Buy now, pay later (“BNPL”) is a credit arrangement in which a loan is offered to a customer (or “buyer”) at the point of sale to enable the buyer to purchase and take immediate possession of goods/services while repayment of the loan is fixed at a later date. It is an arrangement that exists between a buyer (customer), a BNPL provider (loan company) and a vendor (seller) where the buyer purchases goods (products) from the vendor on credit, the BNPL provider pays the vendor at the point of sale, while the buyer makes repayment to the BNPL provider within an agreed period of time.
BNPL has gained global popularity in recent years, especially among younger consumers who are looking for more flexible payment options. In Nigeria, BNPL is gradually becoming an alternative to conventional loan arrangements and a more convenient medium for most consumer transactions.
One of the main benefits of BNPL is that it allows an otherwise financially incapable consumer to make purchases and take possession of the purchased goods or services (as the case may be) without having to pay the full amount upfront.
BNPL can be particularly helpful for those who need to buy a big-ticket item but cannot afford to pay for it all at once. With BNPL, buyers can spread out the cost of their purchases over several months, making it more manageable for their budget. Additionally, some BNPL services offer interest-free periods, which can help consumers avoid high credit card interest rates.
Just like other aspects of commerce, there are legal issues that underlie the interplay of interests, rights, expectations and reactions of all the parties involved in a BNPL transaction. Below, we have raised some relevant legal questions and provided useful answers on some of the identified legal issues that may arise in any BNPL undertaking. Please read, share and comment.
1. Is There A Regulatory Framework Regulating BNPL In Nigeria?
There is currently no principal law regulating the BNPL arrangement in Nigeria. However, the BNPL arrangement is not without any form of regulation especially if it is viewed the the prism of loan credit and sale credit as discussed below:
- Loan credit
- Sales credit,
Loan Credit
The BNPL arrangement has an element of loan credit in the sense that it is a contractual relation that involves three different parties – the buyer, BNPL provider, and the vendor. The BNPL provider pays for the goods at the point of sale, the vendor delivers the goods to the buyer while the buyer pays the cost of the goods to the BNPL provider on instalments within a specified period of time. The cost of the goods is usually treated as a loan which usually attracts interests and or other charges.
Please note that there is the Moneylenders’ Act for the Federal Capital Territory Abuja and the Moneylender Law of each State of the Federation that respectively regulates money-lending business in Nigeria. For example, Section 4 of Moneylender law of Lagos State, states thus;
‘‘Any person who lend money at interest or who lend money in consideration of a larger sum being repaid shall be presumed to be money lender until the contrary is proven.’’
In view of the above, BNPL businesses in Lagos State would be subject to the regulation of moneylenders laws where the BNPL provider is deemed to have advanced loan to the buyer for the upfront payment for goods on the condition that the buyer would repay the BNPL provider a sum higher than the advanced sum.
It is important to note that where the BNPL company charges interest for advancing any sum under the arrangement, such a BNPL company cannot operate without first obtaining a moneylender’s licence of the State where it operates.
In Nigeria, money lending is regulated by both the federal and regional (also called State) authorities depending on the scale of operation. See the links below for more insights:
See: HOW TO SET UP A FINANCE COMPANY IN NIGERIA
See also: HOW TO SET UP DIGITAL LENDING COMPANY IN LAGOS STATE
See also: HOW TO SET UP A MICROFINANCE BANK IN NIGERIA
See also: HOW TO RENEW DIGITAL LENDING LICENCE IN NIGERIA
Credit Sale
Credit Sale is an arrangement where the vendor delivers the goods or services at the point of sale on the condition that repayment for such goods or services shall be made within a definite period. Examples of sale credit include instalment sales and hire purchase agreements. Under a credit sale agreement a customer buys the goods at the cash price; the buyer usually pays interest though some vendors may offer interest-free credit whilst repayment is made by instalments until the full amount has been paid.
Please note that the terms and conditions of the BNPL company will be a great determinant of whether the parties have entered into a hire purchase contract or other form of contract. There are usually peculiar clauses in a hire purchase agreement that allow the BNPL company or the seller (or both) to recover possession of the goods from the buyer even though the latter may have been given immediate possession of the goods without title unless or until the final purchase price is paid by the buyer.
