CBN Rules on Debt Recovery: What Lenders Can and Cannot Do

The CBN’s rules on debt recovery are in the CBN Consumer Protection Regulations, which apply to banks, microfinance banks, finance companies, primary mortgage banks and other institutions the CBN licenses or regulates. In short: notify the borrower before collecting, recover without threats or humiliation, contact only the borrower or a guarantor, never call between 9.00pm and 8.00am without consent, and treat foreclosure as a last resort.

Who do the CBN rules apply to?

"Institutions" licensed or regulated by the CBN, including commercial, merchant and specialised banks, microfinance banks, finance companies, primary mortgage banks, development finance institutions and their agents. Digital lenders that are not CBN-licensed fall under the FCCPC’s consumer lending regulations instead; see how to recover loans lawfully.

What must happen before the loan is granted?

• Assess the borrower’s capability to repay in a sustainable manner, and check their credit history with the Credit Risk Management System and a credit bureau (sections 5.2.2 and 5.2.3).
• Give the borrower a Key Facts Statement, at least two days to review the draft contract unless they waive it in writing, and a three-working-day cooling-off period after signing (sections 4.3.4 to 4.3.6).
• Have guarantors confirm in writing that they understand their commitment and the maximum amount they guarantee, and that they have taken independent advice or declared they do not need it (section 5.2.7).

These steps matter for recovery: a file with a signed Key Facts Statement and a properly confirmed guarantee is far easier to enforce.

What must happen while the loan is running?

• Monitor loan performance and, at the first sign of repayment difficulty, engage the customer about alternative repayment options (section 5.2.5). Every institution must have a policy for consumers in financial difficulty (section 5.2.4).
• Give guarantors periodic updates on the loan’s performance (section 5.2.8).
• Do not seek repayment, or hold back the customer’s funds to secure repayment, before the due date without their written authorisation (section 3.2.9).
• Give prior notice of any change in interest rate, stating the reason, the start date, the revised schedule and the alternatives, such as restructuring (section 4.4.6).

What must happen when the borrower defaults?

• Deposit money banks must notify the customer within 3 days of the first day of default that a default charge will apply after 7 days; other institutions must notify the customer on the first day of default that a charge will apply after 3 days (section 4.6).
• Decide on any request for a waiver, extension or other concession within 10 working days. If you do not, the request is treated as granted (section 3.2.7).
• Give the customer notice of the outstanding obligation before any debt collection starts (section 5.5.1).

What are the rules on collection itself?

Debt recovery must be "transparent, courteous and fair, devoid of undue pressure, intimidation, harassment, humiliation or threat" (section 5.5). Institutions must not:

• Contact the customer’s friends, employer, relatives or neighbours for anything other than their employment status, telephone number or address, unless that person guaranteed the loan or consented (section 5.5.7).
• Ask any of those people to pay the debt, unless they are a guarantor (section 5.5.7).
• Call or visit the customer between 9.00pm and 8.00am to recover the debt without prior consent (section 5.5.7).
• Use threats, abusive or offensive language, humiliation, misrepresentation or deception (section 3.2.1).

The institution is liable for the actions of any agent it engages for debt collection (section 5.5.6).

When can collateral be sold?

Only when other recovery steps have failed. The customer must be offered a private sale, to be exercised within 30 days before foreclosure, unless they waive it. The net proceeds go to the loan account immediately, the customer is told of any balance, and they receive a report of the sale showing the process, proceeds, expenses and net proceeds (sections 5.5.2 to 5.5.5).

What happens once the loan is repaid?

Issue a letter of discharge, free of charge, within 5 business days, and notify any guarantor (section 5.2.9).

What are the penalties?

The regulations set fixed penalties for complaint failures: ₦500,000 per complaint per week for not resolving complaints within the set timelines, and ₦2,000,000 per complaint for not acknowledging a complaint or not issuing a tracking number. Breaches of other provisions attract sanctions under the CBN Act, BOFIA and other laws, and persistent breaches can lead to sanctions on the responsible officers (section 7). A customer whose complaint is not resolved can escalate it to the CBN (section 6.4).

Pandas LP’s recovery process for lenders is built around these rules: notice before collection, letters to the borrower or guarantor only, a licensed practitioner signing every letter, and a log of every step. From ₦20,000 per account. Loan recovery for lenders.

For the steps in order, see the loan recovery process in Nigeria.

Source: CBN Consumer Protection Regulations (2019), sections 3.2, 4.3, 4.4, 4.6, 5.2, 5.5, 6.4 and 7.