HELP, THE BANK IS TAKING MY HOUSE!

Agatha’s businesses all suffered at the same time. It was like someone had just cursed her. The rats ate her clothes in the boutique, the restaurant caught fire and somehow even her coffee business started losing customers. While she was wondering if she should shut down and first go back to the village, Aisha, her friend told her about a bank with ‘business resurrection loans’. So, she got the 100 million resurrection loan with an interest of 40% to be repaid in 8 months. Her businesses started running again until the tax man came for the ‘forgotten’ taxes and the businesses crashed. Last month the bank came to collect, and they told her the business land and her home that she left as security will be sold this month. Agatha is confused and doesn't know what to do.

WHAT DOES THE LAW SAY?

The law says that a licensed money lender like a bank can lend out money and take things you own as ‘security’ for the loan. The terms are usually that you have given your property as security, and you have not sold it at the time you take the loan.

However, the law limits how much interest any moneylender can charge you. If it is too much, the law calls it unconscionable (unreasonable) interest. “Unconscionability” refers to a contract or part of a contract that is extremely unfair to one side. It’s so one-sided that no sensible person would agree to it. This kind of contract gives one party no real choice and heavily favours the other party, often because the other party has more power in the negotiation.

The banks in Uganda are supervised and regulated by Bank of Uganda which provides a guide on the interest rates they should charge. For example, if Bank of Uganda gives a rate between 20% to 23% per annum and the bank giving the loan asks for 40% then this is unconscionable interest.

The law allows a court to enter an unreasonable contract and fix the interest rate to the correct one.

The arrangement that Agatha got into with the Bank of having to repay the loan of 100 million in 6 months at an interest rate of 40% per month doesn't seem like a good financial deal. She can ask court for help on this.

Source: BarefootLawyers.

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