Micro-lending financial institutions harass contacts of defaulters with text messages to force them to pay back loans. Photo: Yusuf Omotayo..

On Thursday, April 22, 2021, XCREDIT, a micro-lending financial institution, sent the above message to one of their customer’s guarantors. What the service did not know was that the lady had submitted one of her other phone numbers when asked to provide a guarantor’s number. So she heaved a sigh of relief that she had outwitted the loan service at least for that period.

The following day however, she got a call from an old friend. The ‘friend’ told her he had received a text message from a loan service telling him to warn her to pay her loan or she would be arrested.

“I was shocked”, she told Neusroom, bewilderment still on her face. “I was sure I did not give them his number. If I was asked to provide 100 phone numbers of guarantors, I wouldn’t have sent his own because we have not spoken in a long time. I felt ashamed. What I don’t know is how they got his number”

What she did not know was that buried inside the terms and conditions of the App which she very likely did not read was that by using the app, she had given the company access to her contacts, messages, photos, location, social media accounts and other vital information which they later used to reach out to her contacts.

Her case is not an isolated one. Many Nigerians have been subjected to similar situations where their contacts are inundated with messages from lending Apps in a bid to force the borrowers to pay.

“LCredit collects personal information which may include phone contacts in your device needed for collection purposes,” a part of the terms and conditions of LCredit App says. Photo: Yusuf Omotayo.

Nigerian lending service

Nigerian banks used to be the only lending institutions in the country. However due to their high interest rates, and compliance requirements, they were not very accessible to the ordinary Nigerian. Currently, Nigerian banks’ lending rate stands at 11.210% which is an all-time low while interest rate in some Nigerian banks can be as high as 24%. Only Jaiz Bank at the moment offers a zero percent interest rate due to its Islamic banking model.

Another concern with bank loans is the collateral requirement which makes it difficult for the most disadvantaged and vulnerable citizens to access. This gap is what digital money-lenders filled.

Before 1990, the Central Bank of Nigeria in conjunction with states and the Federal Capital Territory regulated the operation of money lenders through the Money Lenders Act. This was however repealed and the responsibility was placed in the hands of states for the provision of licences.

In Lagos state for example, applying for a money lender’s licence requires:

a. Certified True Copy of CAC Form 2
b. Certified True Copy of CAC Form 7
c. Certified True Copy of CAC Form 1.1 (for a company registered in 2017 and afterwards)
d. Certified True Copy of the Memorandum and Articles of Association of the Company. (The memorandum must contain an object to the effect that the Company engages in the business of providing lending services to companies, individuals etc.)
e. Certified True Copy of the Certificate of Incorporation of the Company.
f. Tax Receipt of the 2 Individual directors of the Company for the past 3 years. (2017-2019)
g. Evidence of Maintenance of current account under a licensed Bank
h. Evidence of payment of company taxes for the past 3 years. (2017-2019)
i. Passport Photograph and proof of Identity
j. Evidence of application for TIN (this Is for a newly incorporated company)
k. Police Clearance of the 2 individual directors
l. Police Clearance of the Corporate body

At the moment, these requirements also cover digital money lenders as there is no specific law codified to address their operation and therein lies the problem.

Digital lending apps

Digital lending services in Nigeria offer applications, websites or both platforms where users can access non-collateral loans. These services require users to enter vital information like name, address, workplace, phone numbers, email, NIN, BVN, photographs, and more. Because they are licenced by states under the money lending licence, it is difficult to get the total number of loan apps that exist in Nigeria. When a user has completed the registration online, it is reviewed by the loan app which decides whether an applicant has fulfilled its requirement. Once approved, the money is paid directly into the bank of the customer. The average lending rate for online loan services is 10 per cent although there are some that are as high as 12 to 20 per cent. In some cases, it can even be as high as 45 per cent.

Sometimes, these services advertise themselves as salary loans; in reality, the average repayment time is one to two weeks, after that, the interest rate kicks in. Some offer as low as 2.5 per cent interest rate while there are some as high as 5 percent on a daily basis. What this means is that if one takes a loan of N10,000, the person may be expected to pay back N15,000 after seven days if it has a lending rate of 15 percent. Failure to do so would result in additional N500 every day at an interest rate of 5 percent.

That was the situation Glory (last name withheld) found herself when she downloaded one of the popular loan apps after she saw an ad on her phone promising a salary loan that can be paid back within 30 to 90 days. I came across her comment under one of the posts made by the loan app berating them for lying to her that she had a window period of 40 days to pay back the loan only for their loan recovery officer to start calling her after seven days.

“They said on their app that after their review, I was qualified for a 40 day loan so I requested for N50,00, I was surprised when they credited my account with N42,500 and held back N7,500 which they called processing fee. That was not even a big problem because I needed the money for an emergency purpose and I was going to pay back at the end of the month when my salary would be paid. Shockingly, these people started calling me after seven days to return the money. When I told them it was a salary loan, they said there is nothing like a salary loan but just a soft loan. That was not all. The money started going up every day by N2,500. For what?”

My research showed that this is quite a common occurrence where the full details of the loans are not disclosed and the customers only find out about the complete terms after the loan has been approved and money disbursed.

