Analysis of the Legal Framework on Consumer Protection in the Banking Service Delivery in Kenya.

ABSTRACT 

In Kenya most bank customer are victims of unfair banking contract terms. Banking institutions fail to apply the available laws that can protect a bank customer. The central objective of this is to investigate into the existing legislations that relate to banking business in Kenya. By doing so to clearly see how effective they are to the banking business law. Also to examine if the existing laws are implemented to aid in bank customer protection. The cardinal research problems are the gaps that exist in the laws and regulations in relation to bank customer protection. Though this research the gaps in the laws shall be exposed and recommend the suitable cure for protection of a bank consumer. This is based on both primary and secondary data. The primary materials used were, statutes, analyzing laws and regulations and decided cases, from Kenya, east Africa and from Common Law countries so as to give practical example. The secondary data used were articles, journals, Law books, materials from the internet, news papers articles that explain about bank customer protection and unpublished related work. The major findings of the research is that Kenya bank customer protection laws are not adequate, to protect the bank customer. The existing laws are not fully implemented by the financial institutions, hence the bank customer, are sometimes cheated. Also there are bank customer protection bodies in Kenya that are mandated to protect bank customers, but their functions are dormant. This is evident in the number of banks collapsing and how bank customers are defrauded. In protecting the bank consumer in Kenya, it’s argued that the regulating bodies should be given more mandate so that they can implement the bank regulation and solve disputes between bank customers and the banks. Also the legislature should formulate laws that will protect the bank customer.

TABLE OF CONTENTS

DECLARATION ........................................................................................................................i

APPROVAL ..............................................................................................................................ii

ACKNOWLEDGEMENT....................................................................................................... iii

LIST OF ACRONYMS AND ABBREVIATIONS ..................................................................x

ABSTRACT..............................................................................................................................xi

CHAPTER ONE ......................................................................................................................1

GENERAL INTRODUCTION...............................................................................................1

1.1 Background to the Study......................................................................................................1

1.2. Statement of the problem....................................................................................................6

1.3 .Research questions..............................................................................................................8

1.4. Objective of the study. ........................................................................................................8

1.4.1. General objectives............................................................................................................8

1.4.2. Specific objectives...........................................................................................................8

1.5. Significance of the study.....................................................................................................9

1.6 Scope of the study................................................................................................................9

1.7. Literature review.................................................................................................................9

1.7.1.Statutory literature review...............................................................................................10

1.7.2 Other Authors..................................................................................................................16

1.7.3.The gaps of the literature review. ...................................................................................21

1.8. Methodology.....................................................................................................................22

1.9. Chapterization...................................................................................................................23

1.10. Conclusion ......................................................................................................................23

CHAPTER TWO ...................................................................................................................24

THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR PROTECTION OF A BANK CUSTOMER IN KENYA. ...............................24

2.1. Introduction.......................................................................................................................24

2.2 Nature of bank customer protection...................................................................................25

2.3 The importance of bank customer protection ....................................................................26

2.4. The Constitution of Kenya................................................................................................27

2.5 The Central Bank of Kenya Act.........................................................................................28

2.6 The Banking Act, Cap 448.................................................................................................31

2.6.1 Bank customer protection against closing banks............................................................31

2.6.2 Consumer Compensation................................................................................................33

2.7 The Consumer Protection Act 2012...................................................................................34

2.8 Guideline on Consumer Protection Central bank of Kenya...............................................35

2.8.1 Protection of bank customer under the Guidelines. ........................................................36

2.8.2 Loan recovery .................................................................................................................37

2.8.3 Transparency...................................................................................................................38

2.8.4 Dispute settlement of the clients and the institution .......................................................41

2.9. Institutional framework in banks consumer protection in Kenya.....................................42

2.10 Definition of key word....................................................................................................46

2.11 Conclusion ........................................................................................................................48

CHAPTER THREE...............................................................................................................49

NATURE OF BANK CUSTOMER PROTECTION AND COMPARISON WITH OTHER JURISDICTIONS............................49

3.1 Introduction........................................................................................................................49

3.2 Bank customer protection ..................................................................................................49

3.3 .Relationship between the bank and the customer.............................................................50

3.4 Duties that arise out of bank customer relationship...........................................................52

3.4.1 Fiduciary duty of the bank. .............................................................................................53

3.4.2. The Duty to Provide an Explanation..............................................................................54

3.4.3 Duties of the bank to ensure customer protection...........................................................57

3.4.3.4. Responsibilities of bank customers in prevention of fraud.........................................64

3.4 Comparison with other jurisdiction ..................................................................................68

3.4.1. Protection of bank customers in Uganda .......................................................................68

3.4.2. Nature of the bank customer relationship in Singapore.................................................70

3.5 Conclusion .........................................................................................................................72

CHAPTER FOUR..................................................................................................................73

CUSTOMER PROTCTION UNDER BANK GUARANTEE TRANSACTION ............73

4.1 Introduction........................................................................................................................73

4.2 The role of guarantees in contemporary commerce...........................................................74

4.3 The nature of guarantee obligations...................................................................................75

4.4 Capacity to give a guarantee ..............................................................................................76

4.5 Liability of the guarantor ...................................................................................................77

4.6 Rights of the guarantor.......................................................................................................78

4.6.1 Rights of the guarantor to get information about the guarantee contract .......................79

4.6.2. Right of the guarantor to get independent advice ..........................................................79

4.6.3 Right to recover from a principal debtor.........................................................................80

4.7. Scenario that the guarantor will be protected ...................................................................81

4.8. Protection of old people as guarantors..............................................................................82

4.8.2 Husband and wife ...........................................................................................................85

4.8.3 Avoidance by reason of mistake .....................................................................................86

4.9 Conclusion .........................................................................................................................88

CHAPTER FIVE ..................................................................................................................89

FINDINGS AND RECOMMENDATIONS ........................................................................89

5.1 Introduction........................................................................................................................89

5.2 Study findings....................................................................................................................89

5.3 Recommendations..............................................................................................................91

5.4.Conclusion .........................................................................................................................96

BIBLIOGRAPHY....................................................................................................................97

Books .......................................................................................................................................97

Journals articles........................................................................................................................98

Seminar paper ..........................................................................................................................98

Unpublished thesiss .................................................................................................................99

News paper articles..................................................................................................................99

Websites...................................................................................................................................99