INTRODUCTION

Money lending has long historical roots and inancial technology has enabled the recent rise of digital lending platforms. These digital platforms provide quick and easy access to funds. Many digital lenders have emerged, providing credit access to individuals and MSMEs in dire economic straits. However, some digital lenders in a bid to enforce repayment obligations have deployed unethical loan recovery tactics like harassment and cyberbullying, which violates data privacy rights and consumer rights. Nigeria's Federal Competition and Consumer Protection Commission (FCCPC) stepped in to arrest this situation by issuing the "Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022" " (the "Guidelines") to regulate digital lending. But despite these new guidelines, concerning activities persist in the digital lending landscape, which has been discussed and extensively analyzed in this article.

FCCPC'S BLUEPRINT: REGISTRATION REQUIREMENTS FOR DIGITAL LENDING COMPANIES

The Federal Competition and Consumer Protection Commission (FCCPC) administers Nigeria's consumer protection laws, particularly the Federal Competition and Consumer Protection Act 2018. Concerned by predatory digital lending practices, the FCCPC issued the Guidelines requiring registration by digital lenders, to better safeguard borrowers. The Guidelines aim to compel responsible industry conduct, commitments to transparent communications, ethical debt recovery, and protection of privacy rights. All digital lenders must now register with the FCCPC before conducting operations or risk severe penalties. Companies that fail to comply with registration requirements and operational guidelines face potential blacklisting and directors may be prosecuted.

The following are the requirements for registration with the FCCPC:

  • Certiied copy of the certiicate of incorporation of the applicant.
  • A brief description of the business of the applicant and, where relevant, their groups.
  • Organogram showing role players and location of key role players and any operational approving authorities/person.
  • Name and address of a person within the business who is authorized to accept all correspondence and accept service on behalf of the business.
  • Evidence of membership in any trade or professional associates.
  • Any service level agreements with any service providers for the operation excluding administration.
  • Evidence of feedback and complaint resolution mechanism.
  • Terms of use of the business of the applicant.
  • Privacy policy of the applicant.
  • Evidence of tax payments or tax waivers where applicable.
  • All applicable fees associated with the service.
  • FCCPC Interim Digital Lending Guidelines Form 002 – a declaration for Digital Lending Businesses in Nigeria.1

CONSUMER PROTECTION AND DATA PRIVACY VIOLATIONS

In response to mounting complaints about consumer rights and data privacy violations, the FCCPC spearheaded investigations with other agencies. This resulted in the FCCPC's Guidelines requiring registration and oversight of digital lenders. As a result, several abusive lending apps have since been blacklisted or removed from app stores.2

In addition, the Nigeria Data Protection Act (NDPA) 2023 is also pivotal in dealing with data privacy breaches. The NDPA has the objective of safeguarding the rights of data subjects,3 promoting data protection services that safeguard the security of personal 4 data and the privacy of data subjects,4 ensuring the processing of personal data in a fair, legal and accountable manner,5 protecting the rights of data subjects and providing remedies in the event of the breach of these 6 rights.

Furthermore, the Nigerian Data Protection Commission (NDPC) has the responsibility of receiving complaints relating to the violation of the Act,7 as well as the power to impose penalties arising from any violation of this Act.8 It is expected that these provisions will be instrumental in addressing the issues of data privacy breaches by digital money lenders and it is expected to see a synergy between the NDPC and other regulatory bodies, especially the FCCPC to help in handling these privacy violations. Also, consumers can channel their grievances through the FCCPC or the NDPC. 

ETHICAL DEBT RECOVERY PROCESS FOR DIGITAL LENDERS

Ethical debt recovery entails prioritizing the borrower's rights and adopting responsible debt management. This contrasts starkly with unethical practices that have drawn regulatory scrutiny, such as arbitrary penalties, public shaming, and privacy violations employed by some lenders. Some ethical practices that can be adopted include:

  1. Privacy-Centric Practices: This involves upholding client privacy, unlike the unethical practice of some digital lenders who resort to scare tactics, such as threatening to expose debtors on social media and sending unsolicited messages to their contacts. Such practices have prompted regulatory actions, leading to the implementation of guidelines for digital money lenders to ensure ethical conduct
  2. The use of Technology:
    • Data analytics: Responsible lenders can leverage technology to personalize borrower experiences and facilitate payments without resorting to intimidation. Advanced technologies can assist digital lenders in gathering important data from different sources such as details about the borrower's proile, income, preferences, credit and inancial history. This empowers lenders to generate smart micro-segments and foster effective collection strategies. For example, data analytics can be used to detect customers who are prone to default on their loans and develop strategies for managing those risks.
    • AI chatbots: Automated, personalized communication tailored messages and payment reminders to borrowers. Adopting such technologies for ethical, nonconfrontational digital debt collection preserves borrowers' privacy and aligns with recent conduct guidelines for digital lenders.
    • Defaulters' Data Base: Implementing ethical debt collection involves considering the creation and management of a defaulter database for eficient risk management.
    • Credit Bureau: Digital lenders should also contemplate collaborating with credit bureaus which should be able to give information on the creditworthiness of potential borrowers.
    • Lending Set-Off and Right to Combine Accounts: Borrowers will be required to authorize a lending set-off or the combination of accounts, granting their banks the authority to place a lien on defaulting borrowers' accounts and to withdraw payment and remit to the lenders. This calls for legislation or directives permitting collaboration between digital lenders and banks. Ultimately, it would foster a responsible borrowing environment, beneiting both lenders and borrowers.

