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Digital Money Lenders – The Nigerian consumer protection regulator, the FCCPC, recently issued a Limited Provisional Regulatory/Registration Framework for Digital Lending (“Regulation”)1 in an effort to regulate digital money lenders in Nigeria. The settlement is a welcome decision. However, a number of legal and industrial issues are raised. We discuss some of the questions below.
- Can the FCCPC legally regulate digital money lenders in Nigeria? There is a doubt here because the BOFIA law (who regulates banks and fintechs) provides that the FCCPC Act 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 sections2in Sections 104, 105 and 106 of the FCCPC Act, which was enacted in 2018. BOFIA supersedes the FCCPC Act due to a principle of law for the interpretation of laws in Nigeria which states that, the intention of legislators, when they make a new law when there is one on the same subject, is to correct any inconsistency in a previous law. For this reason, it is doubted that 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. Obviously, the FCCPC can only possibly regulate digital lenders that are not licensed by the CBN (i.e. unlicensed digital money lenders or digital money lenders using a lender license money issued by the state as regulatory cover).
- The scope of the regulation: The settlement, which is basically a form asking for a number of “KYC” questions, seems to have superfluous requests. In our view, the regulatory oversight that the FCCPC provides can only address consumer protection issues and no more. Therefore, the legal basis for FCCPC’s registration information request, such as “source of funds(and a number of other such requests) from digital lenders, is questionable in our view and should be investigated. Along the same lines, requiring digital companies to register with the FCCPC suggests that there is a legal basis for the FCCPC to compel companies in other sectors (discotheques, gencos, telecommunications operators, manufacturing, oil and gas companies, etc.) to register with the FCCPC. for consumer protection purposes. It is a difficult proposition to make and deserves judicial review.
- Enact the Digital Money Lenders Act: It is important to also note that, by design, state-enacted money lender laws are primarily consumer protection laws. Questions such as the maximum quantity of applicable interest rate, are regulated in the interest of consumers, through the laws on lenders. We believe that the failures we are seeing 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. At the time the traditional moneylender laws were enacted, the primary purpose of regulation was to protect consumers from loan sharks. Today, there are other issues regarding 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 matter of “temp worker” priority. This is, in our view, the immediate requirement of the industry. On the other 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 because they do not have, in our view, the constitutional power to regulate the lending of money from a prudential point of view.
1 On August 18, the FCCPC released a statement titled
“Thorough and continuous investigation into rights violations in the moneylending sector; and publication of the draft regulatory framework” . Among other things, this framework stipulates that (a) telecommunications/technology companies must stop providing server/hosting or other key services to certain digital lenders or lenders operating without the approval of the FCCPC (b) all payment processors should immediately stop providing payment or transaction services to lenders under investigation (c) Google should remove specific apps
2 The Supremacy Clause in the FCCPC Act gives the FCCPC primary and concurrent jurisdiction (with government MDAs) over consumer protection matters in Nigeria
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