The Central Bank of Kenya (CBK) is looking for a consultant to spy on commercial banks and microfinance lenders in order to uncover consumer violations such as hidden charges, false advertising, risky lending, and bribery.
The consultant is expected to conduct covert operations in the banking hall while posing as a customer in search of practices that breach CBK consumer protection guidelines.
Banks that violate the rules risk losing their licenses, having their directors fired, and paying a Sh5 million fine, while employees who violate the rules face a Sh200,000 fine.
“The survey intends…to carry out a mystery shopping survey to confirm banks’ compliance with consumer protection guidelines. The consultancy will be limited to a period of three months from the date of commencement,” says CBK.
“(The consultant will) carry out mystery shopping visits in various institutions licensed under the Banking Act.”
Mystery shopping is the act of posing as a customer while being hired by a third party to evaluate a company’s products or services.
The CBK checks are aimed to provide greater protection to bank customers who have been subjected to arbitrary increases in loan charges and interest rates, as well as numerous fees hidden in fine print.
The consumer protection guidelines restrict banks from engaging in unfair or deceptive practices such as false advertising or humiliating a customer.
It requires banks to provide full disclosure of their fees and interest rates, as well as prominently display the cost of their service at branches, product promotions, and websites.
Lenders are prohibited from reckless lending and are required to follow up on borrowers to ensure that borrowed funds were used for the intended purposes.
The rules, which are now backed by a data protection law, specify how personally identifiable data obtained by banks must be handled, stored, and shared.
CBK places banks in charge of security in the face of an unprecedented wave of online bank fraud, primarily through scams.
Banks are required to advise customers on how to protect their accounts, cheque books, bank cards, PINs, and other documents containing account information.
“An institution shall provide consumers with a dedicated telephone line(s) to enable consumers to report a lost or stolen card, cheque book or passbook or a suspect transaction,” says CBK.
Despite the regulator’s push for greater transparency in banking sector pricing, previous studies by the Financial Sector Deepening (FSD) Kenya have raised concerns about hidden costs charged to unsuspecting customers.
According to the report, banks are filing disclosures that do not fully account for the tariff situation.
“Although banks are required by the Central Bank of Kenya (CBK) to publish “tariff guides” with all their fees and charges, the FSD study found that many were either outdated, incomplete or lacking account-specific information,” said FSD in the study whose findings put the regulator on the spot for failing to protect consumers.
“Despite visiting over 30 bank branches and consulting tariff guides, customer care representatives, bank websites, enquiring from colleagues and friends, over several weeks in 2015 and 2016, we still could not get consistent pricing information,” says FSD in the study.
The report summarizes the findings of a two-year study conducted by FSD Kenya, a UK-funded NGO, to better understand the costs of banking services in Kenya.
It claims that two rounds of mystery shopping surveys were completed in October and November of 2015 and 2016 to build a database and measure the costs for basic bundles of transactions such as opening, running, and closing bank accounts.
However, the report states that while conducting the study, it became clear that bank pricing data is difficult to obtain and market information remains opaque.
To collect data, researchers posed as customers at multiple bank branches, as well as customer service hotlines and web searches.
According to the researchers, some data was difficult to obtain and validate, even from different branches of the same bank.
CBK is now attempting to conduct its own new mystery shopping exercise. It flagged nine unnamed banks last year for noncompliance with various prudential guidelines and rules, compared to 13 in 2020.
