The Federal Competition and Consumer Protection Commission (FCCPC); the regulatory agency responsible for ensuring consumer protection and regulating competition in Nigeria, recently released a Limited Interim Regulatory/Registration Framework for Digital Lending. This regulatory framework is enforceable whilst they work on a more comprehensive framework to guide the operations of digital lenders in Nigeria. The Commission created a registration form that is to be completed and submitted by those operating in the digital lending industry.
As a result of several customer reports of privacy and data abuse against certain digital lenders, the Joint Regulatory and Enforcement Task Force (JRETF) raided their place of business. Their findings prompted the FCCPC to develop this framework with the conclusion that the activities of loan apps had to fall under some regulatory control. The purpose of this regulatory framework is to provide guidance to digital lenders.
The two major issues the FCCPC seeks to address with this framework are the unethical interest rates and violation of consumer privacy and other unethical lending practices perpetrated by unchecked digital lenders. However, they have stated that the intention behind these regulatory actions is not to punish digital lenders. It’s to correct them.
FCCPC registration requirements for digital lenders
In compliance with the regulatory/registration form for digital lenders, what the FCCPC needs from a digital lender includes:
- Name, physical address, phone number and email address of the lending business
- Identity and nationality of promoters and directors and other key officials associated with the business
- Details about funding – nature, source, identity, etc.
- All business affiliations
- Interest rate, all applicable loan fees and loan balance calculation method
- Any license authorizing business to lend
- List of digital lending apps currently deployed or in production
Additionally, the FCCPC must be notified of material modifications of existing apps or the introduction of new ones. Lenders are required to notify the FCCPC if they’re pushing a new version of their lending app to the app stores with significant changes. Lenders are also expected to have clear dispute resolution channels and resolve consumers’ complaints promptly; as well as document their processes.
What actions has the FCCPC taken to enforce this regulation?
The interim framework became enforceable immediately after the FCCPC released it. The following announcements accompanied the release of the registration form:
- All operating payment systems including Flutterwave, Opay, Paystack and Monnify are to immediately cease and desist from providing payment or transaction services to lenders under investigation or not otherwise operating with applicable regulatory approvals
- Google Play Store is to take down lending apps found operating in a manner that attempts to circumvent their investigative intervention. This can be expected to be the standard moving forward
- Telecommunication/technology companies are also to cease and desist providing server/hosting, or other key services to lenders under investigation or those known to be operating without regulatory approval
What this means for a lender operating digitally is that they run the risk of losing their business if at all the FCCPC has any cause to investigate them. Their access to ancillary services such as payments and data services will be cut off. Their access to customers will also be cut off. Continuing operations by creating a new lending app while under investigation is also a violation. The commission required lenders to declare all lending apps associated with their business and provide updates on new ones or changes made to the current ones.
In addition to the order to payments providers, the framework also mandates other service providers in the relevant ecosystem (banks, app stores, etc.) to require regulatory approval before providing services to digital lenders. However, the industry response to these orders is that the FCCPC is acting beyond the confines of its regulatory authority here.
Orders to these providers have been issued contrary to their powers as defined in the amendment of the Banks and Other Financial Institutions Act (BOFIA) in 2020. Industry stakeholders have pointed out that these orders specifically violate the BOFIA clause 65(1). It 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. It’s expected that the FCCPC’s next release will address this.
Who does this framework affect?
This interim regulatory framework applies to all digital lenders. Given that there has been no digital lending regulatory approval required before now, this means lenders who make use of other lending licenses.
If you’re a lender and you want to know more about how to comply with these regulations, you can always engage our Growth team at [email protected].