The High Court in Eldoret has ruled that consumer protection laws cannot be used to avoid valid loan obligations after default, in a judgment that strengthens the hand of micro-lenders in disputes over costly asset-backed loans.
The court held that a borrower cannot invoke consumer protection provisions to avoid obligations under a loan agreement he or she voluntarily signed, especially after admitting default.
It said freedom of contract remains a cornerstone of Kenyan commercial law and that parties are bound by their terms unless there is proof of fraud, illegality or unconscionable conduct.
The court dismissed an appeal by borrower Ahmed Abubakar and upheld a Small Claims Court decision allowing micro-lender Momentum Credit Limited to repossess and potentially sell a jointly registered vehicle over unpaid loan arrears.
Loan terms
The borrower had challenged the lender’s loan structure, arguing that he received only Sh147,740 but was required to repay Sh445,561 over a 24-month period after interest and fees.
The borrower further argued that the repayment demand was unfair, unconscionable and amounted to unjust enrichment because the amount demanded was more than double the sum he said was actually disbursed to him.
The formal loan facility approved by Momentum Credit was Sh180,000 but was reduced to Sh147,740 after deductions, fees and related charges.
He also accused the lender and its auctioneer of violating consumer protection and auction laws during the repossession process.
But the court found that the repayment terms, charges and repossession conditions had been clearly disclosed in documents signed by both parties in August 2023.
‘What the appellant seems to be asking this court to do is to rewrite the contract of lender-loanee agreement,’ said the judge.
‘There is no evidence as of now that following the signing of the letter of offer and the other instruments, the interest chargeable on the loan was unconscionable, punitive and excessive for the court to interfere with those terms of the contract,’ the court stated.
The commercial dispute arose after Mr Abubakar obtained a Sh180,000 loan facility from Momentum Credit using motor vehicles as collateral under a joint registration arrangement.
Court records show the repayment plan stretched over 24 months, with monthly instalments of Sh18,564. The agreement also included insurance financing and additional fees.
The loan schedule indicated total repayments of Sh445,561, comprising Sh202,830 principal, Sh194,731 interest and Sh48,000 fees.
Contract dispute
Mr Abubakar moved to the Small Claims Court in Eldoret in March 2024 after his vehicle was repossessed by auctioneers acting on instructions from the lender.
He argued that he had no arrears at the time of repossession and sought declarations that the lending contract was unlawful and unconscionable.
He told the court the loan structure breached consumer protection laws and violated the in-duplum principle by imposing excessive interest and charges. The principle provides that interest on debt stops running when the unpaid interest equals the outstanding principal amount.
He also challenged Sh48,000 in fees and Sh50,000 in insurance premiums, claiming the lender failed to properly disclose borrowing costs and did not give him the freedom to choose his own insurer.
The borrower further claimed the lender breached the Consumer Protection Act by failing to disclose the true cost of borrowing, denying him freedom to choose his insurer and failing to issue statutory disclosure statements.
Another argument was that the repossession violated the Movable Property Security Rights Act and Auctioneers Rules because proper notices were not issued before attachment of the vehicle.
The Small Claims Court dismissed his case in March 2025 and ordered him to pay Sh274,507 within 10 days to secure the release of the vehicle and logbook, failing which the lender could sell the car.
He then appealed to the High Court, which has also dismissed the case. The judge said the borrower admitted default and had not proved that the lender acted unlawfully.
‘The appellant has failed to point out the specific terms in the contract that are deemed unfair, unconscionable or deceptive,’ the court ruled.
‘It was the duty of the appellant to demonstrate by way of concrete evidence that the financial services rendered by the first respondent failed to meet the standards of the law on consumer rights.’
Damages claims
The court said freedom of contract remains a cornerstone of Kenyan commercial law and courts cannot rewrite loan agreements voluntarily signed by borrowers and lenders unless there is proof of fraud, coercion or illegality.
‘It would also be unconscionable if this court were to allow the loanee to abdicate his responsibilities of repaying the loan amount,’ he said.
The court also rejected arguments that alleged procedural breaches by auctioneers could invalidate the underlying loan agreement.
It said any claims against auctioneers over improper notices or irregular repossession procedures should be pursued separately through damages claims.
The ruling comes amid growing disputes involving digital and logbook lenders accused of imposing high interest rates, aggressive recovery measures and opaque charges.
Borrowers have increasingly turned to courts seeking relief under consumer protection laws, particularly where repayment amounts far exceed the sums initially disbursed.