2. Are There Other Bodies That Exercise Supervisory Jurisdiction Over BNPL Business In Nigeria?
i. Licencing Authorities: The Central Bank of Nigeria, the Magistrate’s Court and the Ministry of Home Affairs & Tourism
A BNPL may be licensed by any or all of the above authorities depending on the scope, scale and location of their business operation. Where the business is set up as a finance company or microfinance bank, the promoters may require the licence of the Central Bank of Nigeria.
However, where the business is set to simply provide consumer lending services, then it may be cheaper and faster to obtain the money lender certificate and licence from the Magistrate’s Court and/or Ministry of Home Affairs & Tourism as the case may be.
It would be helpful to seek legal advice on the business model and the relevant licence that should be processed to avoid possible violation of the law.
See: HOW TO SET UP A FINANCE COMPANY IN NIGERIA
See also: HOW TO SET UP DIGITAL LENDING COMPANY IN LAGOS STATE
See also: HOW TO SET UP A MICROFINANCE BANK IN NIGERIA
See also: HOW TO RENEW DIGITAL LENDING LICENCE IN NIGERIA
ii. Post-Licensing Authorities: Federal Competition and Consumer Protection Commission (FCCPC) and State’s Consumer Protection Commission (CPC)
Before now, the CPC for each State in Nigeria and the FCCPC have exercised supervisory jurisdiction over all businesses offering goods and services in Nigeria, albeit to receive consumer complaints, investigate and sanction any erring provider of goods or services who engage in unfair business practices. The regulatory power of the CPC and the FCCPC is to ensure that providers of goods or services do not take unfair advantage of their customers.
However, recently, the FCCPC has in the exercise of its powers under its enabling law, ventured into the regulation of digital lending business in Nigeria. Pursuant to sections 17, 18 and 163 of the Federal Competition and Consumer Protection Act, 2018 (“the FCCP Act”), and all other powers enabling it in that behalf, the FCCPC issued the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022 (“Guidelines for Digital Lending 2022”).
According to FCCPC, the Guidelines for Digital Lending 2022 was developed and adopted by the Joint Regulatory and Enforcement Task Force as a temporary step to establishing a clear regulatory framework for the lending space. The Guidelines for Digital Lending 2022 provides for a mandatory registration of digital lenders (which may include BNPL companies) with the FCCPC and sets out the registration requirements and additional regulatory approval of the FCCPC to carry out the business of digital lending in Nigeria.
Also, the Guidelines for Digital Lending 2022 provides that every applicant seeking to register with the FCCPC must present evidence of membership of a trade or professional association. This presupposes that a digital lender or BNPL provider must register with the Money Lenders Association the same way Finance Companies register with Finance Houses Association of Nigeria or Microfinance Banks with the National Association of Microfinance Banks.
The aim of the FCCPC is to ensure that money lenders and BNPL businesses do not participate in unethical business activities, the monitoring of business operations and taking all required precautions to guarantee that the BNPL provider does not breach buyer consumer rights in an effort to increase profits.
See our previous article on HOW TO REGISTER WITH THE FCCPC
3. Who Are the Legal Parties To a BNPL Agreement?
A BNPL contract is a tripartite transaction that involves three parties, namely the BNPL provider, vendor and the buyer. The transaction is such that it may not bind the three parties involved. A BNPL agreement is different from a normal purchase or sale contract, in the sense that not every person/persons involved in a regular sale or purchase contract may be party to a BNPL contract.
In BNPL transactions, parties to a contract are those that are responsible for performance of the obligations under the contract. In most BNPL agreements, the vendor is not always a party to the contract. This is because, after he receives payment for his goods from the BNPL provider, he (the seller) steps out of the picture, and the contract of repayment thereafter lies between the BNPL provider and the buyer.
The above position or scenario might be different where the BNPL provider and the vendor are the same entity or person. It is important to note where the buyer is not a party to the BNPL contract, neither the buyer nor the BNPL provider can enforce the BNPL can enforce its terms against the seller and vice versa. The foregoing means the seller cannot derive any benefit or liability under the BNPL agreement.
