Kenya: Banks Now Allowed to Blacklist Guarantors of Bad Loans

Oct 15, 2018 | Daily Nation; All Africa

Commercial banks and saccos can now blacklist guarantors with credit reference bureaus (CRBs) if principal borrowers default on loans, the High Court said.

The decision is expected to adversely affect the activities of lenders who require guarantors to disburse credit. The judgment was made in a case where a guarantor had sued Co-operative Bank for listing him with a CRB after a school he guaranteed defaulted.

Mr Obadhia Gitonga Micheu had accused Co-op Bank of maliciously listing him with the CRB and occasioning him huge losses after banks rejected his application to borrow on the basis of his negative credit record.

Justice Grace Nzioka found that although the bank was negligent in failing to inform Mr Micheu of the outstanding loan amount, it acted within its legal mandate to list the guarantor with the CRB.

"The referral of any information to the CRB is a requirement of the law and the defendant as a financial institution is entitled to do the same, and as a result of their negligence in notifying the plaintiff of the outstanding balance, the court has held that the plaintiff will not pay any interest on the said sum," she ruled.

NEGLIGENT

Justice Nzioka said she could not find in the given circumstance, that the defendants were malicious. They, instead, were more negligent in handling the matter.

"In the given circumstances, I find no basis for granting the orders sought," said the judge, referring to Mr Micheu's prayer that the bank be ordered to delist him. The court held that the relationship between Mr Micheu as a guarantor is founded in the law of guarantees, and that a guarantor assumes the responsibility of paying debt where the principal debtor fails. Read more from All Africa.

 

Source: All Africa