should receive a new disclosure statement containing ANY change to the loan agreement that the borrower initially signs when entering into an agreement.
3. Lenders should be required to disclose specific information in loan agreements, including all lending fees, a summary of loan repayment amounts and dates, penalties of default, insurance requirement and coverage, ect.  
4. A minimum and maximum page requirement should be established for all loan agreements to enforce plain language to make it easier for borrowers to understand loan obligations and requirements.
5. After signing a loan agreement, a cooling off period (with or without penalty) should be provided to all borrowers with the opportunity to withdrawal from their agreement. (Currently, consumer protection bill only provides such protection to consumers who want to cancel a personal development services agreement).
6. All lenders should be required to provide debt counseling and financial education for borrowers.
7. Most importantly, a consumer protection agency needs to be established under the Consumer Protection Bill 2011 that provides financial resources, protection and education for consumers.

With the expansion of further financial based consumer rights in the new Consumer Protection Bill, consumers will not only be able to make educated financial decisions, but they will be provided with legal protection paving the way for any Kenya to have a long and healthy financial future.