FAIR PRACTICES IN CREDIT RECOVERY

In Kenya, credit recovery procedures are guided by various legal and regulatory frameworks, including the Central Bank of Kenya (CBK) Regulations, Consumer Protection Act and the critical Data protection act that have caused legal tarsal against financial institution.

Below are key principles and legal procedures that creditors must follow when recovering debts fairly and legally:

1. Legal Framework Governing Debt Recovery

• The Central Bank of Kenya (CBK) Regulations: Governs debt collection practices by financial institutions to ensure fair treatment of borrowers.
• The Fair Administrative Action Act, 2015: Ensures that debt recovery actions are lawful, reasonable, and procedurally fair.
• The Consumer Protection Act, 2012: Protects borrowers from unfair debt collection practices.
• The Contract Act (Cap 23): Governs agreements between lenders and borrowers.
• The Insolvency Act, 2015: Provides legal processes for handling bankruptcy and liquidation.

2. Principles of Fair Credit Recovery

• Transparency: Lenders must provide clear loan terms, repayment schedules, and consequences of default.
• Due Process: Creditors must follow legal procedures before taking recovery actions.
• Proportionality: Collection measures should be proportionate to the amount owed.
• Confidentiality: Debt recovery agents should not harass or publicly shame debtors.

3. Debt Recovery Process in Kenya

A. Pre-Recovery Measures

• Loan Restructuring: Lenders should offer options such as extended repayment periods.
• Debt Negotiation: Borrowers and lenders should attempt to reach a settlement before legal action.

B. Formal Recovery Steps

1. Demand Letter A formal demand notice is issued to the borrower specifying the outstanding amount and providing a repayment deadline. The demand letter must comply with Section 90 of the Land Act (if secured by land).
2. Debt Collection Agencies Lenders may engage licensed debt collection agencies to recover outstanding loans. Debt collectors must comply with ethical and legal standards (e.g., no threats or harassment).
3. Legal Action If the borrower fails to repay, the lender may file a suit in court for enforcement. The lender may seek a court judgment for asset seizure, salary attachment, or auctioning of collateral.
4. Auctioning Secured Assets If the loan is secured (e.g., by land or a car), the lender can auction the asset under the Auctioneers Act. The lender must issue a 90-day statutory notice, a 40-day notification of sale, and a 14-day advertisement notice before an auction.
5. Insolvency Proceedings If the borrower is unable to pay, they may be declared bankrupt under the Insolvency Act. Businesses facing insolvency may undergo administration or liquidation.

4. Prohibited Debt Collection Practices

• Harassment, threats, or intimidation of borrowers.
• Unlawful seizure of assets without court orders.
• Public shaming of debtors (e.g., publishing names in newspapers).
• Charging illegal interest rates beyond CBK guidelines.

Conclusion

Credit recovery in Kenya must follow fair and legal procedures to protect both lenders and borrowers. Creditors should prioritize negotiation, restructuring, and lawful enforcement methods to recover debts while ensuring compliance with Kenyan laws.