It is indisputable that a party to a contract is the person who has rights and obligations under the contract. In a BNPL agreement, the buyer and BNPL provider are the parties who can either take benefit of or are bound by the terms of the contract. In FEBSON FITNESS CENTRE V. CAPPAH LTD. (2015) 6 NWLR (P. 278, paras. D-E) the court while determining who is a party to a contract held thus;
The basic rule of law of contract is that a person who was not originally a party to a contract cannot be bound by its terms, nor can he receive any benefit from it. The main exception to this rule is agency.
Privity of contract is the relationship that exists between the parties to a contract, which entitles them to sue each other, but prevents a third party from suing or being sued in respect of the contract. Privity of contract ensures the sanctity of contract between the parties to it. In a BNPL agreement, there is privity of contract between the BNPL provider and the buyer, because the vendor ceases to be a party to the contract once he has been paid unless the seller otherwise agrees to be so bound by the BNPL agreement (e.g. during the warranty period of the goods, etc.). The seller no longer has interest in the transaction thus making the BNPL vendor and the buyer entitled to the terms as agreed in such a transaction.
For example, in Makwe v. Nwukor [2001] 14 NWLR (Pp. 372, paras. B-F; 378, paras. E-F; 381, para. D), the court while determining privity to contract held thus: “As a general rule, a contract affects only the parties thereto and cannot be enforced by or against a person who is not a party to it. In other words, only the parties to a contract can sue or be sued on the contract and, generally, a stranger to a contract can neither sue nor be sued on the contract even if the contract is made for his benefit and purports to give him the right to sue or to make him liable upon it. In the same vein, the fact that a person who is a stranger to the consideration of a contract stands in such near relationship to the party from whom the consideration proceeds that he may be considered a party to the consideration does not entitle him to sue or to be sued upon the contract.”
In summary, It is indisputable that the vendor is not a party to a BNPL agreement since he is not able to enforce, or be subject to enforcement of any rights or obligations arising from a BNPL agreement. The vendor ceases to be a party to the contract as soon as he receives payment for his goods, giving up all of his rights and obligations under the deal. The buyer and BNPL providers are the only parties to the contract of repayment for the goods. As a result, neither the vendor’s obligations under the contract nor the resulting rights can be enforced. Given the circumstances, it is evident that a contract generally only impacts the parties to it. There is no privity of contract between vendor and buyer or vendor and BNPL provider, and cannot be enforced by or against outsiders.
4. Does a Consumer/Buyer have data privacy rights under a BNPL arrangement?
Yes. The Nigerian Data Protection Regulation (“NDPR”) 2019 provides for the rights of data subjects. These rights include:
- the right to be informed;
- right to rectify personal data;
- right of access to data held by a Controller;
- right to erasure/deletion of personal data and
- right to restrict further processing of data.
One of the most significant privacy rights of consumers is the right to know what personal information is being collected, how it is being used, and with whom it is being shared. By virtue of Regulation 3.1.(1) of the NDPR, a buyer has the right to be timeously informed by a BNPL provider on the nature and quantum of the buyer’s personal information that is in the possession of the BNPL provider and the purpose of such processing operation(s).
Please note that the information should be provided prior to the collection or at the time of collection of the personal data. The information should contain, amongst others, the name of the BNPL provider or third parties that will be handling personal data, types of data collected, purpose for collection, retention period, details of sharing, data subject’s rights, security mechanism, contact information of data Controller.
BNPL providers are regarded as data processors or controllers who have an obligation to respect the privacy rights of their customers and to ensure that the personal information of consumers is collected, used, and disclosed in a manner that is consistent with privacy laws.
Also, part of the requirement for FCCPC registration is that digital lenders (and by extension BNPL providers) in Nigeria must register with the Nigerian Data Protection Bureau (NDPB) to certify that they have in place data privacy and protection policies that meet global standards.
5. Are there sanctions for offences committed by parties to a BNPL arrangement?
Assault
There are instances where a buyer in a BNPL transaction is unable to meet his financial obligation and the BNPL provider resorts to assaulting him. This may result in the BNPL provider being charged with assault. An act of assault could lead to two types of cases: a civil liability case or a criminal assault case.
The goal of a civil suit is to enable the victim to claim compensation from the BNPL provider. On the other hand, the State may bring a criminal assault case against the BNPL company and employees who are alleged to have assaulted a buyer and if found culpable, will be punished according to law.
