There's acute need to protect consumers of financial services

What is the state of consumer protection in the financial services sector today?

If you write a letter to the CEO of your bank to complain about an overcharge on your credit card or on your account today, what is the likelihood that you will get a reply?

Although we have consumer protection laws in our statutes, we do not have effective institutional mechanisms for enforcing them. And, we do not have specific consumer protection laws against providers of financial services.

Unlike places like the United States of America, where you have specific consumer protection laws for the financial sector services- complete with a Consumer Financial Protection Bureau, we don’t have protection laws for financial services.

It is a worrisome state because the needs for protection of citizens who consume financial services has never been more acute.

Indeed, the number of ordinary men and women borrowing money from their mobile telephones has grown exponentially, especially among the lowly-paid workers and the self-employed residents of Nairobi.

The other day, I had a very illuminating discussion with a cousin – a matatu driver on the Dandora route – who confessed addiction to mobile phone loans. With his daily income of Sh1,200 a day, he finds himself borrowing money and service the loan from his phone all the time.

Today, the typical lowly-paid worker living in the Eastlands areas of Nairobi will be on his phone constantly, shuffling money from Mpesa to M-Shwari to the KCB mobile loan and to Sportpesa.

And, the exponential growth of gambling by the lowly paid as manifested by the very fast proliferation of companies such Sportspesa is yet another interesting aspects of the life and times of the lowly-paid citizens who live in the populous parts of the city.

In less than ten years, we have witnessed the proliferation and growing prevalence of casino-style high-tech gambling machines even in places such as Dandora, Huruma, Kayole, Umoja and Komarock where gambling was not known before.

Our banks are basically cashing in on poverty, taking advantage of the ubiquity and convenience of the mobile telephone to saddle citizens with small loans which, on the face of it, appear cheap but which, in reality, are very expensive, especially when calculated on a per annum basis.

As a consumer, the question you should ask is: where is the partition between my M-Shwari loan, my KCB mobile phone loan, my M-Pesa account, my telephone subscriber account and my Sportspesa account?

This is a very pertinent question because, as a consumer, the current arrangement where money can be shuffled between accounts and across separate service providers leaves you at risk: if you default on one, you will have defaulted on all. For instance, when you default on M-Shwari, you endanger both your Mpesa and telephone line subscriptions.

Worse, the three services are offered by separate entities. Clearly, the case for comprehensive consumer protection law for financial services cannot be gainsaid.

Long gone are the days when the neighbourhood shopkeeper used to be the biggest provider of credit for the ordinary lowly-paid worker. You passed by to collect unga and bread in the evening and paid for it on payday.

Today, the mobile telephone loan has become as big as the payday loans we read about in the United States. Which is why we need tougher and comprehensive consumer protection laws for the financial sector.

Our system is ripe for the introduction of usury laws. A few years ago, we introduced credit reference bureaus. But where do you seek redress for injustices committed by reference bureaus? Indeed, many consumers have been complaining about being reported wrongly by bureaus and lenders.

We must force lenders to offer transparent charges and fully disclose fees, rates, repayment schedules and to give contracts that are written in plain English
We need tougher regulators with powers to impose heavy fines, who can issue cease and desist orders, withdraw licences and who can compensate consumers for abuse.

We need a separate agency, a financial sector ombudsman with judicial powers and which is dedicated to hearing complaints by consumers.

Only a tougher regulatory regime can protect the interests of the millions of ordinary Kenyans caught in the craze for mobile phone loans.

Although consumer protection is a key issue under the 2010 Constitution, we did not follow it by enacting a specific law for the financial sector. We can no longer treat the matter lightly because ordinary citizens with no capacity to pay for court litigation are now in the game.

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