Loan sharks continue to use cruel collection methods

The Federal Competition and Consumer Protection Commission (FCCPC), which has led collaborative efforts to address the pervasive abusive and arm-twisting practices of the loan sharks—another term for fake loan apps in Nigeria—is a key regulator, but this is still taking place despite their crackdowns.

How Fake Loan Sharks Conduct Their Business

Millions of Nigerians seek loans beginning at N2,000 from these lenders because they lack bank accounts or other forms of collateral. As a result, individuals endure tactics like character assassination, extortion, cyberbullying, physical violence, and public humiliation from these loan sharks. Many people have complained on social media platforms about being harassed when they make mistakes and having their contact information disclosed to other parties without their consent. They are renowned for using forceful recovery strategies, and the lenders impose interest rates of up to 45% annually. The lender asks applicants to download an app, fill out a questionnaire, and provide access to their connections for risk management reasons. They have harsh conditions of collection following failure, which include communicating with the customer’s phone contacts and sending them threatening, humiliating, and libelous texts in addition to generally breaking the law. In essence, loan sharks engage in unlawful business, and as such, they are sometimes referred to as illegal lending platforms and applications.

A loan app called 9Credit has been accused of engaging in unethical and questionable business practices, including charging customers questionably high interest rates, granting loans for only seven days rather than the minimum 60 days required by law, and regularly libelous and threatening its customers and their contacts.

For instance, the App sent this message to the contacts on one of its users’ contact list. IMMEDIATELY CARE FOR! I’m writing to let you know that xxxxxxxxx (name) is an inconsiderate person. His phone number is 081xxxxx. A CRUEL/HARD-HEARTED DEBTOR has been PROVEN to be THIS PERSON.

Currently, this individual has declined to return our calls and pay back the company’s money (NC). If you know anything about this individual, please get in touch with us right once; otherwise, the firm will be compelled to take legal action to recover this money.

On August 18, the FCCPC said that it had carried out operations to search and seize at least five lenders. According to FCCPC CEO Babatunde Irukera, Soko Lending Limited, a company situated in Lagos, was one of those targeted.

The National Information Technology Development Agency (NITDA), the main IT organization in Nigeria, fined the Chinese-owned shark Soko Lending Company Limited (Soko-loan) N10 million ($23,900) last year for violating users’ privacy.

Irukera said that Soko was “one of the most persistent offenders” of consumer privacy, fair lending conditions, and ethical loan repayment/recovery procedures. Soko describes itself as a “simple, totally online lending platform” that can handle loan requests in five minutes on its website.

Investigations also revealed that Sokoloan had been accused of violations of the scam lending, including: Giving loans for seven days as opposed to the 91 to 360 days displayed in the Google Play store; not providing loans up to N300,000 as it claimed; failing to disclose its real fees; failing to repay when due will result in their staff harassing the customers, threatening them, and sending messages to people on their contact list warning that the customers should not be trusted and be told that they should not be trusted.

Janet Henry, a 41-year-old government worker and mother of six, urgently needed money to cover certain expenditures. Soko-loan granted her a loan when she applied. “I was not aware that Soko-loan had been banned by the federal government when I read the conditions of the service in a Facebook advertisement. I took out a loan via the Soko-loan app for N18,000 ($43) in the latter days of February 2022. The application showed 92 days as the minimum loan term, but after I had entered my information, I discovered an interest rate of (about) 45% for 14 days! she exclaimed.

Ramota Ajayi also borrowed N18,000 using a loan lending app in Ibadan, and the transaction just took a few minutes. She believed their services would be of the highest caliber given that they had more than 500,000 members who had downloaded the app via the Google Play Store on their phones. She had eight days to repay the money. This behavior violates the most recent guidelines for listing apps on Google Play Store. The Google Play Store’s guidelines state that financial apps that provide short-term loans on their network must allow borrowers a minimum of 60 days from the date of issuance to repay any debts. Ajayi received threatening calls and WhatsApp voice messages from the company’s debt officer two days before the payment deadline, warning her that she would disclose her information with her connections if she didn’t pay on time.

The debt collector, who introduced herself as Florence, threatened to “give your identities to all your connections and ruin you if you want me to lose my job because you won’t pay on time.”

On the due day, Ajayi paid N22,500 in full, with interest, and sent a letter to the business requesting that the unpleasant debt collector be fired. They responded and promised to look into it, but they never did. Even after paying off her debts, she received hostile WhatsApp voice messages from the debt collector, but the company took no action.

Regulators’ Restrictions

Babatunde Irukera, the FCCPC’s executive vice chairman and chief executive officer, stated that the commission was collaborating closely with the Central Bank of Nigeria (CBN), the National Information Technology Development Agency (NITDA), and the Independent Corrupt Practices Commission (ICPC) to put an end to the problem.

“Fifty accounts have been frozen so far. We have removed more than 12 apps from the Google Play Store, and we are now in talks with more than 10 businesses. At least 60% fewer defamatory texts are being sent now. Even though they have decreased by at least 60%, I am not saying they have stopped. More than half of the businesses that are now in front of us have committed to change their conduct, including firing those workers who sent defamatory communications. We are now pursuing legal action against at least one corporation while also building a regulatory framework that will include other authorities, the official added.

Additionally, the FCCPC has issued orders to mobile network operators (MNOs), telecommunications firms, and payment system operators to avoid providing services that support the activities of illicit online lenders. Additionally, it said that the inter-agency Joint Regulatory and Enforcement Task Force has created and approved a Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending to provide a precise regulatory framework for the industry.

Expert Opinions

Before 2016, there were lending applications available, but defaults and dishonest repayment methods were very rare, according to financial experts. However, they said that over time, loan sharks began to take advantage of the hardships that the general public was experiencing by offering mouthwatering, rapid loans without security.

Andrew Ojo, an IT specialist, believes that the government need to implement legislation that would make it simple for those without salary accounts to get loans from banks.

To guarantee that their customers’ human rights and privacy are protected, they should control the formation and operation of fintech firms. According to him, “the government should detain and punish any fintech business that violates the laws and regulations set out by the government and/or engages in any unsophisticated methods of recovery, inflicting their customers bodily or psychological harm.”

John Ugochukwu, a different Lagos-based IT professional, said that individuals are more likely to fall prey to loan sharks since it is so simple to get a loan without having to leave their comfort zone.

Major Findings

The MINIECHAT Data Mining section did some research and found that Nigeria will have 144 fintech businesses in 2021. According to a McKinsey research, there are more than 200 independent financial businesses.

Fighting Loan Sharks Is Not Over

As lending applications continue to engage in privacy invasion and blackmailing of its users, the fight against loan sharks in Nigeria by the FCCPC may yet be far from done. Additionally, a lot of Nigerians have developed the practice of borrowing money from these platforms without intending to pay it back, and the loan sharks are actively attempting to reclaim their money by whatever means necessary, including sending messages to the borrowers’ connections.