Kenyan banking institutions now confront a rising threat of being compelled to refund customers for unpermitted fee structures, as regulators heighten enforcement over excessive and illegal charges levied on loan accounts.
The scrutiny comes in response to a regulatory push backed by international precedents and growing consumer complaints, all pointing to widespread use of fees that exceed permissible thresholds.
Regulators are reviewing current fee schedules applied to loan products, particularly daily default fees, credit facility premiums, and early settlement penalties that disproportionately affect low-income borrowers.
These charges often exceed legal caps set by frameworks such as the Draft Banking (Fees) Regulations and the Revised Guide to Bank Charges. In Nigeria, for instance, the Central Bank mandated the phasing-out of Commission on Turnover fees after declaring them illegal, contributing to major corrective action in fee policy enforcement.
In Australia, regulators ordered banks to refund more than USD 93 million to low-income customers for excessive fees, demonstrating a global trend toward accountability.
In Kenya, the Draft Banking (Fees) Regulations released in early 2025 clearly define permissible charges and prohibit exorbitant fees that strip borrower equity or undermine affordability.
Consumer groups have reported cases where banks applied compound daily penalties that drive outstanding balances beyond reasonable levels, especially in mobile‑linked credit accounts. Loan default charges and penalty interest accumulations constitute major sources of dispute, prompting formal complaints lodged with regulatory authorities.
Legal analysts warn that banks found applying illegal charges may face structured refund mandates, enforcement orders, and reputational fallout.
Public interest litigation remains possible, particularly in courts protecting informal or vulnerable populations who disproportionately bear the cost of fee abuses. The regulatory tide is shifting toward a rights‑based approach in financial inclusion, requiring transparent, fair, and capped fee structures.
Banks, for their part, are reassessing product governance and lending terms. Many lenders are reviewing fee algorithms, waiving or scaling down punitive default penalties, and bolstering borrower communication during delinquencies.
Some large banks have initiated customer remediation drives voluntarily, in anticipation of formal directives. Institutional governance is moving to align product design with compliance expectations and ethical lending standards.
Deposit taking institutions are also reinforcing internal audit controls to detect legacy fee models that may breach emerging regulations or expose them to refund liabilities.
Where fees exceed caps established by the law or guide, credit units must provide roll‑back mechanisms and transparent refund processes. The banking trade body continues to engage with regulators to streamline implementation timelines and clarify retroactive enforcement thresholds.
Customer advocates stress that meaningful reform must include financial literacy efforts to empower borrowers to challenge unfair fees and choose better‑suited credit products.
Without such support, consumers may remain unaware of exploitative charges embedded in standard loan documentation.
As regulatory enforcement grows sharper, banks face mounting pressure to clean up loan products, refund unlawful charges, and restore trust with consumers.
The coming months may see a wave of compensation obligations, structural fee revisions, and heightened regulatory oversight shaping Kenya’s credit landscape for vulnerable and mainstream borrowers alike.
Written By Ian Maleve
