You probably might have received text messages and/or calls from digital lending companies to inform a defaulter to pay up his debt. Sometimes, these loan apps go as far as breaching the privacy of loan defaulters, cyberbullying and harassment in a bid to recover outstanding loans from defaulters. These crude and unprofessional methods loan apps employ to recover debts from defaulters have led many Nigeria to wonder if an online loan is legal in Nigeria. In this article, we’d discuss whether online loans are legal in Nigeria and provide some useful information about digital lending in Nigeria.
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Is Online Loan Legal in Nigeria?
Yes, online loans are legal in Nigeria. The Banks and Other Financial Institutions Act (BOFIA) 2020, is the law that governs digital lending companies (loans apps) in Nigeria while the Central Bank of Nigeria (CBN) and the National Information Technology Development Agency (NITDA) regulate these loan apps.
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Understanding Online Loans in Nigeria
To understand the subject of this article better, we think it’s imperative you understand what online loan in Nigeria is all about. First and foremost, an online loan is a kind of loan whereby one can complete the whole borrowing process without stepping foot in the bank. Aside from completing the whole borrowing process digitally, online loans are less stringent to obtain than what is obtained in conventional banks.
Now we’ve discussed what online loan is, let’s briefly discuss online loan companies. Online loan companies, or digital lending companies as they are sometimes referred to as are online companies that provide low-interest instant and non-collateral backed loans to individuals and SMEs without requiring documentation. These digital lending companies usually do not have any physical presence – everything is done online.
For an individual or an SME to obtain loans from these loan apps, the first thing the borrower would have to do is to download the application of the digital lending company from Google Play Store or App Store, depending on the operating system of the smartphone of the borrower.
After successful installation, the borrower would be required to grant the service provider access to specific personal information such as call logs, SMS logs, mobile money transaction history, geo-location, BVN, email address, and passport photograph, among other things. All this information is what the digital lending apps will use to verify the identity of the borrower, as well as evaluate their creditworthiness and assess their ability to pay back the loan.
Once the borrower has granted permission for the above-mentioned information to the loan, the loan borrowing process takes minutes to complete, and the disbursement of funds takes effect shortly after. The ease of obtaining these low-interest instant loans with zero documentation from digital lending companies has made online loans quite popular in Nigeria.
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How Do Digital Lending Companies Recover Outstanding Laws in Nigeria and What Should be the Right Way to Go About It?
Since obtaining online loans in Nigeria does not require collateral and documentation, some digital lending companies resort to some unorthodox methods to recover outstanding loans when borrowers default. The unorthodox debt recovery methods that are employed by some online loan companies include defamation, cyberbullying, threats to life, and breach of data privacy. These aforementioned debt recovery tactics have no justification whatsoever under the law. In fact, these unorthodox methods are considered criminal offenses and the borrower can sue the online loan company or its agent.
What then should be the appropriate way loan apps should go about recovering outstanding debts from defaulters, you may wonder. Normally, when someone that sourced a loan from a loan app defaults, interest will be charged daily in addition to the default fee. This continues until the loan sum together with the accrued interest is extinguished.
Instead of resorting to the unorthodox debt recovery methods we earlier discussed, the proper way digital lending companies are expected to go about recovering outstanding debt from overdue customers is by first issuing the borrower demand letter notifying them of their default and instructing them to pay else the company
may resort to legal actions. When the borrower fails to repay the outstanding debt, the digital lending company may initiate a proper recovery of debt action in court to recover the outstanding loan.
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What Legal Actions Can A Defamed Borrower Take Against a Digital Lending Company in Nigeria?
Although borrowers are required to grant loan apps access to specific information, such as their contact list, SMS, location, etc., the purported grant of access does not provide a blanket authorization to defame loan defaulters or publish content to third parties. In no way do the privacy policies and terms of use of these loan apps explicitly state that the privacy of defaulting borrowers would be breached.
In situations where a customer of a loan app defaults on repaying outstanding debt and the digital lending company resorts to unorthodox and crude techniques (e.g. cyberbullying, defamation, publication of malicious content to third parties, etc.) of recovering the debt, there are legal options and remedies available to such customer. The redress options and remedies include a combination of reliefs and sanctions against the erring digital lender.
The following are legal options and remedies available to Nigerians who upon defaulting in repaying loans obtained from loan apps had their privacy breached or experienced defamation by the digital lending companies they borrowed funds from:
- Action for breach of privacy under Section 37 of the constitution
- Action for breach of privacy under the NDPR
- Action for cyberbullying pursuant to the CyberCrimes Act
- A petition to the NITDA for the imposition of a fine against the lender
- A petition to the Federal Competition and Consumer Protection Commission for the imposition of a fine against the lender
- An action in tort for damages
In recent years, particularly since 2021, regulators of online loan apps in Nigeria have tried to clamp down on digital lenders that resort to unorthodox and unprofessional tactics to recover loans from defaulters. However, more is to be done by regulators to curtail the excesses of these mobile lending apps.