The Central Bank of Kenya (CBK) is seeking a consultant to spy on commercial banks and microfinance lenders to uncover consumer violations such as hidden fees, false advertising, reckless lending and bribery.
The advisor is expected to conduct covert operations in the banking hall while posing as a client looking for practices that violate CBK’s consumer protection guidelines.
Banks that break the rules risk having their licenses revoked, directors removed and a Sh5million fine, while workers who break them face a Sh200,000 fine.
“The survey intends to … conduct a mystery shopping survey to confirm banks’ compliance with consumer protection guidelines. The consultation is limited to a period of three months from the start,” says CBK.
“(The consultant will) carry out mystery shopping visits to various institutions approved under the German Banking Act.”
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Mystery shopping is an activity in which one pretends to be a customer while being hired by a third party to review a company’s products or services.
The CBK checks are designed to better protect bank customers suffering from arbitrary increases in fees and lending rates, as well as numerous fees hidden in the fine print.
The Consumer Protection Directives prohibit banks from engaging in unfair or deceptive practices such as false advertising or humiliating a consumer.
She urges banks to fully disclose their fees and interest rates, and to prominently display the cost of their services in branches, product promotions and on websites.
Lenders are barred from reckless lending and must follow up on borrowers and ensure that they have used the funds borrowed for their intended purposes.
The rules, now backed by a Data Protection Act, place restrictions on how personal information received from banks must be handled, stored and shared.
CBK is giving banks the security responsibility amid the unprecedented wave of online banking fraud, primarily through fraud.
Banks are required to educate consumers on how to protect their accounts, checkbooks, bank cards, PINs, or other documents and information related to the accounts.
“An institution must make one or more dedicated phone lines available to consumers so that consumers can report a lost or stolen card, checkbook, or passbook, or a suspicious transaction,” says CBK.
Despite a push by regulators to make banking sector pricing more transparent, previous studies by Financial Sector Deepening (FSD) Kenya have sent a red flag about hidden costs being billed to unsuspecting consumers.
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The report found banks submitting disclosures that do not fully respect the tariff situation.
“Although banks are being asked by the Central Bank of Kenya (CBK) to publish “rate guides” detailing all of their fees and charges, the FSD study found that much of the information was either outdated, incomplete or missing account-specific information,” FSD said in of the study, the results of which embarrassed the regulator for failing to protect consumers.
“Although we visited more than 30 bank branches over several weeks in 2015 and 2016 and consulted rate guides, account managers, bank websites and inquired with colleagues and friends, we were still unable to obtain consistent pricing information,” says FSD in the study .
The report outlines the findings of a two-year study by FSD Kenya, a UK-funded NGO, to understand the cost of banking services in Kenya.
It said two rounds of mystery shopping surveys were completed in October and November 2015 and 2016 to build a database and measure the cost of basic transaction packages such as opening, maintaining and closing bank accounts.
However, while conducting the study, it became clear, according to the report, that bank price data is difficult to obtain and market information is still opaque.
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To collect data, the researchers visited multiple bank branches posing as customers, as well as customer service phone numbers and web searches to collect data.
Researchers said some data is difficult to obtain and validate, even from different branches of the same bank.
Now CBK is trying to run its own mystery shopping exercise. Over the past year, it has flagged nine unnamed banks for non-compliance with various regulatory guidelines and rules, compared to 13 in 2020.