The High Court has delivered a landmark judgment quashing excessive penalties and interest charges amounting to Ksh 540,000 imposed by the Higher Education Loans Board (HELB) on a borrower whose original loan was only Ksh 82,000.
The ruling in Mugure & 2 Others v HELB (2021) confirms that the in duplum rule—limiting the interest charged on a loan to the amount of the principal—applies to all lenders in Kenya, including statutory bodies such as HELB.
The petitioners, beneficiaries of HELB student loans, faced an alarming increase in their repayment obligations. What began as a manageable loan quickly escalated due to compounded monthly interest and penalties imposed by HELB. For example, one petitioner borrowed ksh 82,000, but HELB’s penalty and interest charges inflated this amount to an astonishing Ksh 540,000.
The petitioners challenged this escalation in the High Court, arguing that the excessive interest and penalties were illegal and violated their constitutional rights to fair administrative action, consumer protection, and protection against unjust enrichment. They contended that HELB’s demands were not only unfair but also contrary to the law and public policy.
HELB argued that the in duplum rule did not apply to it because the Board is a statutory lender, established and governed by its own legislation—the Higher Education Loans Board Act—and not a commercial bank subject to the Banking Act. HELB claimed it was therefore entitled to impose the penalties and interest it saw fit.
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The court was tasked with determining whether HELB, as a statutory lender, was bound by the in duplum rule and whether the penalties and interest imposed were lawful.
In a detailed and reasoned judgment, the court rejected HELB’s arguments and held that the in duplum rule applies to every lender in Kenya, regardless of their nature or legislative basis.
The rule serves a critical public interest by protecting borrowers from usurious and excessive interest rates.
The court reasoned that restricting the application of the in duplum rule solely to banks would be discriminatory and undermine the constitutional rights of borrowers. HELB, despite being a statutory body, exercises lending functions similar to other lenders and thus must adhere to the same legal limits.
The Court also found that the penalty charges imposed by HELB were not clearly provided for in the loan agreements and were therefore unenforceable due to legal uncertainty. Such charges were described as oppressive and unjust, clogging the equity of redemption and creating an unfair barrier to repayment.
The judgment underscored that contracts must be fair and reasonable. While courts respect contracts freely entered into by consenting parties, they will intervene when terms are unduly harsh, one-sided, or oppressive, especially when they violate constitutional protections.
The court affirmed that the petitioners’ constitutional rights, including consumer protection, fair administrative action, and access to justice, were violated by HELB’s excessive penalties and interest demands.
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The high court ordered that HELB is entitled to recover only the principal loan amounts advanced to the petitioners and must cease charging any further interest or penalties beyond the principal. HELB was prohibited from enforcing the unlawful penalties.
This ruling sets a vital precedent, clarifying that statutory lenders like HELB must comply with the in duplum rule and cannot escape legal limits on interest and penalties.
The decision is hailed as a major win for consumer protection and fairness in Kenya’s lending sector. It provides a crucial legal safeguard for borrowers facing escalating debts from various lenders, including government-established loan bodies.
Thousands of students and graduates burdened by growing HELB debts now have a stronger legal basis to challenge unfair penalties and excessive interest, promoting transparency and fairness in loan recoveries.
Legal experts note that this judgment strengthens borrower rights, ensures equitable lending practices, and aligns statutory lenders with established principles applicable to banks and other financial institutions.
By Philip Koech
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