Should Predatory Digital Loans be Enforced?

There should be no compunction on the part of regulatory agencies that specific types of loans are illegal and that borrowers have no obligation to repay them

On Friday, March 11, 2022, enforcement action was undertaken against predatory digital lenders by the Federal Competition and Consumer Protection Commission (FCCPC), National Information Technology Development Agency (NITDA) and The Independent Corrupt Practices Commission (ICPC) under the aegis of the inter-agency Joint Regulatory and Enforcement Task Force (JRETF) and the Police.

According to one report, Mr. Irukera, Executive Vice Chairman/Chief Executive Officer FCCPC said: “We found out that most of these companies operate from the same place. We also found out that many of them are actually operated by the same person… They are not Nigerian companies, they don’t have addresses in Nigeria and they are not registered in Nigeria with the Corporate Affairs Commission and they do not have any license to do their businesses. Essentially what they have is an App.” he said. The FCCPC website news report states that: “The Orders of the Commission are without prejudice to existing borrowers repaying any legitimate loans pursuant to fair and acceptable terms and conditions; or any modifications to previous terms and conditions that are considered onerous, inconsistent with prevailing law or general principles of transparency and fairness.”

It is evident from the news reports that some of the digital lenders are operating without requisite licenses, such as a moneylending or microfinance bank license, contrary to the Money Lenders Laws and the Banks and Other Financial Institutions Act (BOFIA) 2020. It is illegal to carry on the business of moneylending (ref: section 6 Money Lenders Law, Lagos State, Chapter M7, Laws of Lagos State) or to operate as a bank or other financial institution without a valid license. Some digital lenders are foreign companies, unregistered in Nigeria, contrary to the Companies and Allied Matters Act. From other reports, some of the lenders indulge in excessive charges and escalatory punitive interest rates, baiting borrowers by posting misleading information on the true rate of interest to loans and wantonly disclosing borrower’s data, in breach of the right to privacy and the Nigerian Data Protection Regulations, 2019.

Ordinarily, operating as a moneylender without a license and other material breaches of the moneylending laws render unenforceable loans extended to borrowers. Ordinary citizens lending to one another as peers are also required to comply with the interest rate chargeable under the Money Lenders Laws. As for breach of BOFIA and CAMA, we may surmise that the contract of lending in such cases is illegal and unenforceable or at best voidable.

However, by virtue of section 78 (1) of CAMA, an unregistered foreign company’s transactions are void. In all these instances, there should be no question of modifying the loans to render them less onerous or giving governmental administrative support for the recovery of such loans. If such lenders were to approach the Courts they would get no assistance of the Courts to enforce the loans.** It is not the duty of FCCPC or any other agency (and it is contrary to public policy) to arbitrate illegal transactions. There should be no compunction on the part of the regulatory agencies that the administrative determination is that specified types of loans (as those discussed) are illegal and that borrowers have no obligation to repay them, subject to the right of the lenders to sue for repayment. That should serve as a fair and logical consumer protection measure for “cowboy” or “fly by night operators” and a good deterrent, without any prejudice to further prosecutorial or other administrative measures.

Nigeria needs modern and updated laws on consumer credit, including digital loans, with adequate protection for consumers on the basis of the maxim: “Caveat venditor” (“Let the seller beware”). Snippets of the maxim are embedded in an uncoordinated fashion in some existing legislation. A Consumer Credit Act and model Consumer Credit Laws for adoption by the State governments is required. Further, the provisions of the legislation should apply to consumer credit generally, including consumer credit granted by banks and other financial institutions.

**Balogun v Obisanya & Anor (1956) 1 F.S.C. 22; Kasumu v Baba-Egbe (1956) 3 WLR 575; (1956) AC 539; Nwankwo v. Nzeribe (2004) 13 NWLR (pt. 890) 422.

In Kasunmu’s Case the Privy Council famously said: “The Ordinance, in enacting that no loan which failed to satisfy the statutory requirements was to be enforced, meant that no court of law was to recognize the lender as having a right at law to get his money back, if the court were to impose terms of repayment as a condition of making any order for relief it would be expressing a policy of its own in regard to such a transaction which was in direct conflict with the policy of the Ordinance.”

Professor Olawale Ajai is the Policy Lead at the Sustainable and Inclusive Digital Financial Services initiative of the Lagos Business School.