Regulating Digital Money Lenders in Nigeria
Nigeria’s consumer protection regulator, the FCCPC, recently published a Limited Interim Regulatory/Registration Framework for Digital Lending (“Regulation”)[1] with the intent to regulate digital money lenders in Nigeria. The Regulation is a welcome decision. However, a number of legal and industry issues are thrown up. We discuss some of the issues below.
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Can the FCCPC Legally Regulate Digital Money Lenders in Nigeria?
There is some doubt here because, the BOFIA Act (which regulates Banks and fintechs) provides that the FCCPC Act shall not apply to any financial product or financial services licensed and regulated by the CBN. The BOFIA was enacted in 2020 and therefore supersedes the supremacy sections [2] in sections 104, 105, and 106 of the FCCPC Act, which was enacted in 2018. The BOFIA supersedes the FCCPC Act because of a principle of law for interpreting laws in Nigeria which asserts that, the intention of lawmakers when they make a new law where one on the same subject matter exists, is to correct any inconsistencies in a previous law. For this reason, there is some doubt that the FCCPC can regulate digital lenders that are licensed by the CBN. More importantly, section 30 of the BOFIA 2020 empowers the Governor of the Central Bank to exclusively regulate consumer protection in the financial services sector. Evidently, 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 state-issued money lender license as regulatory cover).
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The Scope of the Digital Lenders Regulation
The Regulation, which essentially is a Form asking for a number of “KYC” questions appears to have some extraneous requests. In our view, the regulatory oversight that the FCCPC provides can only relate to consumer protection matters and not more. Accordingly, the legal basis for FCCPC’s request for registration information such as, “source of funds” ( and a number of other such requests) from digital lenders, is questionable in our view and ought to be reviewed. In the same vein, asking digital companies to register with the FCCPC, suggests that there is some legal basis for FCCPC to mandate companies in other industries (discos, gencos, telcos, manufacturing companies, oil and gas companies etc) to register with the FCCPC for purposes of consumer protection. This is a difficult proposition to make and is worthy of judicial review.
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States to Enact Digital Money Lenders Law
It is important to also note that, by design, money lender laws enacted by states are primarily consumer protection laws. Issues such as the maximum amount of interest rate chargeable, are regulated in the interest of consumers, across money lender laws. We think that the failures we are seeing in the digital lending industry in Nigeria are primarily, a reflection of the absence of money lender laws that are specific to Digital Money Lenders and also consistent with industry realities. At the time the traditional money lender laws were enacted, the primary regulatory object was to protect consumers from loan sharks. Today, there are others issues around how the personal data of a consumer is used , the ethics of debt recovery, buy-now-pay-later products, non-cash lending and so on. These issues need to be regulated as a matter of “interim” priority. This, in our view, is the immediate requirement of the industry. On the other hand, state governments may also to seek to enhance their competitiveness by promoting and legislating relevant digital money lender laws. However, it is useful to note that state governments can only regulate digital lending from a consumer protection standpoint, as they do not, in our view, have the constitutional power to regulate money lending from a prudential standpoint.
Important Notification: We are seeking to inform, with this post and not to provide legal advice. Please always seek legal advice specific to your situation.
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[1] On August 18, the FCCPC released a statement titled “Further and Continuing Investigation of Rights Violations in Money Lending Industry; and Release of Interim Regulatory Framework” . Amongst others, this Framework states that (a) telcos/tech companies should cease from providing server/hosting services or other key services to certain digital moneylenders or lenders operating without the FCCPC’s approvals (b) all payment processing companies should immediately cease from providing payment or transaction services to lenders under investigation (c) Google should take down specific applications.
[2]The supremacy clause in the FCCPC Act gives the FCCPC primary and concurrent jurisdiction ( with Government MDAs) over consumer protection issues in Nigeria
