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Loans: How digital lenders flout FCCPC directives, cut corners

The story of digital lenders and their unorthodox ways of loan recovery continues to come under scrutiny by Nigerians; BENJAMIN UMUTEME writes.

As the economic situation for millions of families in Nigeria continues to worsen, many have turned to loans as a means to get by daily.

This has led to increased patronage of digital lenders which in turn has increased the number of digital lenders in Nigeria.

Data from the Federal Competition and Consumer Protection Commission (FCCPC) and the Central Bank of Nigeria (CBN) showed that the number of loan app companies approved to operate in Nigeria stood at 284 as of May 2024.

Analysts have opined that the large number of loan app companies is making it difficult for the Commission and the CBN to regulate partly due to staff constraints.

Unacceptable practice

Established by the Federal Competition and Consumer Protection Act (FCCPA) 2018 to, among other things, develop and promote fair, effective, and competitive markets in the Nigerian economy, make it easier for all citizens to access safe products, and ensure that all Nigerian consumers’ rights are protected.

The Commission has been able to additionally set up broad-based policies and reviews economic activity in Nigeria in order to detect and ban anticompetitive and restrictive acts that may distort competition or serve as an abuse of a dominant market position.

And indeed, loan app companies have over the years been abusing their dominant market position as they continue to act unrestrained as they seek to recover loans from debtors.

And in February this year, the FCCPC expressed concerns about continued violations of its Limited Interim Regulatory/Registration Framework and Guidelines by digital lenders.

This is coming after the Commission had a couple years ago withdrawn the license of many lenders for customer rights violations.

Again, experts say it may partly be due to the increasing number of defaulting customers, leading some digital lenders to resort to harassment and defamation practices in their debt recovery efforts.

However, former FCCPC acting head, Adamu Abdullahi, described such methods as unacceptable methods for debt recovery.

“The commission understands the increased demand for loans during this time of year, leading to an increased risk of default due to large numbers and typical cash flow challenges and constraints.

“However, the solution cannot be to violate the law or utilise unethical recovery methods. As such, the commission is intensifying enforcement efforts and adopting a zero-tolerance stance towards any exploitation of consumers or abusive conduct, whether in balance calculations, loan default enforcement, or recovery processes,” Abdullahi said.

Unrepentant, emboldened

In spite of repeated warnings by the FCCPC, the digital lenders have remained unrepentant and emboldened as they continue to flout the directive of the Commission on how they should operate.

For instance, they continue to call people on the contact list of their customers and they go as far as issuing threats to life.

A resident of Lugbe, who simply gave his name as Onome told this reporter that they called his contacts in March this year alleging that he was a fraudster and that he defrauded the company of some money.

“Initially, I was embarrassed but when l repeatedly called me, I told them that they should retract the allegation or I will not pay the money. They eventually did, reached out to my contacts and I paid them their money. From that day, I deleted every loan app on my phone.”

John Haruna narrates his experience to Blueprint Weekend.

He said, “I collectes about N25,000 from a loan app and on that day, I was able to complete the refund even though I paid N15,000. They kept on sending various text messages calling me all sorts of names, ranging from a criminal, to a fraudster. I didn’t respond. However, I got a text message saying “since you have refused to repay your loan, we are going to track you and hunt you down”.

“However, there are still a couple of them who still operate within ethical means,” he added.

Experts speak

Speaking with this reporter, consumer rights advocate, Aliyu Ilias stressed that the issue of digital lenders have gone beyond what the FCCPC can handle alone.

Ilias, who is the Executive Director of Save the Consumers Initiative, noted that with the way the economy is at the moment more people want to survive, thus they patronise loan apps as a last resort.

“People want N20,000, N30,000 to solve their immediate problem. People want to use it for transportation. That is why they still have their way of disturbing people or embarrassing people.

“How can you because of N20,000 blackmail people send messages to their guarantors. If it’s going to be the job of the FCCPC, then they would have to amend the law. It’s going to be the work of CBN, or NITDA, it should be a direct responsibility to really curb. FCCPC was only trying to create a solution where there is a gap,” he explained.

Economist Olamilekan Adefolarin told this newspaper that FCCP in recent times has shown commitment to fighting loan sharks in Nigeria.

“However, a lot still needs to be done to cover the ground for all the misdeeds and maladministration that gaps and lacuna in governance administration in Nigeria.

“The FCCPC should understand that the current economic hardship in the country is pushing a lot of Nigeria into obtaining money from the loan shark platforms. We must stress this because accessing quick and affordable financial assistance. Meanwhile, the challenges that come with it are what FCCP is contending with even though many Nigerians patronize and engage with loan sharks.

“On the other hand, loan shark outfits are also much digitized as they use the indebtedness of their client to obtain bio-data information of debtors. This we understand is given FCCP’s worries and making all the agency’s efforts to curtail the loan shark excess.

“Overall the FCCP is doing its best at the moment but still needs to cover a lot of ground,” he added.

Regulation

Ilias said that lack of proper regulation was giving digital lenders the leeway to continue on the part they are at the moment.

“Even for you to launch a website that has to do with financial issues it has to be regulated with NITDA, they should be in the know so that they can really regulate it.

“Secondly, financial issues are purely in the purview of CBN, and I think CBN should look into that issue; they need to regulate anybody that is doing it. There is a gap. There is no need for the FCCPC to even come in the first place. Its job does not relate to that, it is because there is a regulatory gap that is why FCCPC developed a framework to really manage loan sharks. And you know they cannot be everywhere. They are supposed to be a last resort.

“The major issue should go to CBN and NITDA. And that’s why I was saying that crypto, digital lenders and financial issues should have their separate regulatory agencies that will look into it or else, these people will continue to pressure people,” Ilias said.

Adefolarin said, “There is no doubt that the FCCP Act of 2018 needs to be reviewed in the areas of enforcement and prosecution against violators and offenders such as loan shark outfits and others.

Equally also is the challenge of inter-agency rivalry that occurs due to overlapping functions.

The issues under review deal with data of debtors to loan sharks, this may require a rejig of the FCCP Act 2018. Meanwhile, we already have an agency in charge of data management and supervision in Nigeria the National Data Bureau and National Identity Management Commission.

“Another case in point is the role of FCCP in sports betting and lottery games regulations. That somehow conflicts with that of the National Lottery Regulatory Commission and National Lottery Fund.

“What we are saying is that the FCCP Act of 2018 lacks some power that could make the agency effective and efficient, and areas perceived in the Act that conflict with other sister agencies should be expounded and rejig with clauses that ensure deals more with cases of loan shark and similar issues.”

Going forward

Going forward, Adefolarin, who is also a development researcher said

First, we believe that FCCP still needs to do more in covering the gaps associated in the fight against loan shark platforms. This in acknowledgement requires the agency deploying digital technology to fight this menace in the financial environment.

Secondly, the agency still needs to put more effort into public enlightenment, sensitization and media engagement. A lot of Nigerians need to educate on the dangers of abuse of personal bio data and unsolicited personal information obtained by loan shark outfits. In this wise regular education and engagement with Nigerians will go a long way to stop the menace.

Thirdly, FCCP is still very much in need of funding even though it is a self funding agency. The need to make budgetary allocation buoyant is very key to mandate and task before the agency.

Lastly, it is very important to have a review of the FCCP Act 2018 to empower the agency with prosecution and stringent sanction beyond moral persuasion and ethical professional advisory.