Banks want tougher laws against lying on spousal consent when getting loan

Commercial banks and other stakeholders in the financial sector have proposed that government criminalises lying or providing misleading information while seeking a loan against a matrimonial home.

In details contained in the proposed regulatory reforms in the banking sector, commercial banks, under Uganda Bankers’ Association (UBA), noted that whereas the Mortgage Act makes “it an offence to present a person who is not a spouse for spousal consent, it is not wide enough to cover all offences in respect of disclosure”.

Therefore, the report notes, the Act should be amended to, among others, criminalise willful provision of misleading information or omission of a spouse while obtaining a loan against a matrimonial home(s).

The report also wants spousal consent to be limited to matrimonial homes and not any other properties owned by either of the spouse.

“Limit spousal consent on collateralised property to matrimonial homes and fully criminalise false or incomplete spouse disclosure, to reduce borrowers’ manipulation to fleece [supervised financial institutions] through legal means after defaulting and thus raise [supervised financial institutions’] appetite for lending,” the report reads, noting that lending is big business for financial institutions and property mortgage is a key fall-back position, therefore anything that affects it becomes a strategic issue for banks’ business.

Under the law, the Land Act provides that every spouse enjoys security of occupancy on family land, which gives them a right to have unlimited access .

The Act also forbids any person from selling, exchanging, transferring, pledging, mortgaging or leasing family land without the consent of the spouse.

However, the report notes that whereas the Mortgage Act provides for spousal consent, requiring that a mortgagor’s spouse or spouses consent to mortgage their matrimonial home, it leaves the mortgagee exposed to litigation in the event that the mortgagor gives false or incomplete information.

The report also highlights the existence of polygamous marriages, which create legal challenges, especially when a borrower does not disclose or obtain consent from all his or her spouses.

“There is also failure to disclose existence of a spouse  ...  this happens mostly in cases of traditional marriages. As a result, there is an increase in litigations where a spouse, who was not disclosed and did not give consent challenges the sale of a security in a civil suit,” the report notes. 

The proposed reforms authored by UBA with support from Financial Sector Deepening Uganda and UK Aid were  recently handled to Bank of Uganda for onward review with the desire to reform the sector by regulating new financial components and repealing or replacing obsolete laws.

The report contains a number of proposed reforms ranging from governance, legal, compliance, digital financial services and agent banking, among others.

Mr Wilbrod Owor, the UBA executive director, said at the weekend the recommendations seek to improve financial services both in the short and long-term.

“We envisage that if most of the recommendations see the light of day and are implemented, banking and financial services in Uganda will be different in the future ahead of us,” he said.