There has been massive development of online lending platforms in Nigeria, which has increased access and ease to finance. Requirements to obtain loans from these online platforms are less daunting than from traditional institutions.
Nonetheless, this influx has brought with it sharp practices that violate consumer protection policies that have become more pronounced in recent years, such as data protection and privacy as well as fair lending and recovery practices.
It has become the norm for lending platforms to require customers to have access to their contact list and this is frequently utilized to send disgraceful messages to the borrower’s contacts list upon the borrower’s default.
These platforms are also notorious for charging extortionate interest rates as a trade-off for the low documents and collateral threshold; this trade-off is arguably not commensurable to the damage.
The Federal Competition and Consumer Protection Commission (“the Commission”), the regulatory agency with the mandate to regulate competition/ anti-trust, ensure consumer protection and promote consumerism in the Nigerian economic market, has deemed it necessary to investigate and regulate online lending platforms that violate consumer privacy, fair lending terms, and ethical recovery practices.
To this effect the FCCPC instituted a Joint Task Force in March 2022 with the National Information Technology Development Agency (NITDA) and the Independent Corrupt Practices Commission (ICPFC); upon investigation, a number of lending platforms were sanctioned with court orders mandating closure and freezing of bank accounts amongst other sanctions.
The Commission on August 26, 2022, released further orders and an Interim Regulatory/ Registration Framework and Guideline for Digital Lending, 2022 as the first and interim step to establishing a clear regulatory framework. Digital lending platforms are to comply effective immediately with the guidelines.
Contents of the Interim Regulatory/ Registration Framework and Guideline for Digital Lending, 2022
The framework introduces “FCCPC Interim Digital Lending Guidelines Form 001” which seeks to gather information on the lender including details of directors, investors (equity and debt alike), consultants, bankers, etc.
The form also mandates lenders to disclose their interest rates and loan balance calculation methodologies, penalties for delayed or non-payment and licenses. By the Form, lenders must provide a physical address and details of all companies they are affiliated with.
The Framework specifically requires that the FCCPC must be notified of all material modifications of existing apps or the introduction of new apps.
The Form is also to be supported with documentation to evidence information provided. By the framework, there must also be an effective feedback and complaint resolution mechanism.
The registration lastly provides a declaration to be signed by the directors of the lending business declaring their compliance with applicable laws including Central Bank of Nigeria and anti-money laundering regulations.
Orders Imposed by the FCCPC
Alongside the release of the framework, the FCCPC made the following orders:
- Google Play Store to delist listed apps such as (Maxi Credit Here4u, Chacha and SoftPay).
- All operating payment systems including Flutterwave, Opay, Paystack and Monify are to immediately desist from providing payment or transaction services to lenders under investigation or not otherwise operating with applicable regulatory approvals.
- Telecoms and technology companies (including Mobile Network Operators (MNOs)) are to cease providing server/hosting, to lenders who are targets/subjects of investigation or otherwise operating without regulatory approval.
Industry stakeholders such as affected payment processors and lawyers have revolted against the Commission’s order.
The Association of Nigerian Fintech Lawyers in their letter to the Commission has specifically noted that the Commission is acting beyond its regulatory powers and has requested that stake-holder engagement be conducted as a matter of urgency.
How is the Commission Acting Beyond its Powers?
A major topic for discussion is that the Commission’s actions amount to regulating money lenders who are providers of financial services.
The FCCPC also issued an order to payment processors like Flutterwave and Paystack, who are also providers of financial services and have mandated them to stop processing for listed lenders.
The contention is that the Central Bank of Nigeria is the agency with the power to regulate payment processors and not the Commission.
The enactment of the Federal Competition and Consumer Protection Act (“the Act”)) in 2018, affected the regulatory powers of sector-specific regulators. Prior to the Act, there was no harmonized framework for competition and consumer protection, hence, this was the responsibility of respective regulators. The Act in Section 104 however brought a new regime as it provides that “Notwithstanding the provisions of any other law but subject to the provisions of the constitution of the Federal Republic of Nigeria, in all matters relating to competition and consumer protection, the provisions of this Act shall override the provisions of any other law.”
Sections 105 (2) and 105 (4) further note that the Commission and any other regulator who has competition/ consumer protection as part of its mandate shall have concurrent jurisdiction with the Commission, however, the Commission shall have precedence over the agency.
