Digital lenders will now give loan defaulters a 30-day notice before their names are forwarded to credit reference bureaus (CRBs) under regulations that give the Central Bank of Kenya (CBK) powers to rein in the lending rates and abuse of consumers’ privacy.
From September 18th digital lenders will be obligated to inform loan defaulters in writing or through electronic means about their listing a month before sharing their status with the CRBs just like commercial banks.
“A digital credit provider who intends to furnish negative information to a bureau with respect to a customer shall, in writing or through electronic means, notify the customer of the intention to submit the negative information at least 30 days before submitting the negative information to the bureau,” say the regulations by CBK.
Currently, digital lenders inform defaulters of their planned listing with the bureaus as a tool to push for loan repayments and are not obligated to give the 30-day notice.
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. The lenders, comprising those issuing credit through mobile phones and the Internet, were accused of aggressive tactics, including threatening borrowers with negative listings.
However, the new regulations by the CBK brought digital lenders under the control and allowed them to share borrowers’ data with the CRBs.
The CBK will supervise their use of credit information sharing as is the case for banks, SACCOs and other entities currently using the system. Credit information sharing is one of the most powerful risk-management tools for micro-lenders who typically don’t take collateral from borrowers when issuing short-term loans.
A negative listing makes it nearly impossible for one to take a loan from another credit provider, serving as deterrence against default.
Digital lenders will also be required to set interest rates for their loans within parameters approved by the CBK in an effort to protect borrowers against predatory lending that has pushed many into a debt trap.
