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Bank customers left empty-handed after 22-year fight for refunds
Bank customers believed the courts would one day order the institutions to refund millions of shillings they say were unlawfully charged on their loans.
For more than two decades, close to 200 bank customers believed the courts would one day order banks to refund millions of shillings they say were unlawfully charged on their loans.
Many had taken mortgages and business loans years earlier, only to watch their debts balloon after banks increased interest rates and other charges.
They insisted that the increases were illegal because they had not received the Minister for Finance's approval, as required by the Banking Act then in force.
Some lost property. Others spent years repaying loans they believed had been inflated by unlawful charges. Together, they turned to the courts in what became one of Kenya's longest-running banking disputes.
The case was initially filed by Rose Florence Wanjiru in 2003 before other parties were allowed to join the matter in a class action suit.
Ms Wanjiru was seeking a refund from Standard Chartered Bank, which she said was levied illegally, arguing that the bank had not obtained approval from the Minister of Finance to levy the charges as required by the law.
But 22 years later, their fight ended in heartbreak.
Last month, the High Court dismissed the suit, extinguishing the hopes of the depositors who had waited for years hoping for a refund and damages for the suffering they underwent.
The court ruled that the Central Bank of Kenya (CBK) had been wrongly sued because it had no legal mandate to approve interest rates under the Banking Act.
“I therefore find that the 3rd Defendant (CBK) acted within the law in undertaking the transactions under Section 44 of the Banking Act as mandated and delegated by Legal Notice No. 35 of 20th April 2006 in its capacity as the donee of delegated authority. It did not, and could not, however, retain responsibility for the outcome of its actions or decisions made in such capacity. That responsibility remained with the Minister,” said the court.
The judge also struck out claims by some of the later plaintiffs after finding they had joined the proceedings long after the statutory deadline had expired.
The petitioners accused the banks of unlawful and fraudulent increases in bank charges, ledger fees, commissions and other banking-related charges imposed by the lenders.
They contended that such increases were implemented without the prior approval of the Minister for Finance as required under section 44 of the Banking Act.
They argued that these charges had been imposed on depositors, account holders, mortgagors and borrowers over several years, resulting in unlawful enrichment for the banks at their customers' expense.
One of the petitioners said that he had been forced to sell his property in order to pay off his debt, and he sought a refund of the ‘illegal’ interest charged. However, the court rejected the claim on the basis that the petition was filed too late, in 2016, despite the alleged wrongdoing having occurred in 1988.
The court ruled that the claim was barred by the Limitation of Actions Act.
"The orders permitting joinder of additional plaintiffs did not revive claims already extinguished by statute," the court held.
On CBK’s role, the judge held that its role under Section 45 is limited to consultation and transmission of applications.
The judge said the statute does not confer upon the Central Bank the primary approval mandate contemplated under Section 44.
The court found that the Finance Minister has the mandate to approve changes in bank charges, even after some of those powers were delegated to the CBK Governor in 2006.
“The Governor of the CBK carried out a delegated function, lawfully delegated, but did so on behalf of the Cabinet Secretary, who retained ministerial accountability. Responsibility therefore remains with the delegating authority,” said the judge.
The court said it was not satisfied that the petitioners proved breach of statutory duty, negligence, unlawful conduct or recoverable loss as pleaded against the banks.
The case began in 2003 when Ms Wanjiru sued Standard Chartered Bank seeking a refund of Sh38,960, which she claimed had been unlawfully levied after the bank increased charges without the Finance Minister's approval.
In March this year, she settled her case with the bank through a consent signed in court.
Her case soon grew into a class action after the Court of Appeal allowed dozens of other customers with similar complaints to join the proceedings.
The plaintiffs accused more than 40 banks, represented by the Kenya Bankers Association (KBA), of unlawfully increasing interest rates, ledger fees, commissions and other banking charges over several years without obtaining the statutory approvals required under Section 44 of the Banking Act.
They argued that the banks had enriched themselves at the expense of borrowers, depositors and account holders through charges imposed contrary to the law.
Standard Chartered Bank, the KBA and CBK maintained that the claims lacked merit. They also argued that many of the cases had been filed too late, while others were legally defective or had already been determined by previous court decisions.
The High Court initially dismissed Ms Wanjiru's case, but the Court of Appeal later revived it after finding that the trial judge had erred.
The banks then fought attempts to allow more customers to join the suit, arguing that the class action had not complied with court procedures. The dispute reached both the Court of Appeal and even an attempt to escalate it to the Supreme Court.
In 2016, the Supreme Court declined to hear KBA’s appeal after it sought to challenge the proceedings on grounds that the matter raised issues of general public importance.