The summary of the above is that the Act established the Commission as the overriding regulator of competition and consumer protection in Nigeria, however, it is to regulate concurrently with industry-specific regulators.
The above clauses have however caused some friction since the amendment of the Banks and Other Financial Institutions Act in 2020 (“BOFIA”).
The new BOFIA sought to regain CBN’s powers from the Commission, Clause 65 (1) of BOFIA specifically states that the provisions of the Federal Competition and Consumer Protection Act shall not apply to any function, product or financial services by a bank or other financial institution licensed by the CBN.
This means that as it relates to financial services, the CBN has the sole power to regulate competition and consumer protection and the Commission’s powers in this regard have been expunged. Section 30 of BOFIA further notes that the Governor of the CBN shall have the power to issue regulations to protect the interest of consumers of products and services of financial institutions.
The result of the above is that the two acts are in contradiction and this contradiction has come to play with the Commission seeking to regulate payment processors and lenders. Nigerian law is however settled on the fact that a more recent law/ regulation overrides an older regulation as it is deemed that the regulators in the new law sought to cure a defect in the older law (Ref: Federal Mortgage Bank of Nigeria v. P.N. Olloh (2002) 9 NWLR (Pt. 773) Page 475, (2002)4 S. C. (Pt. II) Page 117).
Furthermore, under Nigerian law, specific laws take precedence over general laws (Ref: Schroder V Major (1989)2 NWLR (pt. 101)1, F.M.B. N. V Olloh (2002) 9 NWLR (pt 773) 475 Akpan V State (1986) 3 NWLR (pt. 27) 225 and N.N.D.C. V Precision Associates LTD (2006) 16 NWLR (pt. 1006) 527 at 553); accordingly in this case CBN is a specific regulator and the BOFIA 2020 is the newer of the two laws, accordingly, the CBN’s authority in this regard takes precedence over the competition and consumer protection commission’s powers.
The recommendation is that the Commission acknowledges the limits of its powers; the CBN should be the authority issuing orders to financial service providers.
The CBN is known for its robust consumer protection frameworks which can be leveraged to solve the issues at hand. It is also not feasible for lenders to register with multiple regulators as this creates over-regulation and administrative bureaucracy, hence there must be harmony.
It however cannot be denied that from a practical perspective, it is not possible for one regulator to solve the issues, for instance, the NITDA must be engaged due to the data protection considerations at play.
Challenges with the regulation of digital lending in Nigeria
There is a need for harmonization of the regulation of digital lenders in Nigeria. Technology has meant that fintechs are able to creatively utilize different licenses to perform the lending function such as; microfinance bank license and finance company license.
State intervention and desire for revenue generation has also resulted in the creation of money lenders license by different states to regulate lending within respective states; however, there is no mechanism for ensuring that the licenses are used within their scope (i.e. within the state of procurement), such licenses are being utilized to provide broad-based online lending services and have become a preferred option due to the reduced timeline and scrutiny for procurement. Licenses are also granted to individuals and one can procure such a license in a matter of weeks.
The proliferation of lending regulations creates a lack of clarity in the space. Money lending is a core financial activity and should be solely regulated by the Central Bank of Nigeria.
The proposition is that the Central Bank of Nigeria creates a subset of a lending license per state and the revenue derived from each license may be split via a sharing formula with the respective states. Such a license would have reduced scrutiny and processing in comparison to microfinance banks and finance companies but would also have lending limits. This would provide a harmonized framework for lending in Nigeria.
The resonating theme is that there needs to be harmony in the regulation of new technologies specifically those who seek to provide financial services. It is clear that due to the multi-layered aspects of such technologies, our current laws cannot adequately regulate such platforms, as technology evolves faster than the law. While collaboration between regulators is crucial, this must be done within the confines of our laws to prevent regulatory uncertainty and undue litigation. Furthermore, specific provisions have to be made for financial services; the CBN must be at the forefront of any regulation of financial services as the primary regulator of Nigeria’s financial system.
About the Author:
Chinonye Nnaji is a legal practitioner with banking and finance law expert. She is the convener of the Law Finance and Economic Policy Talk Show where she promotes economic policy conversations. She can be reached at [email protected]