THE failures seen in the digital lending industry in Nigeria are primarily a reflection of the lack of money lender laws specific to digital money lenders and also in line with industry realities.
Olubunmi Abayomi-Olukunle, the lead transaction lawyer at Balogun Harold Legal Practitioners, made the observation in a position paper seen by Nigerian Tribune.
According to him, when the traditional moneylender laws were enacted, the main purpose of regulation was to protect consumers from loan sharks.
Today, there are other questions about how a consumer’s personal data is used, the ethics of debt collection, buy-now-pay-later products, cashless loans, and more.
These issues should be regulated as a “provisional” priority, he said.
Abayomi-Olukunle said it is important to also note that, by design, money lender laws enacted by states are primarily consumer protection laws, as issues such as the maximum amount of the rate of interest payable are regulated in the interest of consumers through the laws on money lenders.
The Nigerian consumer protection regulator, the Federal Competition and Consumer Protection Commission (FCCPC), has recently issued a Limited Provisional Regulatory/Registration Framework for Digital Lending (“Regulation”) with the aim of regulating digital money lenders in Nigeria.
This, the lawyer says, is a welcome decision, but a number of legal and industry issues arise.
On the one hand, state governments can also seek to improve their competitiveness by promoting and legislating relevant laws on digital money lenders.
“However, it is worth noting that state governments can only regulate digital lending from a consumer protection perspective, as they do not, in our view, have the constitutional authority to regulate digital lending. money from a prudential point of view.
On August 18, the FCCPC released a statement titled “Thorough and Continued Investigation into Rights Violations in the Money Lending Industry; and publication of the draft regulatory framework.’
Among other things, this framework stipulates that telecommunications/technology companies must stop providing server/hosting or other key services to certain digital money lenders or lenders operating without FCCPC approval; all payment processors must immediately stop providing payment or transaction services to lenders under investigation and Google must remove specific applications.
The lawyer said that the Supremacy Clause of the FCCPC Act gives the FCCPC primary and concurrent jurisdiction (with government MDAs) over consumer protection matters in Nigeria.
According to him, the BOFIA law (which regulates banks and fintechs) provides that the FCCPC law does not apply to any financial product or service authorized and regulated by the CBN.
The BOFIA was enacted in 2020 and therefore replaces the supremacy(2) articles of Articles 104, 105 and 106 of the FCCPC law, which was enacted in 2018.
The BOFIA, according to Abayomi-Olukunle, supersedes the FCCPC Act due to a principle of law for the interpretation of laws in Nigeria which affirms that the intention of legislators when making a new law when there is one on the same subject, is to correct any inconsistencies in a previous law.
For this reason, “there is doubt whether the FCCPC can regulate CBN-licensed digital lenders. More importantly, Article 30 of BOFIA 2020 empowers the Governor of the Central Bank to exclusively regulate consumer protection in the financial services sector.
“Clearly, the FCCPC can only potentially regulate digital lenders that are not licensed by the CBN (i.e. unlicensed digital money lenders or digital money lenders using a license from state-issued money lender as regulatory cover),” he said.
Abayomi-Olukunle added, “Accordingly, the legal basis for the FCCCPC’s request for registration information, such as ‘source of funds’ (and a number of other such requests) from digital lenders, is questionable in our opinion and should be reconsidered.”
Along the same lines, he said that requiring digital companies to register with the FCCPC suggests that there is a legal basis for the FCCPC to oblige companies in other sectors (discotheques, gencos, telecommunications operators , manufacturing companies, oil and gas companies, etc.) to register with the FCCPC for consumer protection purposes.
“It’s a tough proposition to make and one that deserves judicial review,” he said.
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