…Banks must provide terms and conditions of a loan agreement
…Pricing, repayment schedule, repayment amount, tenure and opt out options
…Banks to provide financial counseling
…Set guidelines for debt collection
By Omoh Gabriel
THE Central Bank of Nigeria CBN will soon introduce a set of measures that will protect bank customers from unethical interest rates, illegal charges and other manipulations by bank officials. The rules which are in draft form are aimed at protecting bank customers from excessive exploitation by banks. The draft rules are currently being discussed by stakeholders. According to the soon-to-be-introduced rules, the “CBN shall ensure that operators (banks), establish structures to prohibit predatory lending and hence support a positive credit culture in the industry.
Financial operators shall provide credit counseling to prevent consumers’ indebtedness due to limited financial knowledge. Credit counseling is the process of educating consumers to prevent unnecessary debt and support in debt settlement”. The CBN draft rules will further ensure that “Credit counseling facilities are available in Nigerian banks and accessible to all customers especially for customers that are most in need of this service or consumers that request this service.
Consumers, the draft rule states “shall be made aware of such services and shall be encouraged to take advantage of such facilities provided by the operators. When the rules become operational the rules stipulates that “Operators must provide detailed information on the terms and conditions of a loan agreement to consumers prior to executing the loan agreement. Such information must at a minimum include the pricing, repayment schedule, repayment amount, tenure and opt out options”.
According to the rules being fine tuned by monetary authorities, “The CBN shall set guidelines for ethical debt collection practices in the industry. These guidelines shall be based on dialogue, respect for the consumers’ privacy and longevity of consumer-operator relationships amongst others.
“In the event that consumers fail to meet their financial obligations, financial operators shall be encouraged to adopt ethical debt recovery practices such as recovery processes must be courteous, fair and non-coercive. Operators shall ensure that personnel assigned to recover debts are properly trained. Consumers shall be informed in advance before a recovery process is initiated”.
The new rules that may come into effect soon states that “Sales promotions or related activities shall be conducted professionally and ethically. In a bid to generate increased business volumes or attract new customers, financial operators shall provide factual information and shall not seek to mislead consumers. Financial operators shall also not take advantage of consumers’ inexperience, gullibility or lack of understanding.
“ Financial operators shall be required to meet the demands of promotional offers. In addition, before the launch of any sales promotion, operators must provide the CBN with evidence of capability to manage the influx of customers without diminishing service quality”. The CBN in its draft rules said “Financial operators shall provide accurate information on financial products and services to consumers at all times to enable them make informed decisions.
Such information must be timely, detailed, clear and unambiguous. The primary coverage areas to be addressed under this principle are: contract terms which “terms should contain adequate information that will enhance consumers’ decision making process prior to execution of the contract. Financial operators shall also inform consumers of the possibility of variations in terms and conditions of contracts due to changes in economic conditions before such contracts are executed.
Notice of Variations: operators shall give prior notice to consumers within the time specified in contracts, before implementing variations in terms and conditions of contracts; Advertisement: Advertisements and marketing materials must seek to convey as complete information as possible on the products and services being advertised;
In this regard “The CBN shall issue guidelines to set the minimum disclosure requirements for products and services in contract agreements between financial operators and consumers of financial products and services. These guidelines at a minimum shall cover areas such as: fees and charges; penalties (prepayment costs and default charges); interests (payable or receivable); and payment and termination modalities
“All fees, charges or payments to be made by a consumer for a product or service must be documented. Financial operators shall also proactively inform consumers of the possibility of variations in terms and conditions of contracts should the condition upon which contract terms were reached change.
Contractual language shall be precise, clear and unambiguous. Information must be communicated in plain and simple language to limit the possibility of misinterpretation. Contract documents must be in legible font size. Where technical terms are used, the financial operator shall take due care to ensure that such technical terms are clearly explained to the understanding of the consumer to avoid the occurrence of confusion or miscommunication.
According to the CBN draft rules “Financial operators shall display specific information such as interest rates, foreign exchange rates in a conspicuous place at customer engagement areas such as branches, cash centers, website and other electronic channels, on a daily basis. Financial operators shall provide financial calculation tools on their websites to assist consumers to perform simple calculations that may be required to ascertain the suitability of certain financial products.
In addition, financial operators have a responsibility to make reasonable effort towards ensuring that consumers of financial products are knowledgeable about the products/service they may wish to purchase. “The CBN shall publish rates offered by financial operators to enable Consumers make informed decisions in the selection of suitable products and services.
The rules to be applied soon said “Within a minimum timeline specified by the CBN, financial operators shall notify consumers about changes to terms and conditions of contracts prior to the implementation of such changes. Notice to consumers on variations to terms and conditions must at a minimum contain the following details: changes in rates / charges (existing rate and new rate that is being introduced); rationale for variation; commencement date of new terms and conditions; options available to the consumer.
It also said that “Variation notice must be at no cost to the consumer and there must be evidence of receipt of notice by the consumer. Operators shall provide periodic updates to consumers on outstanding obligations. Operators shall respond to requests for waivers, concession or other variations on credit facilities within specified timelines, failing which such requests would be deemed to have been accepted.
“Financial operators must be truthful and clear in all communication (including advertisements) with consumers. Communications/ advertisements on financial products and services must at a minimum: Not be misleading; Be clear and explicitly state the features of the products/services; Not seek to misrepresent or exaggerate the benefits of the products/services
It further said that the CBN shall ensure that adverts by operators align with approved product features. Adverts not in line with approved product features will attract appropriate penalty and can be recalled. Adverts shall disclose all conditions associated with the products and services. For example, where a promotional material makes reference to interest rates, financial operators shall indicate all other applicable charges. In addition, measures shall be provided for consumers to make further enquiries.