Mogo Auto Limited, an asset financing company, was fined about Ksh 10.8 million and ordered to refund Ksh 340,000 to three customers by the Competition Authority of Kenya (CAK) last Friday. The violation? Engaging in false and misleading representations and unconscionable conduct toward its customers.

While this is a recent decision, it reflects ongoing consumer complaints about loan overcharging, particularly in car financing. In 2019, CAK also fined Harambee Sacco Society Ksh 38.4 million for similar misconduct. 

This raises the question: What legally constitutes false misrepresentation and unconscionable conduct?

Section 55(b)(i) of the Competition Act, 2010 states that it is an offence for any person, including a corporate body, to supply goods or services, or promote them, while providing false or misleading information. 

This includes misleading information regarding the price of goods or services, the availability of repair facilities or spare parts, the place of origin of goods, the necessity of any goods or services or the existence or removal of any warranty or solution.

Whether a representation is considered false or misleading will depend on the circumstances of each case, and what misleads one group of consumers may not necessarily mislead others. 

In Mogo’s case, the authority found that in all four complaints, the company disbursed loans in KES but calculated the interest in USD despite the facility being issued in KES. This led to overpayments by borrowers due to fluctuating exchange rates. The authority deemed this a misrepresentation regarding the price of services, in this case, the loan facility and proceeded to penalise the financier.

Unconscionable conduct, on the other hand, is described under Section 56 of the Competition Act 2010 as occurring when a person engages in actions that are not only unfair but also shockingly unjust or immoral. Such behaviour goes beyond simple unfairness. It means conduct that is excessively one-sided, exploitative, or unethical to the point of violating good conscience.

Under sections 56(2) and 57(2) of the Act, the CAK considers several factors when determining if the conduct is ‘unconscionable.’ These include the imbalance of bargaining power between the parties, the imposition of unnecessary conditions, the consumer’s ability to understand related documents, the use of undue pressure or unfair tactics and whether the consumer could have obtained similar goods or services from another supplier at a different price or condition.

In Mogo’s case, two complaints centred on the company altering loan agreements by changing the interest calculation from a flat rate to a reducing balance without the borrowers’ knowledge or consent. The imposition of unilateral charges and fees, which were not disclosed to consumers prior to providing the services, was deemed unconscionable. This undisclosed alteration of terms, especially regarding interest calculations, was a key factor in the findings of unfair conduct in both complaints.

Penalties 

The regulatory body has the authority to impose fines of up to 10 per cent of a business’s gross annual turnover from the previous year, which represents the maximum penalty allowed under the Act. However, the Consolidated Competition Administration Remedies and Settlement Guidelines provide room for the CAK to adjust penalties based on the presence of specific mitigating or aggravating factors in each case.

Aggravating factors that could increase the penalty include:

• Nature of the violation: Some violations carry heavier penalties than others. For instance, delays in payment may attract higher fines than refusal to accept or return goods.
•  Duration of misconduct: The longer the unlawful conduct persists, the more likely it is to cause irreparable harm to consumers, resulting in higher penalties.
• Public interest: If the case has wider implications beyond the specific parties involved, affecting public interest, it may lead to a harsher penalty.
• Recidivism: Repeated violations or a history of similar offences can increase the penalty by at least 3 per cent.
•  Coercion or retaliation: If the accused coerced or retaliated against other parties to continue the violation despite protests, this will aggravate the penalty.
•  Non-cooperation: Refusing to cooperate with the CAK during investigations, such as ignoring communications or failing to provide required evidence, can result in an additional 1 percent penalty. 

Mitigating factors which can reduce the penalty include:

• Cooperation with the CAK: Actively assisting the investigation can result in a lower fine.
• First-time offender: If the offender has no history of prior violations, penalties may be reduced.
•  Inadvertent breach: If the violation was unintentional, this may also lessen the penalty. 

Conclusion

The Competition Authority’s decision serves as a critical reminder for businesses to prepare for increased scrutiny from regulatory bodies like the Competition Authority of Kenya (CAK). Organisations should clearly communicate their terms and conditions, especially concerning pricing and interest rates. The potential for fines reaching up to 10 percent of annual turnover underscores the significant financial consequences of non-compliance.