Unmasking the Predators: How Online Loan Sharks Exploit Nigerians

In Nigeria’s cash-strapped economy, where inflation surged to 32.70% as of September 2024 (NBS) and the cost of living continues to rise, online loan apps have positioned themselves as a lifeline for many. However, beneath their glossy ads lies a growing menace of unethical practices that have left countless Nigerians trapped in cycles of debt, humiliation, harassment, and psychological trauma. Regulatory agencies like the Federal Competition and Consumer Protection Commission (FCCPC) have stepped in, but the issue has persisted, raising critical questions about consumer protection in the digital lending space.

Nextgen Spectrum Team, based on interviews with victims, shines a spotlight on these silent predators. It explores the tactics employed by these loan sharks, recounts real-life stories, and provides practical advice for borrowers while discussing the effectiveness of regulatory efforts.

Predatory Tactics: A closer look

1. Exorbitant interest rates
   Online loan apps often advertise low interest rates but fail to disclose hidden fees and penalties. Borrowers who take loans with an advertised rate of 5% can pay over 50% due to additional charges. For instance, a borrower might take ₦10,000 and repay ₦15,000 within just two weeks, creating a debt trap.
2. Harassment and defamation
   These lenders frequently resort to public shaming. Borrowers report receiving threatening messages that accuse them of fraud or criminal behavior. Sometimes, lenders send defamatory texts to the borrower’s family, friends, or workplace, leveraging contact lists accessed illegally through app permissions. 

A respondent who defaulted on a ₦28,000 loan for two days received a barrage of abusive and threatening SMS messages. These included threats to publicly shame him and his family, accusations of fraud tied to his BVN (Bank Verification Number), and intimidations of an "online parade" featuring his photo. His spouse and contacts were also targeted with defamatory claims, labeling him a cybercrime suspect and urging them to pressure him for repayment. The messages warned of public humiliation via social media, with threats to implicate contacts and place liens on their accounts if payment wasn’t made promptly. This highlights the aggressive and unethical recovery tactics employed by such loan apps, which violate borrowers' rights and data privacy.

in the same vein, many borrowers report that their photos and personal details have been illegally shared with family and colleagues, further compounding their distress. Others shared how some of the loan sharks announced and circulated their obituary pictures to their friends and social circles while still alive for defaulting.

3. Privacy violations
   Despite Google's ban on apps that fail to comply with privacy standards, many still access sensitive personal data without consent. A recent FCCPC investigation found that some apps continue to upload users’ photos and identification details to social media platforms, exposing them to public ridicule.

Impact on Borrowers: Real-life examples

1. A middle-income earner who borrowed ₦20,000 for emergency medical expenses found himself owing ₦38,000 within a month due to penalties. Unable to pay, he faced public disgrace when his contacts were spammed with defamatory messages.
2. Another borrower described being called "a fraudster and a criminal" by loan recovery agents, despite paying off their debt late by just a day.

What can borrowers do? Actionable solutions

1. Understand your rights
   Borrowers must know that harassment and defamation are illegal. The FCCPC allows complaints to be filed via its website, and borrowers can report unethical practices to regulatory bodies like the CBN.
2. Opt for regulated platforms
   Before taking a loan, verify if the platform is approved by the CBN or listed under FCCPC’s compliant lenders. Look for reviews on platforms like the Digital Lenders Association of Nigeria (DLAN).
3. Read the fine print
   Carefully review terms and conditions, especially regarding interest rates, repayment schedules, and data usage. The truth is that many people don't always take the time to read those terms and conditions. it is your responsibility to read and understand what you are signing up for.
4. Budget and explore alternatives
   Where possible, seek alternative financial solutions, such as cooperative societies or microfinance banks, which often offer more transparent terms. 

Regulatory Efforts: Progress and Gaps

The FCCPC has taken significant steps, including issuing warnings, clamping down, and sanctioning non-compliant lenders, while Google's enforcement of digital lending policies has removed several problematic apps. Despite these efforts, gaps persist, highlighting the need for stronger consumer protection measures. Policymakers and regulators must enhance and enforce data privacy laws like the NDPR to address unauthorized data misuse. Creating a digital lending registry and monitoring system would help identify compliant lenders, while partnerships with app stores could ensure non-compliant platforms are removed. Empowering borrowers through nationwide financial literacy campaigns and a centralized reporting portal is crucial. Additionally, strict penalties for violators, transparent loan advertising, ethical alternative lending models, and periodic policy reviews are necessary. In the same vein, because most of the loan shark apps are either directly or indirectly owned by non-Nigerians,  strengthening international collaboration to tackle cross-border operations and adopting standardized credit reporting systems would further bolster consumer protection and regulatory effectiveness.

The Role of Borrowers in Driving Change

1. File complaints: Use platforms like FCCPC to hold predatory lenders accountable.
2. Raise awareness: Share your experiences on social media to expose unethical practices and warn others.
3. Advocate for consumer rights: this can be done by starting or joining financial advocacy groups to push for systemic reforms.

The predatory behavior of online loan sharks underscores the urgent need for improved financial regulations and borrower education. By arming themselves with knowledge and leveraging regulatory frameworks, Nigerians can push back against unethical practices and reclaim their dignity. As the saying goes, “Prevention is better than cure.” Borrow responsibly, report abuse, and advocate for a lending industry that works for all. Together, we can turn the tide against these digital predators.

References

1. NBS Inflation Report (September 2024): nigerianstat.gov.ng
2. FCCPC Official Website: fccpc.gov.ng
3. Google Play Digital Lending Policy (2023): google.com
4. Digital Lenders Association of Nigeria: dlan.org.ng