HELB Interest Rate On Defaulters Illegal, Court Rules.
Beneficiaries of the Higher Education Loans Board (HELB) loan who have fallen behind on repayments can now breathe a sigh of relief after the High Court of Kenya ruled that the interest rates charged were illegal.
According to the full ruling, which was delivered on Friday, August 19, and was seen by Kenyans.co.ke, the Board is not entitled to recover interest that exceeds double the amount advanced.
“A declaration hereby issues that the respondent is not entitled to recover from the petitioners or its loanees an amount exceeding double the amount advanced in contravention of the in duplum rule,” read the ruling in part.
According to Benjamin Njeru, the lawyer who handled the case on behalf of three petitioners, the rule means that if a beneficiary borrows Ksh100,000 from HELB, they can only repay a maximum of Ksh200,000.
He explained that If you borrowed Ksh100,000, you are required to repay Ksh100,000, but there are issues of interest because it is a loan, and there is a monthly fine of Ksh5,000.
If you stop paying, this loan will become non-performing, and the interest will exceed Ksh100,000.
The law simply caps interest and fines at Ksh100,000, so you will never pay more than Ksh200,000.
After the board threatened to publish their images in newspapers to compel them to settle the loans, the three defaulters, Anne Mugure, Davis Nguthu, and Wangui Wachira, filed a lawsuit in March 2021 challenging the exorbitant interest rate.
In their petition, the three claimed that the board violated the duplum rule by fining all defaulters a monthly fine of Ksh5,000 for failing to make payments.
As a result, the interest rate was multiplied by more than twice the principal amount.
The duplum rule states that interest stops accruing on any amount owed once the accrued interest equals the amount of the loan advanced.
Mugure, who received Ksh82,980 in July 2004, saw her defaulted loan balloon to Ksh540,464 in 2016, while Nguthu saw her loan balloon to Ksh335,207 as of March 2021.
Wachira’s borrowed Ksh135,000 increased to Ksh336,573 by February 2021.
The petitioners claimed that the respondent had broken the law and the Constitution.
That charging interest, fees, and penalties had more than doubled the debt’s principal.
HELB argued in defense that the three petitioners had defaulted on payments at some point during their careers and failed to notify the board, resulting in the exorbitant monthly fines.
Rachel Kipkech, who swore an affidavit on behalf of the board, argued that the interest rates were imposed in accordance with the law, which requires loan repayment within one year of graduation and a fine of not less than Ksh 5,000 for each unpaid loan deduction.
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The board also claimed that the duplum rule only applied to the banking industry, despite the fact that Helb was not a bank.
However, the court ruled that HELB violated the Kenyan Constitution by imposing interest and penalties or fines that exceeded the principal amount.