• Urges Responsible Lending, Reviews Loans Requirements

As part of its determination to improve financial inclusion level in the country, and protect customers of banks and other financial institutions from unfair and exploitative practices in their dealings, the Central Bank of Nigeria, on Sunday, published its new Consumer Protection Regulations.

The regulations are also part of efforts to shield consumers of financial products and services from what it termed unethical and predatory practices that undermine consumer confidence in the use of financial products and services, as well as the provision of inadequate and misleading information and/or failure to disclose material information.

In an accompanying circular, signed by Kofo Salam-Alada, Director of its Consumer Protection Department, the CBN said the regulations, prescribe far-reaching requirements on fair treatment of consumers, transparency, responsible business conduct and complaints handling and redress, as a follow up to its Consumer Protection Framework issued on November 7, 2016.

As if to show its seriousness in promoting consumer confidence, the document prescribes, for example, that a bank is liable to a N500,000.00 penalty per complaint weekly, while the infraction subsists.

For failing to acknowledge complaints from customers or non-issuance of a tracking number, according to the apex bank, the bank concerned is liable N2,000,000.00 per complaint; while non-response to request or failure to comply with CBN directive also attracts N2,000,000.00 penalty. Any false or non-rendition of Returns/Reports will attract N100,000.00, and in addition, N10,000 for each day the infraction continues; just as persistent breach of regulations attracts administrative sanctions on the officer(s) responsible, which may include issuance of warning letters and any other statutory sanctions on the officer(s) or institution.

“These may be in addition to the sanctions prescribed in this Section of the Regulation,” it stressed, even as “failure to comply with other provisions of the regulations not specified above shall attract sanctions provided in the CBN Act, the BOFIA, other enabling laws, and regulations.”

The regulations also prescribe transparency in the credit process, including all rates, lending fees and moratorium Consumer Protection Department,(where applicable); as well as “repayment schedule for term loans; early liquidation terms; total cost of the credit; (and) applicable rate of interest or fee relating to late payment or default.”

Deposit Money Banks must also notify consumers within three days from the first day of default, through the agreed medium that a default charge, which shall be disclosed in customers’ statements of account separately from the interest charge, would apply on the account after seven days from the date the obligation becomes due. Customers of institutions other than DMBs shall be notified on the first day of default, that default charge would be applied on the account after three days from the date the obligation becomes due.

For transparent courteous and fair debt recovery processes devoid of undue pressure, intimidation, harassment, humiliation or threat, the CBN requires institutions to engage and give customers notice(s) of outstanding obligations prior to the commencement of a debt collection.

They are also to initiate foreclosures only when other recovery steps have been unsuccessful; while giving customers “the option of a private sale, to be exercised within 30 days before commencing foreclosure, except where the customer waives the right.”

The financial institutions are also to “ensure that the net proceeds from foreclosures are immediately applied to the loan account and customers informed of any balance; provide customers with a report of the sale of the collateral. At a minimum, the report shall state the process, proceeds, incidental expenses, and the net proceeds.”

They will also be liable for the actions of their agents engaged in debt collection.

Financial institutions are however forbidden from contacting “friends, employer, relatives or neighbours of a customer for any information other than information on employment status, telephone numbers or address, except where: the person has guaranteed the loan, or the person has consented to be contacted.”

They must not also require these persons to offset the debt, except where the person has acted as a guarantor.

Financial institutions must not also “make telephone or personal contact with customers between the hours of 9.00pm and 8.00am for the purpose of debt recovery, except with the prior consent of the customer.”

Meanwhile, the document also canvassed for responsible lending on the part of financial institution, including a requirement that “guarantors confirm in writing that they have read and understood their commitments, potential implications and the maximum amount they are guaranteeing.”

Such guarantors must also confirm that they have sought and obtained independent professional advice before executing the guarantee; or declare that they do not need independent advice.

Banks must also provide periodic updates to guarantors on the loan performance to enable them to assess the likelihood of being called upon to discharge their commitments and issue a letter of discharge at no cost to customers within five business days after liquidating their loans. Where the loan is guaranteed, the guarantor shall also be notified accordingly.

In the case where a loan request is declined, the customer must be notified, providing reason(s) for the decline upon request.

Before a loan request is granted, the bank must professionally assess the consumer’s capacity to repay the loan in “a sustainable manner taking into consideration their financial circumstances.”

They must also include in credit risk assessment procedures, “the type and circumstances for which a credit will be suitable as well as clear lines of authority for approving the product.”

Banks must also ascertain the credit history of consumers from the Credit Risk Management System, Credit Bureau and other sources of credit reference before advancing credits.

They must also be a policy in place to deal with consumers who are in financial difficulty, while monitoring loan performance for early detection of repayment difficulties. At such point, the bank must engage the customer to discuss alternative repayment options.

Consumers must not be compelled to buy products or services, such as insurance or valuation from a particular third-party provider as a pre-condition for the grant of a credit facility, but can provide the option to choose from at least three providers or any number as may be prescribed by CBN from time to time.