premio wrote:For starters i think they are illegal even banks cant recover interest on loans to amount more than the principle.The best place tp deal with them is the courts they cant win even if you signed the dotted line speaking from experience i took bank to courts and they opted for an out of court settlement.
You are referring to non performing loans, where the in duplum rule is used. As long as the loan is performing, the in duplum rule doesn't hold.
c&p
As already stated, the Banking (Amendment) Act introduced section 44A in the Banking Act (Banking Act, cap 488, Laws of Kenya) which is reproduced here. Section 44A Limit on interest recovered on defaulted loans:
"An institution shall be limited in what it may recover with respect to
a non performing loan to the maximum amount under subsection (2).The maximum amount referred to in subsection (1) is the sum of the following: the principal owing when the loan becomes non-performing; interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and expenses incurred in the recovery of any amounts owed by the debtor."
The above cited two subsections formulate what is known as the in duplum rule. It can be seen from paragraph (b) of subsection (2) that the amount of accrued interest on the loan is restricted to equal the amount of the principal amount owing when the loan becomes non-performing. In effect, therefore, the lender cannot recover at any one given time an amount that is more than double the outstanding principal.