Predatory Creditors: ‘Buy now, pay later’ firms accused of exploiting borrowers
The ‘Buy Now, Pay Later’ (BNPL) model has flooded Kenya’s lending market, attracting thousands of borrowers with promises of easy access to assets, but often leaving them in worse financial situations.
Kigumo MP Kamau Munyoro recently presented a petition in Parliament, calling for an investigation into BNPL schemes. Munyoro, who also serves on the National Assembly’s Finance and National Planning Committee, raised concerns after a constituent lost a motorcycle despite having paid Sh250,000 on a loan worth Sh260,000.
“I questioned how someone could pay so much and still lose the bike. When we summoned these companies, we discovered they operated without proper regulations and set their own interest rates,” Munyoro said.
One might wonder: How do people fall into such situations? Do they not read the terms and conditions? Ken Onyango, National Chair of the United Boda Boda Association, sheds light on the challenges.
“We used to rely on banks, but many riders couldn’t meet the strict requirements, such as providing collateral. That’s when BNPL companies came in, offering easier terms. Riders only had to pay a deposit to get a bike,” Onyango explained.
Mr Munyoro added, “Many of our young men and women are desperate, looking for quick ways to start a business. They don’t bring lawyers to read the fine print. Instead, they just sign wherever they’re told and leave with the bike.”
Onyango echoed this: “If a bank asks for a title deed, but another company only requires Sh20,000 as a deposit, it’s obvious where someone will go.”
Currently, over 16 asset finance firms in Kenya offer BNPL services. As of early 2024, the Central Bank of Kenya (CBK) had received over 500 complaints from consumers across various digital lending platforms, including BNPL services.
One notable case involves MOGO, which entered the Kenyan market in 2019. Following investigations into some public complaints, the company was slapped with a Sh11 million fine from the Competition Authority of Kenya (CAK). Additionally, MOGO was ordered to pay Sh340,000 in compensation to three customers for misleading loan terms.
The CAK’s decision to fine MOGO was based on findings that the company engaged in misleading and unconscionable conduct in loan administration. However, Munyoro highlighted a legal gap, stating, “They are technically doing nothing wrong because there are no specific laws governing this sector. Parliament needs to step in and create regulations.”
MOGO, in their defense, claimed they fully inform customers about loan terms.
“The loan balance may increase for various reasons, including accrued interest, late payment fees, loan top-ups, and amendments to the loan agreement. Customers are fully informed about the repayment schedule and the terms and conditions of the contract prior to signing. Whenever changes that could affect the loan balance are proposed, all customers are consulted and must provide their approval,” MOGO stated.
Lenders are governed by the Central Bank Act that creates protection to the borrower by having caps on the interest rates thus prohibiting exploitation.
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