A Nairobi man who borrowed Sh400,000 from Mogo Auto Limited found himself facing a repayment demand of nearly Sh1 million after the lender moved to court over an alleged loan default.
The case, which was heard at the Thika Small Claims Court in Kiambu County, involved Mogo Auto Limited and Aziz Daniel Odoyo Nyumbah, who had entered into an asset financing agreement on June 7, 2022.
According to court documents, Mogo Auto advanced Nyumbah a loan facility of Sh400,000, with the logbook of motor vehicle registration number KBU 973X jointly registered in the names of the lender and the borrower as security.
The borrower made payments amounting to Sh299,369 before allegedly defaulting on the loan.
Mogo Auto told the court that the vehicle used as security went missing, making it difficult for the company to exercise its right to sell the asset and recover the outstanding amount.
The lender subsequently filed a claim seeking Sh677,381 from Nyumbah, arguing that the amount represented the outstanding loan balance, interest and other charges.
When combined with the Sh299,369 the borrower had already paid, the claim meant that Nyumbah risked paying a total of about Sh976,750 for the original Sh400,000 facility.
However, Nyumbah disputed the amount, arguing that after his repayments, the remaining balance was only Sh100,631.
He accused the lender of inflating the debt through excessive interest, penalties and charges that he had not agreed to.
During the hearing, Mogo Auto’s Customer Operations Manager told the court that the company charged interest at a rate of 2.4 per cent per month and maintained that the borrower owed Sh677,381.
The court, however, questioned the calculations used to arrive at the amount, noting that the lender had not sufficiently demonstrated how additional charges were computed.
The court observed that although the loan agreement contained charges such as application fees, processing fees, monitoring fees and insurance fees, Mogo Auto failed to provide adequate details showing how the amounts claimed were arrived at.
The judge further ruled that the in duplum rule applied to the lender, meaning that recoverable interest could not exceed the principal amount advanced.
The court relied on a previous decision which held that the rule applies to lenders advancing money, including non-bank financial institutions.
In its judgment, the court described the effective interest rate charged by Mogo Auto as excessive, noting that an annualised interest rate of 86.4 per cent, before additional charges were considered, was exploitative.
Despite rejecting the inflated claim, the court ruled that Nyumbah remained liable for the unpaid portion of the loan.
The court therefore entered judgment in favour of Mogo Auto but reduced the amount payable from Sh677,381 to Sh100,631.
The remaining balance will attract interest at the court rate from the date of the borrower’s last payment until it is fully settled.
