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Are Facility Fees Interest?

26 March 2018
– 2 Minute Read

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Despite the recent High Court judgment in the 2016 constitutional petition (the Petition) filed by the Consumer Federation of Kenya (Cofek) against Commercial Bank of Africa (CBA) and the Central Bank of Kenya, we, unfortunately, still do not know if facility fees are interest.

In the Petition, Cofek alleged that any sum charged by CBA above the loan principal amount is interest as defined in the Banking Act, Cap 488 (Banking Act). Cofek further alleged that the 7.5% on a 30-day loan charged by CBA on its M-Shwari loans amounted to an interest rate of 90% per annum which exceeded the legally allowed interest rate. To the contrary, Cofek alleged, Kenya Commercial Bank (KCB) and Equity Bank (Equity) both offer mobile loans with interest rates within the legal limits.

CBA’s position, on the other hand, was that the 7.5% was not interest, but rather a one-off transaction fee for each loan given through the M-Shwari platform. Therefore, the comparison to the other banks’ mobile loans was irrelevant because both KCB and Equity must comply with the Banking Act as they were charging interest on their loans when CBA was not.

The Judgment by the Court

The Court determined that the issue at hand, whether the 7.5% charged by CBA was a transaction fee or interest, was an issue of facts.  The Court noted that Cofek had not presented any facts to support its allegation that the 7.5% was interest.  Rather, Cofek merely produced assumptions in the Petition; as a consequence, Cofek did not meet the required standard of proof and the Court dismissed the Petition without answering the question regarding facility fees and interest.

It therefore remains to be seen what stand the courts will take on the nature of facility and transaction fees levied by lenders.

Please see the judgement. For further assistance please contact our Banking and Finance Partners or your relationship partner at Bowmans Kenya.