Regulatory Alerts2010-01-01
Bank of Zambia Circular 05/2010 on Prohibition of Penalty Interest Charges
The Bank of Zambia issued Circular 05/2010 to prohibit Financial Service Providers from charging penalty interest to customers, citing violations of the Banking and Financial Services (Cost of Borrowing) Regulations, 1995. The directive clarifies that while interest on overdue payments and specific collection or security costs are permitted, any contractual clauses imposing penalty charges for late repayment or prepayment are invalid and subject to legal challenge. Non-compliance with these regulations is classified as unsafe and unsound banking practice, potentially resulting in supervisory action under Section 77 of the Banking and Financial Services Act.
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