The Hidden Dangers of Borrowing from Online Lending Apps

Aleke Okwuchukwu

Fintech has revolutionized the banking industry; however several customers end up worse for the experience. Taking a leaf from the modern microfinance operational ideals, Fintech startups appeared as a tool to fight poverty, reduce Bank service hassle and promote a flexible and reliable exchange service.

The economic condition in Nigeria spurred an upsurge in the demand for soft loans, which come with high-interest rates and short repayment periods, often only a week or two. In place of collateral, the apps ask for financial details and access to read private data such as users’ location, media files, photographs and contacts.

In cases of failure to repay the loans in due time, the online lenders respond by disseminating bulk messages threatening litigation, and defamation to your phone contacts. The great problem herein lies in the fact that many of these loan apps operate in a grey area. Although their operations are not illegally bound when compared to the black markets, yet their activities are largely unregulated touching on a range of legal issues, including fraudulent misrepresentation and breach of data protection obligations.

Since many of these apps belong to unregistered and unlicensed entities, making it difficult for law enforcement agencies to trace them and for customers to sue them, the borrower should understand which areas of the market their lenders operate on, whether is it grey, black or white market. The hype surrounding many fintechs is increasingly revealed as spined facts and misinformation. The rush to grow a customer base saw many claims advanced, however now that we’re gaining increased performance data, the truth is starting to come out.

There have been numerous attempts by the Federal Competition and consumer protection commission (FCCPC) to ban all financial technology companies engaging in unregulated payment or transaction services. From a legal viewpoint, the two main state violations are: not registering these platforms with the Corporate Affairs Commission (CAC) and also engaging in activities that are against the rights of Nigerian Consumers. Also, the interest rates charged by these online institutions violate the ethics of how lending is done.

Speaking with Businessday.ng, Babatunde Irukera, the executive chairman of FCCPC, stated that the commission has given an order to telecommunications and technology companies to stop providing servers or connectivity to those online money lenders. He also stated that Soko Lending, a Chinese loan shark backed by Philips Consulting is been investigated by the Federal government for its role in facilitating the loan shark’s operations and appears to be the most notorious digital money lender in the country.

“It covers a significant share of the digital or online lending market and is one of the most prolific actors in violating consumer privacy, fair lending terms and ethical loan repayment/recovery practices. With the operations today, the commission expects appreciable practices. The commission expects an appreciable additional reduction in those unacceptable practices. The commission has also today entered further orders that will disable or diminish violator’s ability to devise circumvention efforts or alternative mechanism to circumvent the objective of the investigation and protection of citizens,” Irukera said.

The side of this financial security discourse that barely gets public sensitisation is the dangers that our phones could expose us to. If a missing phone fall into the hands of a fraudster, a transaction could be done on the account of the owner without his or her knowledge. Even access to your sim card could expose you to great danger. All the fraudster who picks your sim card needs to do is, download the online loan app, enter a fictitious financial detail and let the algorithm generate a credit rating.

Scammers take advantage of unsuspecting Nigerians who expose their data. While prospective customers seeking loans from online apps are expected to agree to terms and condition that exposes them to a data sharing breach, social shaming scheme and missing Fintech link. At this juncture, it is of important social interest that both the financial sector regulatory body and the Fintech customers pay attention to the operations of the industry for the welfare of the general public.