Consumer protection diagnostic study - FSD Kenya

32 • CONSUMER PROTECTION DIAGNOSTIC STUDY: KENYA
The Public Complaints Commission provides third-party recourse for consumers
of public sector services. The Commissioner reported receiving complaints for
financial services outside that mandate, such as pyramid schemes, and then
referring these complaints to the CBK.
The most relevant and advanced legislative initiative available to the diagnostic
team was the pending Competition Bill-2009. The team reviewed the latest
version, which has general provisions that would promote consumer interests
through enhanced competition as well as a specific section concerning
consumer welfare that focuses directly on consumer protection. One of the
bill’s principal objectives is “to protect consumers from unfair and misleading
market conduct.” The scope of the bill encompasses all goods and services,
with explicit reference to financial services (e.g., insurance, banking, lending
of money and consultancy, Section 2).
The Competition Bill would establish the Competition Authority, outlaw
restrictive and unfair trade practices and regulate mergers as well as
unwarranted concentration of economic power. It would also create crossmarket
market conduct standards in areas such as fair contract provisions,
deceptive advertising, and unconscionable behaviour. Among the relevant
provisions are the following:
Part III of the bill defines horizontal (i.e., among competitors) as well
as vertical (i.e., among firms located at different steps of the value
chain), restrictive trade practices. These include issues such as pricefixing,
allocating markets and consumers, bundling and tying, collusive
tendering, discrimination on a non-economic basis, etc.
Part VI applies to consumer welfare, i.e., the benefits an individual
enjoys from the consumption of goods and services including financial
services.
Sections 55-60 cover false or misleading representation and prohibit
those engaged in the sale of goods and services from engaging in
unconscionable behaviour. This part of the bill also lays out information
standards, requires that consumers be informed of all charges and fees,
and prohibits providers of banking, micro-finance and insurance services
from imposing unilateral charges and fees, if the consumer has not been
notified. The provisions require that information is presented in such a
manner that the consumer is able to understand fully the terms and
conditions.
For third-party recourse, the bill sets up a Competition Tribunal (part VII).
Recognized consumer bodies are entitled to notify the authority of any
infringements of the law.
In its current form, the Competition bill addresses some of the aspects of a
comprehensive, cross-market consumer protection regime. In addition, the
Kenya Law Reform Commission informed team members about the pending
market-wide general consumer protection bill (which differs in substantial
respects from the private member’s bill tabled in 2007). However, the team
did not have access to this document.
Collectively, these two legislative initiatives could provide the key elements of a
coordinated and comprehensive competition and consumer protection regime
in Kenya. The diagnostic team concludes that if enacted and implemented
effectively, these two legislative initiatives could improve financial consumer
protection but would not fully substitute the financial sector regulatory
measures as recommended in this report. The following section treats issues
that merit consideration in the policy decisions that will inform the final
version of these bills.
13.3 KEY IMPLEMENTATION ISSUES FOR CROSS-MARKET
AUTHORITY(IES)
How to establish capacity and enforcement authority in a
new regulatory agency
An existing agency faces significant challenges in taking on new
mandates. Creating a new agency to implement and enforced newly
established legal mandates effectively is still more difficult. The new
Constitution establishes a clear mandate for a new consumer protection
agency. Setting it up is likely to take some time. Its start-up process and
learning curve will be faster and more effective to the extent that the
existing sub-sectoral regulators have already provided a foundation of
basic consumer protection regulation and practice. Their action over the
next several years will lend credibility to the new agency’s mandate and
practical lessons for its operations. Thus, the diagnostic team’s central
recommendation is that the financial regulators undertake a serious and
coordinated approach to consumer protection now, using their existing
mandates.
Jurisdictional boundaries with sector regulators
The draft competition and consumer protection laws are both under
legislative review. When the new cross-market agency(ies) are created,
it will be important to clarify the consumer protection jurisdiction
and responsibility boundaries between them and the financial sector
regulators. International experience offers some models for addressing
this.
When South Africa enacted a new consumer protection bill that applies
to financial services as well as other goods and services it was critical to
clarify jurisdictional responsibilities and put in place effective co-ordination
mechanisms between the different authorities, both to avoid conflicts
between different regulators and to reduce uncertainty for regulated entities.
The new authority (in the Department of Trade and Industry) is responsible
for overseeing consumer protection matters in financial services. However,
the bank supervision department in the South Africa Reserve Bank retains
responsibility for prudential oversight. For consumer credit, the National Credit