Complaints about digital lenders

Complaints Detail

Complaints

Complaints about digital lenders

Country: Kenya
Court:
Sources: Social media (Twitter) Jan 21 at 2022,Official statements from ODPC and Thomson Reuters Foundation News
Tags: Lenders,Digital Lenders,Privacy,Fintech
Summary

John Bigingi, a taxi driver found himself in a fix of sorts after a lending company went after him.With the 14 day repayment period barely lapsed, Bigingi received a text that threatened to call his contacts, labelling him as a defaulter.  The lender in question was iPesa who since failed to respond to requests for comments on this. Ipesa had allegedly threatened to send 20 calls and 15 messages at 6 p.m. on that day to Bigingi’s contacts if he did not make payment by then.

The above is just but one of the many incidences of data protection breaches by lenders. This has been increasingly common, with more Kenyans borrowing from unregulated-mobile based loan apps termed as “rogue lenders'' offering collateral-free credit. Despite this downside, some  economists have hailed such lenders for “financial inclusion” for those without bank accounts. Many still hold, and rightfully so, that their practice is unethical and only aim to profit from the financially disadvantaged. An avenue for this violation has largely been data abuse , against their data protection rights.

Analysis

The ODPC, through Kenya's Data Commissioner, who has been investigating claims about rogue money lenders and loan apps, stated that the legislation (DPA 2019) would prevent such abuse and increase compliance with Kenya's legislation regulating the sector, which was approved in December. "The new law makes it an additional requirement for digital lenders to comply with the Data Protection Act, should they wish to retain their licenses,"she quoted.1 

Kenya boasts a large claim in the fintech space with large operators such as Safricom securing and promoting innovations such as the Mpesa mobile transfer that has been in collaboration with local banks. More startups have since emerged, and unfortunately some are targeted towards exploiting Kenyans who struggle to access credit for one reason or another. 

With mobile penetration surging, a plethora of fintech start-ups have emerged, eager to tap into the high demand for loans from low-income Kenyans who struggle to access credit due to a lack of employment, collateral or guarantors. Most compliant money lenders have relied heavily on machine learning algorithms  that are used to assess the creditworthiness of borrowers and in no time avail loans accessible to their phones. In the process, personal data ranging from contracts and money transactions  to social media footprint such as web history are scanned. The demand for such loans have since surged with numbers of 200,000 in 2016 scaling past 2,000,000 Kenyans in 2019, as relayed by the Central Bank data.2 

The sector had been unregulated, allowing rogue lenders to underhand unsuspecting borrowers by using their personal data to conjure blackmail. Researchers stated that some apps had been selling customer’s personal information to data analytics and marketing firms and sharing defaulters' details with credit reference companies, harming their future credit rating.3 The Kenya Commercial Bank voiced its concerns over these apps excessive lending rates and the impact on rising household debt. Besides harming the borrowers who even pay well above 400% in  interest resulting in unsustainable loans, the regulated economies are unable to compete as they have comparatively stringent compliance needs even for borrowing.4 

Under the new law, the Central Bank is to regulate digital lenders and take action against  those who curtail digital rights and compliance requirements. For example, loan apps now need to have their business models approved by the Central Bank before they are issued a license, and will also be covered by the data protection law - prohibiting the sharing of personal data without consent. Default in this law will result in revocation of licenses or face hefty fines and jail terms of up to three years.

The government's effort to enforce data protection notwithstanding, some privacy rights groups still question the government's ability to enforce the data protection law. They are more concerned with the substantive part, thus implementation rather than the   procedural part of legislation activity or enactment of laws and provision of rights that aren't enforced.

1. Bhalla N., ‘Silicon Savannah' Kenya targets loan apps abusing customer data, https://www.context.news/digital-rights/kenya-cracks-down-on-loan-apps-abusing-customer-data (January 19, 2022) 

2. Report on the Central Bank of Kenya (Amendment) Bill (National Assembly Bill No 10. of 2021). http://www.parliament.go.ke/sites/default/files/2021-08/The%20Central%20Bank%20of%20Kenya%20%28Amendment%29%20Bill%20No.%2010%2C%202021.pdf; Bhalla N., ‘Silicon Savannah' Kenya targets loan apps abusing customer data, https://www.context.news/digital-rights/kenya-cracks-down-on-loan-apps-abusing-customer-data (January 19, 2022). 

3. CIPIT, Privacy and Data Protection Practices of Digital Lending Apps in Kenya (2021). 

4. Report on the Central Bank of Kenya (Amendment) Bill (National Assembly Bill No 10. of 2021). http://www.parliament.go.ke/sites/default/files/202108/The%20Central%20Bank%20of%20Kenya%20%28Amendment%29%20Bill%20No.%2010%2C%202021.pdf


Frequently Asked Questions

Frequently Asked Questions

A data subject is a natural person who is the subject of personal data held by a controller and who can be identified, directly or indirectly, through that personal data.

Each data subject has the right:

  • to be informed whether or not his or her personal data is being processed,
  • to request information about the processing, if data has been processed,
  • to be informed of the purpose of the processing and whether the data is being used in accordance with those purposes,
  • to be informed about third parties who receive personal data in Kenya and abroad,
  • to request the rectification of incomplete or inaccurate processed data, and
  • to request the erasure or destruction of personal data.

Data processing refers to any operation performed on personal data, either entirely or partially, automatically or manually. This includes collection, recording, storage, preservation, modification, revision, disclosure, transmission, assignment, making available, classification, or prevention of use.

Data controller: is a natural or legal person who determines the purposes and means of personal data processing and is accountable for the data filing system's establishment and administration.

Data processor: is a natural or legal person that processes personal data on the basis of a data controller's authorization.

The data controller or processor is required to provide the following information: the purpose of the processing, the recipients of the processed data and the purpose of the transfer, the method used to collect personal data and its legal basis, and any other rights granted to the data subject by law.

The principles governing data processing are as follows: it must be processed fairly and lawfully, it must be accurate and up to date, it must be processed for specified, explicit, and legitimate purposes, it must be adequate, relevant, and not excessive in relation to the purposes for which it is processed, and it must be retained for the duration specified by law or for no longer than is necessary for the subsequent processing.

A Data Protection Impact Assessment can be used to identify and mitigate high risks associated with data processing that may impact the rights and freedoms of data subjects.

A data controller is a natural or legal person, public authority, agency or other body which, alone or jointly with others, determines the purpose and means of processing of personal data. On the other hand, a data processor is a natural or legal person, public authority, agency or other body which processes personal data on behalf of the data controller.