Another user, Akinronle Jamiu, told me he took the loan from one of the online lenders for his business with the intention of paying back after three weeks. To his surprise, he got a call from them after one week threatening to get him arrested if he did not repay his loan.

Harassment, blackmail and intimidation

Many of the online loan services rely on Nigeria’s culture of shame as a tactic to get customers to pay. This involves getting access to customers’ contacts and sending messages to them. This, they hope, will make the defaulting customer pay. These tactics however raise concern about violation of privacy, intimidation, harassment, and illegality.

The terms and conditions of some of these services clearly indicate that they would access sensitive information belonging to customers When customers download and use the apps, they automatically agree to these demands. Interestingly however, most of these apps can only be found on android via the Google Play store and not on the iOS operating system. This may be due to Apple’s policy prioritising security and restricting access to personal information which ultimately makes it difficult for the apps to collect information that can be used later.

I spoke to a number of customers who have at different times been victims of the verbal bullying, threats, insults and harassment from digital lending services. One of them said the repayment portal was very faulty and so he was unable to make payment. He said he reached out to the service several times to fix it to no avail. Despite this, the interest continued to accumulate.

“They sent a message to my fiancée that I was on the run with their money just one day after I defaulted. They said anyone that sees me should report to the nearest police station.”

Gbadamosi Akinyemi told me via Twitter. “Apart from my fiancée, I don’t know if anyone else got the embarrassing message. They said in the message that no one should do business with me again. The worst is that they still called her asking if she knows me and she should be careful of me. This is just one day after I defaulted.”

In the review section of most of these apps on Google Play Store, many of them are full of complaints from disgruntled customers. One said he lost his job after the service reached out to his boss and claimed he provided his phone number as a guarantor, something he insisted he did not do.

Loan recovery officers who are under pressure to meet their daily targets use any measure to make defaulters pay, including harassing their employers. 

I spoke with two people who worked in the recovery department of one of the popular loan services and they told me they had daily targets to meet and so they use any measure they can to make defaulters pay. One of them showed me her WhatsApp Display Picture which bore the image of a lawyer robed in legal regalia. She said:

“We have a target every day to meet and without it, we won’t get our salaries. We are assigned a number of customers for a specific number of days. It is up to us to do anything we can to get the person to pay. I have this lawyer picture so that when I chat with them or call them on WhatsApp, I tell them I am from the legal department of the company.”

She added that other times, she impersonates a policewoman, telling the customer that their case was reported to the police station. “While I’m talking, I will be playing a siren in the background to lend credibility to it that it’s truly the police speaking.” These tactics, she said, usually worked.

The other recovery loan officer said if she is unable to reach the customer directly, she is left with little choice but to reach out to their contacts especially the ones whose names are saved as “Boss,”, “landlord”, “Pastor”, etc., on their phone.

“Nigeria is militarised so much that the average person is afraid of the police. That is why they use such tactics to scare them,” Princewill Akpakpan. Photo: Yusuf Omotayo
.. 

“The company already provides us with access to their data so we can do anything we can to get the money from the customers. I can call their contact late at night that they were listed as guarantors to someone. You can bet the “guarantor” will be angry and call the person immediately. That way, we can get defaulters to pay.”

I asked if the company was aware of the threatening messages and methods they use which involves impersonating law enforcement agents and harassment. She replied that while the company does not prescribe any method, they provide them with information gotten from phone numbers of customers which they then use to exert pressure on them.

Regulations

The use of illegal and unethical methods to get money from customers by digital lenders is not exclusive to Nigeria. Similar incidents have been reported in other African countries. For example in South Africa, some online loan services were sued for harassment. In Kenya, a detailed report showed how a popular digital loan service deployed a similar tactic to force customers to pay their loan.

In Nigeria, there isn’t a well laid out regulation for online loan service beyond granting them licenses. This allows them to act without check and balance. The Central Bank of Nigeria’s Revised Guideline for Financial Companies in Nigeria covers regulations related to the activities of commercial banks, microfinance banks and other financial institutions but excludes digital financial services.

I sent an email to the CBN concerning the operation of digital loan services in Nigeria but no response has been received. Only one of the digital loan services in Nigeria was willing to respond to my inquiries about their operation. The service, LCredit, denied allegations of harassment, violation of privacy, and other unethical methods. In a response to the inquiry made by Neusroom to LCredit via Facebook, the service said:

“Users who we call as contact most have been used as emergency contacts by the person who loaned from us We never have access to users contact other than the emergency contact they filled while applying Thanks you”

A human rights lawyer and activist, Princewill Akpakpan, who spoke with Neusroom on the issue said the reason most victims of bullying and harassment from these digital services don’t speak out on the illegality is because they believe that what they agreed to before they were given the money is already binding. He however insists that one cannot agree to what is unconstitutional.

“Nigeria is militarised so much that the average person is afraid of the police. That is why they can use such tactics to scare them. There is a legal way for recovery of loans that is laid down by law which does not allow impersonation or harassment. There is a contractual agreement between the lender and the borrower. Even if the borrower defaults on payment, the lender can approach a court not resort to intimidation.”