Legal compliance pitfalls lenders must avoid in Nigeria

Establishing and maintaining a loan business in Nigeria requires more than just financial prowess – it demands a keen understanding of the legal landscape. While the growth potential is vast, the path of a loan business owner is one riddled with legal compliance pitfalls that can trip up even the most well-intentioned lenders.

Gone are the days of loan-sharking tactics in Nigeria’s modern, regulated lending ecosystem. Lenders who hope to make a lasting impact and withstand the hurdles in this space must be prepared to toe the line of honest, legal and ethical lending. Else, they risk being booted out of the ecosystem. 

Regulators in Nigeria now take ethical lending and regulatory compliance seriously. In 2021, a lender was fined N10m by the National Information Technology Development Agency (NITDA) for privacy invasion. Google with Federal Competition & Consumer Protection Commission (FCCPC) in lieu has also gone ahead to shutdown many lending apps for non-compliance.

This is why we’ve gone through the hassle for you to identify ten (10) key compliance areas you need to watch closely to keep you out of trouble and ahead of the curve.

Ensure you’re licensed to lend

Make certain you’ve got the green light to lend. Secure an appropriate moneylender’s license approved by the Government. This is more than a legal requirement; it’s the foundation of a trustworthy loan business. It not only keeps you on the right side of the law but also instils confidence in borrowers. Learn more about what license you need to lend. 

The right license type for your business needs

Make sure your license aligns with the specific type of lending you plan to undertake. For instance, if you operate from a physical location and hold a state lending license, remember that you might be restricted to lending only within that state. Similarly, if you go for a cooperative license, take the time to understand its limitations. 

Strict adherence to data privacy laws

Keep a close eye on data privacy laws regulated by the Nigerian Data Protection Regulation (NDPR), and ensure your practices align with them. This means being transparent about collecting, storing, and using personal information. Remember, a borrower’s right to privacy is not negotiable. 

Adhere to app store regulations

Although Google and Apple are not Nigeria lending regulators. In some sort of way, they help regulate the authenticity and credibility of mobile loan apps. Ensure you meet up with the requirements for these app regulators. Learn how to boost your loan app on the App Store. 

Clear terms and conditions on the website

Ensure that the T&Cs on your website are straightforward to understand. Avoid using complex language or legalese that might confuse people. Clearly outline the terms of the loan agreement, including interest rates, repayment schedules, and any additional fees. And make sure they are easily accessible so borrowers can review before committing to a loan.

Detailed offer letter

Make sure your offer letters are straightforward and provide all the necessary details of what’s in it for the borrower. Most importantly, ensure your borrowers are aware and fully understand the details of the offer letter. Include a clear breakdown of any associated fees or charges to avoid confusion, and consider offering supplementary materials or explanations to help with comprehension and transparency. It will also encourage borrowers to ask questions and seek clarification on any aspects they find unclear or ambiguous within the offer letter.

Steer clear of unlawful repayment methods

Never prematurely withdraw funds from a borrower’s account. Refrain from thinking, “Oh! they got their salary today, and the loan repayment date is tomorrow; let’s grab the money before they have a chance to spend it with reckless abandon.” That’s a big red flag. Always strictly adhere to the agreed-upon repayment schedule.

Avoid sending unsolicited marketing promotions

Don’t send unsolicited emails to individuals who did not subscribe to receive marketing emails. You must also make a visible unsubscribe button available to subscribers who want to opt out of your emails. Lastly, consider using a double opt-in process to confirm subscribers’ intentions and improve consent verification.

Shun abusive debt collection practices

Don’t harass borrowers by phone or share their information with anybody. Treat every borrower respectfully, and don’t use malicious means to recover debts, as this can mar your reputation and get you reported to the Federal Competition & Consumer Protection Commission (FCCPC). Never compromise on rules, but actively pursue fair solutions, like open communication or tailored payment plans, to guarantee equitable treatment for all your customers. Learn more about ethical ways to recover loans.

Comply with loan pricing regulations

See to it that the pricing of your loan products falls within legal boundaries, is not predatory, and does not exploit borrowers. Tell borrowers clearly how much they’ll pay and why so they can understand. If there’s a problem with how you’re charging for loans, fix it quickly to keep being fair and a household favorite.

Featured article: A guide to the Nigerian Financial Ecosystem

Compliance done right

The legal aspect of lending isn’t something many people dwell on, especially if it doesn’t have to do with getting your money back. The pitfalls involved are numerous and quite damaging to your reputation as a lender, but worry not. With the list of lending compliance pitfalls above, you can save yourself from a whole lot of trouble. Look through our list and think back — is there anything you’re doing now that you shouldn’t? If there is, you should most definitely change that.

Need more information on compliance and regulations? Send us a message at [email protected].