The primary law governing money lending in Nigeria is the Money Lenders Law of various states, which set out the licensing requirements and regulations for money lenders operating within the state. The Federal Competition and Consumer Protection Commission (FCCPC) also regulates money lending activities in Nigeria and protects the rights of consumers in relation to money lending services.
Money lending, also known as a payday loan, is a financial service that involves the provision of small loans, typically to individuals or small businesses, who may not have access to traditional banking services. Money lending in Nigeria plays a significant role in supporting economic growth and development, particularly in rural areas where access to credit is limited.
There are several laws and regulations that govern money lending activities in Nigeria. Some of the key laws and regulations are explained below.
- Companies and Allied Matters Act (CAMA): The first major law regulating money lending companies in Nigeria is CAMA. The government agency responsible for the incorporation and administration of CAMA is the Corporate Affairs Commission (CAC) The law mandates anyone seeking to carry on any business activities in Nigeria to achieve incorporation promptly. Under Nigerian law, the foreign company is prohibited from carrying out any business activities in Nigeria without registration with the CAC.
- Money Lenders Law of various states: This is the primary law that governs money lending activities within the various states. The law sets out the licensing requirements and regulations, maximum interest rates, and process of debt recovery, for money lenders operating within the state. In Lagos State and under the Money Lenders Law of Lagos State (MLLS), any person who wishes to carry on the business of moneylending must obtain the moneylending license from the State's Ministry of Home Affairs or Magistrate Court within the magisterial district the moneylender wishes to operate.
- Central Bank of Nigeria Act: The Central Bank of Nigeria (CBN) is the primary regulatory body for financial institutions in Nigeria. The CBN Act gives the Central Bank the authority to regulate money lending activities, set interest rates, and enforce compliance with regulations. The CBN fixes the maximum rates on interest for commercial banks, financial companies, and microfinance banks. The CBN also regulates the moneylenders in that, it issues Consumer Protection Regulations, the regulations stipulate the minimum standard on fair treatment of consumers, disclosure and transparency, and deployment of debt recovery processes, customer feedback, and protection of customers' personal information. An example of such regulation is the CBN Consumer Protection Framework 2016.
- Federal Competition and Consumer Protection Act (FCCPA): The FCCPA establishes the Federal Competition and Consumer Protection Commission (FCCPC), which is responsible for protecting the rights of consumers in relation to financial services. The Council has the authority to investigate complaints, enforce compliance with regulations, and impose sanctions on financial institutions or moneylenders that violate consumer rights. The FCCPC mandates all digital moneylenders to submit their source of funds. The Commission also directed all telecommunication companies and banks providing hosting services or other key services to digital moneylending without the approval of the Commission must cease the provision of such services. The Commission also directed all banks, platforms, technology providers, and payment systems to obtain evidence of regulatory approval before providing services to moneylenders.
- Nigeria Data Protection Regulation: The National Information Technology Development Agency issued the Regulation in 2019. Moneylending companies are by this Regulation mandated to file an audited report through a licensed data protection compliance organization (DPCO) before they can legally carry on their business. The DPCO must be certified in data science and cybersecurity. The Nigeria Data Protection Bureau was created by the Federal Government in 2022 to oversee the implementation of the Regulation.
- Federal Inland Revenue Service (Establishment) Act: The law establishes the Federal Inland Revenue Service (FIRS), which is a primary government agency responsible for company income taxation and compliance in Nigeria. The money lending companies are liable to pay company income tax (CIT), which is 30% of their profits provided such a company has a turnover exceeding NGN100 Million per annum. The CIT is 20% if the company does not meet such a threshold.
Overall, the above laws and regulations aim to protect both borrowers and lenders, ensure fair practices, and promote financial stability in Nigeria. Money lenders in Nigeria are required to obtain a license from the appropriate regulatory body within their state of operation before commencing operations.
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