CBA lawsuit on cost of M-Pesa loans dismissed

The High Court has dismissed a case filed by Consumer Federation of Kenya (COFEK) to stop a local bank from charging its M-Shwari customers a higher interest rate on mobile loans.

In his ruling, Justice Fred Ochieng said the lobby group did not prove their case against Commercial Bank of Africa (CBA) neither did they meet the threshold of filing the petition.

COFEK had accused the institution of selectively complying with the new Banking Act 2016, which stopped the imposition of high interest rates on loans.

M-Shwari Borrowers

“Dear customer, from 14/09/2016, your Mshwari deposit will earn interest of 7.35% p.a. being 70% of CBR. Loan facility fees remain unchanged at 7.5% per loan.” read the message from CBA to its clients on September 15, 2016.

The message is what led to COFEK seeking legal intervention against Commercial Bank of Africa.

They argued that the bank was using strange semantics such as ‘facilitation fees’ to levy an interest of 90 per cent per annum on Safaricom’s M-Shwari users.

In the lawsuit, COFEK claimed Commercial Bank of Africa made M-Shwari borrowers suffer by denying them low interest rates.

“Failure to compel the 1st respondent [CBA] and 2nd respondent [CBK] to comply with the Banking Act 2016 will escalate sector indiscipline which would eventually hurt the customers as banks will decide what and when to charge helpless consumers,” they argued.

COFEK said the argument that M-Shwari is a special product for micro lending and is exempt from the provisions of the Banking Act is  illogical as it falls flat against the principal-agency relationship.