The Competition Authority of Kenya has imposed a Sh10.85 million fine on Mogo Auto Limited, one of the largest financiers of car logbook loans, after investigations found misleading credit terms and failures to handle exchange rates appropriately. The CAK also ordered Mogo to refund Sh344,939 to three customers affected by these practices.
Background of the Investigations and Complaints
Investigation into Mogo's practices was after a litany of complaints filed with the CAK between May 2023 and April 2024. The core issues at the heart of the complaints included variance in loan repayment terms, surprise changes in currency exchange rates, and changes in interest rate structures that heavily altered what the borrower had to repay. At the center of the complaints were customers who said Mogo had failed to disclose critical components of their loan agreements, which later saw them pay more than they anticipated.
Cases Leading to the Penalty
- Cases highlighted by investigations done by CAK proved the point. For instance, there is an Exchange Rate Variance case: A customer applied for a Sh2.1 million loan in June 2022 at a flat interest rate of 2.6 percent, which was calculated in US dollars. Even though the customer got his money in Kenyan shillings, he claimed Mogo recalculated his repayments on a fluctuating dollar exchange rate.
- Incorrect loan balances: Another complainant who took a Sh300,000 loan facility in July 2021 found out 20 months later that his balance stood at Sh392,000. The loan, though issued in Kenyan shillings, was being repaid using a USD exchange rate that had fluctuated considerably during the period of repayment.
- Unforeseen Currency Conversion: The third involved a client who was financing 50 percent of a vehicle purchase with Mogo. The borrower was misled to understand that the USD conversions were only for record-keeping purposes, when Mogo afterwards came back to request that the repayments be in Kenyan shillings but calculated from the USD exchange rate to result in higher costs.
- Interest Rate Changes without Notice: A fourth customer complained that Mogo jacked up its interest rate from a flat rate of 2.5 percent to a reducing balance rate of 3.85 percent without informing the customer, thus inflating the overall cost of the loan.
CAK's Rulings and Requirements for Mogo
The CAK found Mogo Auto Limited culpable for contravening the Competition Act by making false representations and engaging in unconscionable conduct. To that end, the authority ordered Mogo to refund the complainants whose case led to the charges on grounds of excess charge occasioned by the discrepancy in the exchange rate and the restructured interest rates as follows:
- Complainant one: Sh108,745.1
- Complainant two: Sh80,915
- Complainant three: Sh155,279
It also ordered Mogo to refrain from such practices in the future, resolve all pending customer complaints, and make transparency in its loan agreements and repayment structures.
Implications for Consumers and the Lending Sector
This case reminds us of the essence of transparency in lending. As digital lending, among other alternative financial services, continues to take root in Kenya, consumers are encouraged to be very observant with the terms of loans, especially those involving foreign exchange rates. For regulatory bodies like the CAK, this case exemplifies a need for continuous scrutiny of lending institutions with a view to ensuring that they comply with ethical practices hence protecting consumer interests.
The implication of such a move is that it also underpins the role of CAK in ensuring fair competition and protecting consumers against predatory lending practices.