An examination of the adequacy of the An Examination of the Adequacy of the Consumer Protection Act in Protecting Banking Borrowers in Kenya.a Case Study of the National Bank of Kenyan Terms and Conditions for an Unsecured Loan

Abstract

The passage of the Consumer Protection Act 2012 (CPA 2012) has been heralded as a new dawn for borrowers in the Kenyan banking sector. Until its passage in December 2012, the regulatory framework dealing with the protection of borrowers lacked a cohesive policy and regulatory framework because it had been scattered in various private and public law measures. Secondly, existing legislations such as the Banking Act and the Central Bank of Kenya Act did not offer sufficient protection to borrowers as compared to banks. This inequality in protection was largely attributable to the fact that, majority of the laws dealing with borrowers in the banking sector focused on safeguarding the interests of the banks first, at the expense of the borrower. Thirdly, in some instances, where such legislation contained checks and controls to protect the borrower, only the Central Bank, being the enforcing authority could implement them against the banks and therefore the borrower had to rely on a third party to enforce his rights on his behalf. This paper therefore seeks to examine to what extent protection of the borrower has been strengthened by the passage of the Consumer Protection Act. In order to achieve this goal, I shall first identify banking practices in the “National Bank terms and conditions for unsecured loan,” which I deem to be unfair to the banking borrower. Having done that, I shall then examine the CPA 2012 to identify whether it has any form of protection for the borrower against the identified unfair practice. The adequacy of the CPA 2012 in protecting the borrower will therefore be determined by whether or not it offers a solution to the identified unfair practice.In that regard, an unfair practice in this paper shall be considered to be any act or omission by the bank or its agents whose consequence may result in the banking borrower suffering a detriment or resulting in a disadvantage to the borrowers‟ interests. The fundamental argument in this paper is therefore twofold. First is the assertion that a comprehensive legislative framework is crucial for adequate protection of the borrower. Consequently, the quest for protection of the borrower must welcome into this discussion the intricacies of a contractual relationship, the unequal bargaining power between the lender and the borrower, the different capacities of borrowers especially the vulnerable ones and the capacity to monitor lender-borrower behaviour and enforce penalties and remedies in order to be adequate. The second part of the fold entails recognition of the fact that a comprehensive legal framework with adequate protection clauses for the borrower is only as good as its implementation. It is therefore important to establish an institution to enforce the legislation and to set up a criterion for enforcement.