Digital lending platforms are good but their activities are suspect

Digital lending has fast become the newest way for Nigerians to secure loans. Palmpay, Fair Money, and Palm Credit, among many others, are some of the examples of digital lending platforms that have become places of choice for many Nigerians.

Filling out forms, verifying physical addresses, and providing customer identities are all mandatory steps in loan application procedures in commercial and microfinance banks. However, the emergence of digital lending platforms has changed all that, making loan applications much easier and simple. 

Online lending platforms frequently provide loans for urgent needs without hassles unlike traditional platforms like banks that require heavy documentation and sureties.

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Abuse or support?

However, the activities of some digital apps raise the question of whether they truly aid Nigerians or provide a means of abusing and exploiting them. The Federal Competition and Consumer Protection Commission (FCCPC) has ordered digital lending platforms to register or risk being prohibited from operating in Nigeria. 

This was done in an effort to limit the abuse of consumer data and eliminate illegitimate borrowers.

In May 2022, Executive Vice-Chairman/Chief Executive Officer of FCCPC, Barr Babatunde Irukera, said accounts of 50 digital lending platforms had been frozen.

“We have so far frozen 50 accounts. We have taken over 12 applications off the Google Play Store and we are in discussions with more than 10 companies right now. The rate of defamatory messages has dropped by at least 60 per cent,” he said in an interview with The Punch.

The body was, however, taken aback in December 2022 when 173 new digital lending companies registered their platforms without authorisation

Digital lending platforms and their interest rates

The issue of lengthy application procedures for loans was resolved by digital lenders. However, they deploy users’ smartphone data to verify lenders’ eligibility and create personalised loan offers. They assess interests based on a set different criteria.

The interest rate can be monthly or daily, with a minimum of 9 percent and a maximum of 48 percent monthly.

Interest rates for loans in some cases may vary depending on loan amounts, repayment periods, and borrowers’ credit scores. 

For Palmcredit, interest rate ranges from 14 percent to 24 percent monthly, while it goes for 2 percent to 30 percent every month for Carbon. Similarly, Plampay goes between 0.60 percent and 18 percent monthly, while Aella charges 6 percent to 20 percent every month.

Olanrewaju Samuel, an engineer and user of one of the digital lending platforms, told Dataphyte that the main reason he and others he knew chose digital lending platforms was that traditional lenders such as banks prioritised corporate entities and powerful individuals over individuals like him.

A customer in one of the online lending platforms, Ms Akapo Tosin, claimed that the interest rates offered by digital loan companies were reasonable as long as they made borrowing simple. She described how simple it was to obtain loans when needed and stated, “I think loans from these digital platforms are made for emergencies and not for serious businesses like commercial loans.”

Digital lenders have also been accused of human rights infringements and abuse of consumer data. Many lending apps have collected their money through harassment by phoning defaulters’ phone contacts or calling for intervention which, in some cases, amount to threats.

In 2021, PremiumTimes published an investigation showing how digital lending platforms were abusing the rights of their borrowers through harassment, bullying and threats. The report highlighted the experiences of people who had defaulted on repayment of loans and the harassment faced by these individuals from digital lenders. 

The Effect of the Compulsory Registration

FCCPC currently has about 173 companies registered under it. The agency recently released a ‘Limited Interim Regulatory/ Registration Framework and Guidelines for Digital Lending 2022’ to control the digital lending market and make approval a requirement for companies seeking to operate in the space. This is due to the negative activities of some loan apps in the country, especially the illegal ones, who violate rights and unfairly treat borrowers..

The registration of companies also aims to distinguish between legitimate loan apps and unlicensed/illegitimate ones, otherwise known as loan sharks. The FCCPC plans to restrain the kind of information they can pull off people’s phones and what they can do with that information. 

There haven’t been reports that this action has stopped the abuse and bullying from online lending companies. However, the FCCPC CEO, Irukera, recently noted that registration would greatly lessen how digital lenders broke the law.

He noted that the commission could easily track down registered companies using the information they provided and would hold them accountable if they broke the law.

A lawyer, Mr Samuel Oyigbo, told Dataphyte that though borrowers could sue digital loan apps for such actions, there would always be a moral burden on loan defaulters.

“The borrowers can sue in such situations, but suing is one thing and justification for default is another thing,” he said

He urged digital loan apps to understand that lending and borrowing were purely civil transactions, and they could enforce order of performance.

“They do not need to defame the character of borrowers because they can also be in trouble,” he said.

“I handled a case where someone was wrongly accused of stealing. The police had detained him for 30 days and when I got involved, I went to court to enforce his fundamental rights. The party involved, which was demanding a car from the man that was detained, decided to forfeit the car. When they saw that the police had violated the law and the fundamental rights issue was now serious, they forfeited the car in question and asked for settlement. So, a loan app may find itself in trouble even if someone defaults,” he added.