A tragic story with a surprising twist, this case is a stark reminder of the dangers of predatory lending practices. The late lawyer, Mathew Kyalo Mbobu, has won a posthumous victory against Hypac Investments Limited, a microfinance lender.
In a landmark ruling, the High Court has put a stop to Hypac's attempt to extract an exorbitant sum from Mbobu's family. The loan agreement, signed in January 2021, was a trap with a 15% monthly interest rate and a 5% weekly penalty for late payments. Despite repaying over double the principal amount, Hypac demanded a staggering Sh69.4 million in March 2023, citing accumulated interest and penalties.
But here's where it gets controversial... The court found Hypac's actions to be "shocking to the conscience" and a clear violation of Kenya's 'duplum rule', which limits recoverable interest to the principal amount. The effective interest rate of over 400% annually was deemed "unconscionable" and "oppressive".
The commercial court stated, "No reasonable borrower could sustain such terms." It accused Hypac of exploiting Mbobu's financial distress, a common tactic used by predatory lenders.
And this is the part most people miss... The court not only voided the interest clauses but also declared the debt fully settled at Sh22 million, the amount Mbobu had already repaid. The lender's attempt to charge an additional Sh13 million was rejected due to a lack of sufficient evidence.
Mbobu's tragic death during the case has secured a legacy win for borrowers. The judgment sends a strong message, reinforcing judicial scrutiny of exploitative lending practices. It sets a precedent, citing similar cases where courts nullified extortionate terms.
Hypac's defense, claiming Mbobu willingly accepted the terms, was rejected by the court. The lender's actions were deemed unacceptable, and they were barred from claiming the Sh69.4 million. Additionally, Hypac was ordered to return the property seized as collateral, a prime asset that belonged to Mbobu's family.
This case highlights the importance of protecting borrowers from unfair lending practices. It's a wake-up call for both lenders and borrowers to be vigilant and aware of their rights. The court's decision is a step towards a fairer financial system.
What are your thoughts on this case? Do you think enough is being done to prevent predatory lending? Feel free to share your opinions in the comments below!