TAKING ACTIONS AGAINST CYBERBULLYING AND UNETHICAL DEBT RECOVERY PROCESSES

Cyberbullying and unethical debt recovery by digital lenders have drawn widespread complaints in Nigeria, especially since pandemic-related economic hardships. In response, regulatory bodies like the Central Bank of Nigeria (CBN) have taken enforcement actions, including blacklisting abusive lending apps. The CBN Consumer Protection Framework,9 for example, requires fair treatment and ethical debt recovery practices. Institutions must proactively notify borrowers of pending obligations before recovery. The recent CBN Draft Guidelines on Responsible Business Conduct10 further compels compassionate diligence from digital lenders. As economic uncertainty persists, vulnerable borrowers remain at risk, needing both defensive and proactive policymaking.

However, not all digital lenders fall within CBN's regulatory oversight. Some companies are licenced under the Money Lending laws in various states by the Ministry of Home Affairs and the Magistrate Court. So, post-licensing, there is little regulatory oversight over the activities of these digital lenders. While the FCCPC's Guidelines provide some succour, more regulatory oversight is required.

Collaborative oversight can curb bullying and harassment while balancing access and protection. However, success relies on consistent enforcement and further cultural change within the lending industry itself. Fair proiteering is possible - the paradigm shift lies in pairing business savvy with social conscience at scale. This, in addition to the fear of penalties and delisting from regulators, will dissuade debt collectors from adopting unethical practices during debt collection.

COLLABORATIVE APPROACH OF A ONESTOP SHOP

While Nigeria's recent regulatory steps to protect borrowers are promising, optimal impact relies on robust collaboration between key agencies like the FCCPC, CBN, and NDPC.

For example, the Kenyan government has instituted strict reforms across agencies to force ethical practices by digital lenders.11 Kenya mandated suspensions of all loan credit listings under Ksh 55 million (US$33,000), violating their existing regulation threshold of Ksh 1,000 (US$6.70). This helps prevent unfair credit impacts on small, vulnerable borrowers. Kenya now requires mandatory Central Bank permits before digital lenders can launch any lending products. Non-compliant lending apps face delisting from app stores per cooperation between Kenyan authorities and Google. This enables the authority to cut off access for apps louting borrower protections. Kenya also imposes hefty ines on lenders breaching rules like credit listing thresholds. Centralizing the licensing process through a one-stop FCCPC/CBN/NDPC shop would eficiently verify conformity and deter rogue apps. Nigeria can adopt the approach of a one-stop shop where to obtain a digital lending license, they need to fulil the directive of FCCPC, CBN and NDPC to ensure compliance.

Conclusion

The FCCPC's guidelines represent progress, but robust collaboration with the CBN and NDPC remains vital to fully protect borrowers. As the CBN holds statutory authority over inancial institutions, coordination is crucial for enforceable consistency. The ultimate solution lies in interagency coordination. Joint enforcement would present a united front too formidable for dismissal. Therefore, it will be best if it works hand in hand with the CBN amongst other regulatory bodies that it is already in collaboration with to protect the rights of consumers in the digital lending space.

Footnotes

1. First Schedule to the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022- LIMITED-INTERIM-REGULATORY_- REGISTRATION-FRAMEWORK-FOR-DIGITAL-LENDING-2022-1.pdf (fccpc.gov.ng)

2. Ehime Alex, "Delisted loan apps from Google Play Store rise to 37 – FCCPC [+list]" (12 September 2023, ICIR) Delisted loan apps from Google Play Store rise to 37 - FCCPC (icirnigeria.org) (Last Accessed on 11 December 2023.

3. Section 1(a) of the NDPA.

4. Section 1(c) of the NDPA.

5. Section 1(d) of the NDPA.

6. Section 1(e) of the NDPA.

7. Section 5(g) of the NDPA.

8. Section 6(g) of the NDPA.

9. CBN- Consumer Protection Framework 2016

10. CBN Draft Guidelines on Responsible Business Conduct 2019

11. https://www.centralbank.go.ke/uploads/press_releases/566112348_Press%20Release%20-%20Suspension%20of%20The%20Listing%20of%20Negative% 11 20Credit%20Information%20for%20Borrowers.pdf (accessed 29 November 2023)

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