INTRODUCTION
Lenders bear proportionate liabilities to existing lenders for any credit facility granted to a debtor that is whitelisted in any credit bureau under the Nigerian Credit Reporting Act, 2017 (the “Credit Reporting Act”).
Lenders or credit providers include any financial institution regulated by the Central Bank of Nigeria (the “CBN”) and other lending or credit organizations organized under money lending laws of respective States in Nigeria.
Irrespective of whether it is microcredit or project finance. Objectives of Credit Reporting Act include to:
- “facilitate and promote access to credit and enhance risk management in credit transactions; and
- promote responsibility in the credit market by encouraging responsible borrowing, avoidance of over-indebtedness and fulfillment of financial obligations by consumers and discouraging reckless credit granting by credit providers and contractual default by consumers”.
A practice is emerging among non-bank credit providers, generally referred to as money lenders, of recklessly granting credit to consumers or borrowers whose credit information are negative, that is, whitelisted at the credit bureau.
Mobile data-based credit providers’ App (application) with porous compliance requirements could conclude credit assessment and ranking based on personal and sensitive personal data of applicants and offer credit facilities without recourse to any credit search at a credit bureau.
Beneficiaries of such credit facilities could include delinquent debtors and defaulters of existing credit facilities with other credit providers who have appropriately whitelisted credit information of such borrowers.
Credit reporting Act (s.12) require credit providers as credit information providers to obtain credit report from at least one Credit Bureau before granting any form of credit to consumers as well as to fulfill any other obligations in accordance with any law including CBN’s regulations and guidelines.
CBN’s year 2013 Guidelines for the Licensing, Operations and Regulation of Credit Bureaux and Credit Bureaux Related Transactions in Nigeria (the “Credit Guidelines”) has suffered no amendment that should render it more proactive and enable it cushion negative effects of non-compliances to Credit Reporting Act, especially by non-bank credit providers.
LENDERS LIABILITIES TO EXISTING CREDIT PROVIDERS
S.8 of Credit Reporting Act mandates CBN to protect data subjects’ interests and to generally protect the integrity of credit reporting system against abuses.
It requires CBN to impose pecuniary and other penalties on any credit provider that contravenes the provisions of the Credit Reporting Act.
Appropriate vehicle for exercizing CBN’s functions pursuant to s.8 of the Credit Reporting Act is through an amendment of the one-decade old Credit Guidelines.
It is our clear view that a credit provider who advances credit to any consumer whitelisted in any credit bureau bear proportionate liabilities to the any existing credit providers, jointly and severally, with the delinquent or defaulting borrower.
This is predicated on the import of pecuniary and other penalties that CBN should have imposed on credit providers who violate Credit Reporting Act, and consequent damages that should follow credit providers’ breach of duties under the Credit Reporting Act.
Credit providers are required to carry out at least a credit search with a credit bureau in respect of an application for credit.
This requirement is aimed at realizing Credit Reporting Act’s key objectives that include:
- enhance risk management in credit transactions;
- responsible borrowing;
- avoidance of over-indebtedness;
- fulfillment of financial obligations;
- discouraging reckless credit granting by credit providers and;
- discouraging contractual default by consumers.
Duties of care and fiduciary to existing lender does arise from credit providers’ duty to conduct at least a credit search at a credit bureau in respect of any credit advancement.
This explicit or rather, implicit duties, render credit provider liable, jointly or severally, to an existing credit provider for its customers’ default on a ranking debt.
CONCLUSION
Our opinion on this subject is supportable by the clear provisions of Credit Reporting Act.
Any counsel could reasonably urge a court of law to employ the ordinary meaning rule and the mischief rule to hold a credit provider liable for injury to an existing credit provider that results from reckless credit lending.
Such compensation for injuries will include special damages that will sufficiently cover counsel’s professional fees and other 3rd parties’ costs as cost of action.
Pending when this is tried before a court of law – if not already being tried – the CBN should more proactively amend the Credit Guidelines to name actual penalties and fines imposed on credit providers who negligently advance credit to defaulting borrowers.
Osita Enwe heads SRJ’s Fin Tech, Education law and Agribusiness law practice groups
