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Why compliance isn’t optional for digital lenders

November 24, 2025

Chibugo Ohanyiri

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Digital lending is about operating within a framework that protects both the lender and the borrower. Compliance mistakes can lead to serious financial and legal consequences, and shortcuts can destroy a lender’s credibility.

Regulators worldwide are stepping up enforcement. Licensing requirements, fair lending rules, and data protection standards are now closely monitored, and violations carry consequences. The market rewards lenders who follow the rules and punishes those who do not.

This article shows that compliance is not optional for digital lenders. Building it into every part of operations is essential for sustaining growth and maintaining credibility.

The burden of non-compliance

In Nigeria, the Federal Competition and Consumer Protection Commission (FCCPC)’s Digital, Electronic, Online, or Non-Traditional Consumer Lending Regulations, 2025, impose fines of up to ₦100 million (about $65,000) or 1% of a lender’s annual turnover for violations. Directors and staff face fines of ₦50 million and can be banned from the sector for up to five years. According to Ondaje Ijagwu, Director of Corporate Affairs, FCCPC, the regulations target “exploitative practices, data privacy violations, abusive loan recovery tactics, harassment, and anti-competitive behaviour by certain digital lenders and their partners within Nigeria’s rapidly growing digital credit market.”

The framework also covers cross-state lenders, telco airtime credit services, and most digital lenders, with exemptions only for licensed microfinance banks with waivers. Over 460 operators had 90 days to comply. Compliance now consumes roughly 7% of operational costs, double 2022 levels, straining smaller players in a $2.1 billion market built on repeat microloans under $20.

The regulations explicitly ban abusive practices such as shaming borrowers or accessing their contact lists and photo galleries. Lenders must respond to FCCPC audits, provide records within 48 hours, and undergo interest rate scrutiny. As of 2025, 492 apps are registered, with over 103 under watch, demonstrating the commission’s monitoring capacity.

Regulations across borders

In the European Union, the General Data Protection Regulation (GDPR) requires secure handling of customer data and clear user consent. In the United States, the Consumer Financial Protection Bureau (CF P B) and the Equal Credit Opportunity Act enforce fair lending and non-discriminatory approval, challenging algorithm-driven decisions. In India, the Reserve Bank mandates secure data management and anti-money laundering compliance. Together, these rules force digital lenders to adopt multi-jurisdictional strategies that prioritize ethical lending and data security.

Lessons from neighbouring countries

Kenya has approved only 32 of the over 400 digital lenders since 2023. Violations such as AML breaches or harmful lending practices can result in fines of up to KES 5 million (about $38,000), three years’ imprisonment, or license revocation. South Africa’s fines have reached $279,000 in a single case, far exceeding Kenya’s total penalties of $124,700 across multiple actions.

Ghana has barred 97 unlicensed digital lenders and implemented strict rules. Uganda has licensed 2,132 money lenders, while Tanzania operates regulatory sandboxes. All these measures prioritize consumer protection over unrestricted growth.

What enforcement against digital/neo‑lenders looks like

Regulators around the world are aligning their rules for digital lending, closing gaps that let fintechs operate with less oversight than banks. Their message is that innovation does not allow lenders to ignore consumer protection.

United Kingdom

In July 2025, the Financial Conduct Authority (FCA) fined Monzo £21.1 million for failing to maintain adequate anti-money crime systems and controls. Investigations found that the bank repeatedly onboarded high‑risk customers using implausible addresses and was unable to properly verify transactions or monitor customer activity. The fine shows that fast growth or aggressive user acquisition cannot replace compliance. There is no tolerance for weak systems that expose the bank to financial crime.

India

In May 2025, the Reserve Bank of India (RBI) issued the Digital Lending Directions, applying to all banks, Non-Banking Financial Companies (NBFCs), and housing finance companies engaged in digital lending. The rules require lenders to provide a plain-language Key Fact Statement (KFS) showing interest rates, fees, repayment schedules, and penalties before a borrower accepts a loan. Loan funds must be deposited directly into borrowers’ bank accounts, and credit limits cannot be increased without consent. Borrowers must receive contracts and all supporting documents in digital form; click-wrap or OTP-only agreements are not allowed.

United States

In November 2025, the Consumer Financial Protection Bureau (CFPB) reached a $1.75 million settlement with MoneyLion. The regulator targeted fintech for exceeding the 36% interest rate cap for military service members and for trapping users in membership fees that were difficult to cancel. This signals a broader US trend where regulators are piercing through “membership models” to regulate the total cost of credit.

Why compliance isn’t optional

Compliance goes beyond following the law; it defines a lender’s reputation and builds consumer trust. Digital lenders that ignore compliance risk face customer backlash, lost market opportunities, and legal consequences that can halt operations. Ethical compliance protects borrowers from harassment, privacy breaches, and unfair lending practices.

Regulators are enforcing strict lending standards, making non-compliance a direct threat to business continuity and financial stability. Integrating compliance into product design and operations is not optional; it is essential for long-term survival and maintaining positive brand equity.

Steps for digital lenders to stay compliant

Digital lenders must take actionable steps to meet regulatory standards and protect their business:

Implement strong KYC and AML procedures: Verify borrowers’ identities and prevent financial crime.
Use automated compliance tools: Monitor regulatory updates and ensure lending algorithms follow the rules.
Maintain transparency in loan terms and recovery: Provide clear terms and conduct responsible, fair collections.
Secure customer data: Encrypt and manage it in accordance with GDPR or local privacy laws.
Engage proactively with regulators: Adapt to new rules, such as Nigeria’s FCCPC Digital Lending Regulations.

Compliance is the cornerstone of sustainable digital lending

Digital lending will continue to grow, but growth without compliance is a trap. Regulatory rules determine which lenders survive and which fail. Those who embed compliance into their operations protect their customers, business reputation, and their access to capital. Non-compliance is expensive, and lenders that make compliance part of their core strategy turn regulatory pressure into a competitive advantage.