State moves to protect borrowers’ personal data
The banking regulator will have powers to revoke the permits of digital lenders who breach the confidentiality of personal information to pursue defaulting borrowers. The National Assembly Committee on Finance and National Planning added a clause to the Central Bank Amendment Bill 2021 that puts on notice rogue digital lenders who share personal data of loan defaulters.
Such lenders will be stripped of their operating licenses if Parliament passes proposed changes to the law to curb the abuse of confidential records.
Some lenders have used debt shaming tactics to compel defaulters to pay their loans by informing friends, family members, or employers. The proposed law aims to stop this trend.Â
 “The bank may suspend or revoke a licence by written notice to the holder of the licence, if the licensee (digital lender) is in breach of subsection (2A) or the conditions of the Data Protection Act or the Consumer Protection Act,” reads the Bill.
The Data Protection Act bars sharing of data with third parties without consent and gives individuals the right to be told when their data is being shared and for what purposes.
Digital lenders require borrowers to share personal information, including their professions and monthly earnings, during their registration on their platform. Some even share their borrowers’ personal information with data analyzing firms for marketing.
The abuse of the personal data of borrowers has been flagged before by the Central Bank of Kenya (CBK), which urged lawmakers to fast-track legislation to provide for the regulation of digital lenders.
The Data Protection Act further compels firms to disclose to individuals and customers the reasons for collecting their data and ensure that the confidential information is safe from infringement by unauthorized parties.
CBK will also have powers to revoke or suspend licenses of digital lenders who do not disclose full information on loan facilities to borrowers, in line with the Consumer Protection Act.
Digital lenders have also been accused of not revealing full information on pricing, punishment for defaults, and recovery of unpaid loans.
The Consumer Protection Act requires sellers to disclose to consumers all relevant information tied to the purchase of a good or service.
The Bill also requires digital lenders seeking licenses to get clearance from the Data Commissioner as the State moves to protect abuse of borrowers’ information.
The enactment into law will see digital lenders operate under the same rules as commercial banks, including seeking the CBK’s nod for new products and pricing that includes loan charges.
CBK will have powers to supervise digital lenders for the first time and help reduce the growing debt trap affecting many Kenyans.
Digital lenders will put a ceiling on non-performing loans at less than twice the defaulted amount if the Bill becomes law.
Scores of unregulated microlenders have invested in Kenya’s credit market in response to the growth in demand for quick loans, where borrowers can get loans in minutes via their mobile phones.
Digital lenders without operating licenses will be barred from business in a bid to push out rogue players amid concerns of unethical practices.
Lobbies that had petitioned Parliament during the review of the Bill also said that loan applications are private affairs that should be treated as confidential information.
Digital lenders have saddled borrowers with high-interest rates, which rise to 520 percent when annualized, leading to mounting defaults and an ever-ballooning number of defaulters.
