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Bank of Uganda issues new consumer protection rules

Bank of Uganda has released new consumer protection guidelines as a measure to promote transparency and boost confidence in financial products, the Bank has said.

The guidelines were released on January 10, the day before traders were to strike over high interest rates, which many said was unfair treatment by the banks.
Perhaps the most interesting section of the guidelines is the element of “cooling off” – a term used to define an action by a customer to cancel the consumption of a financial product before the deadline of full payment

In this particular case, Bank of Uganda’s new guidelines have placed the cooling off period at 10 working days. A customer will have to formally write to banks to let them know that they wish to cancel a contract. This policy will only apply if the customer has paid off the entire amount of the financial product he or she had taken up. Only allow those borrowers who have a loan of Shs 3m and above will exercise their right of cooling off.

Cooling off is an effective way of protecting consumers who might not have got the right information before signing a loan. Many banks have also been accused of hiding some information from borrowers, or intentionally declining to explain some hidden sections of the credit application forms. Often, customers take irrational decisions while applying for loans and regret thereafter.

The guidelines come at a time when banks are desperate to sell financial products to customers, and in the process hide some information because they don’t want to discourage a customer. On a timeframe basis, Uganda’s cooling off period is better for consumers than Kenya’s. Kenya’s Consumer Protection Bill, 2007, puts the cooling off period at 10 days.

This means that, unlike Uganda, Kenya’s 10 days include Saturdays, Sundays, and public holidays, narrowing the consumers’ timeframe to act. But the vague wording of this cooling off period comes with the issue of the costs a customer will incur in order to exercise the Cooling Off period.

According to that section, “The revocation or termination of the contract for provision of a financial product or service shall be effective if the consumer repays the full amount of the loan at the time of cancellation of the contract and any other administration fee or charge, where applicable, for costs which have been reasonably incurred by the financial services provider prior to the exercise by the consumer of the cooling off right.”

Should there be disagreements between a bank and a customer, the bone of contention is expected to be in the words “reasonably incurred” costs. The administrative charge that the borrower will incur cannot go beyond 5% of the total loan amount. Other sections of the guidelines touch on such issues such as customer confidentiality. A bank will not divulge a customer’s information unless required by law.

Banks will also clearly inform customers whether the interest rates on the loans are fixed or variable.

mugalu@observer.ug

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