Breach of Data Privacy
The data protection provisions embodied in the NDPR extend to all transactions regarding processing of personal data irrespective of the means, in so far as the operation of the Regulations does not impair the privacy rights of natural persons or Nigerians under other extant laws, regulations, policies or contracts such as the buy now, pay later arrangements.
A personal data breach means a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data. This includes breaches that are the result of both accidental and deliberate causes. A data breach occurs when the data for which a company/organisation is responsible suffers a security incident resulting in a breach of confidentiality, availability or integrity.
Where a data privacy breach occurs in a BNPL transaction, and it is likely that the breach poses a risk to the buyer’s rights and freedoms, the BNPL must notify the supervisory authority without undue delay. If the BNPL provider is a data processor it must notify every data breach to the data controller and if he fails to do so, the buyer is at liberty to employ all the instrumentality of law to enforce his rights.
Please note that a breach of the privacy rights of any data subject under the NDPR shall, apart from other criminal liability, attract, with respect to data controllers dealing with more than 10,000 data subjects, payment of a fine of 2% of annual gross revenue of the preceding year or payment of ₦10 million, whichever is greater; and with respect to data controllers dealing with less than 10,000 data subjects, a fine of 1% of the annual gross revenue of the preceding year or payment of ₦2 million, whichever is greater.
Defamation
It is unlawful for BNPL providers to issue defamatory publication about their customers for whatever reasons. The Nigerian Courts have defined defamation as any written or printed article published of and concerning a person without lawful justification or excuse and tending to expose him to public contempt, scorn, ridicule, shame or disgrace, or intending to induce an evil opinion of him in the minds of right-thinking persons, or injure him in his profession, occupation or trade. Such prohibited publication is libellous and actionable irrespective of what the intention of the writer may have been in making such publication.
In order for a defamation lawsuit to succeed, the comment must be defamatory to the general public, not simply ‘a certain portion of the public.’ The plaintiff’s reputation being lowered in the eyes of a particular segment of the public may not be considered defamation. In Egbuna v. Amalgamated Press of Nigeria Ltd. [1967] 1 All N.L.R. 25 at p. 30, the term ‘a particular section of the public‘ was defined as “a body of persons who subscribe to standards of conduct which are not those of society generally.”
It has been established that when an individual posts something on social media they are acting as publishers and can be sued for making false statements or defamatory comments. Online defamation conforms to the same standard of proof as the generally known type of defamation. Thus, the punishment for defamation apart from criminal liability, damages and compensation, are contained in the Cybercrime (Prohibition and Prevention) Act 2015 which provides as follows:
“any person who knowingly sends a message or other matter by means of computer systems or that he knows to be false, for the purpose of causing annoyance, inconvenience danger, obstruction, insult, injury, criminal intimidation, enmity, hatred, ill will or needless anxiety to another or causes such a message to be sent commits an offence under this Act and shall be liable on conviction for a fine of not more than 7,000,000.00 or imprisonment for a term of not more than three years or to both such fine and imprisonment”
6. What State law should apply where the parties are in different Nigerian States in a Money lender or BNPL transactions?
Jurisdiction is a fundamental aspect of Nigerian procedural law. In the case of disputes arising from breach of contract in a BNPL transaction and the creditor’s company and the debtor are not resident in the same state, the complex question is which court is appropriate to institute an action in respect of any right or obligation arising under the BNPL agreement.
The Court of Appeal in Nigeria held in the case of Attorney General of Yobe State v. Maska & Anor (2021) 7 NWLR (Pt 1776) 535, that the concept of territorial jurisdiction for breach of contract is based on any of or a combination of the following three (3) factors:
(a) Where the contract was made (lex loci contractus);
(b) Where the contract is to be performed (lex loci solution); and
(c) Where the defendant resides.
Furthermore, procedural laws of the respective States in Nigeria make provisions for the preconditions for determining when a matter can be instituted before the court. For example, Order 1 Rule 1 of the Magistrates’ Court (Civil Procedure) Rules of Lagos State 2009 provides that:
“Except where any Law or Rule is otherwise provided, an action may be commenced by claim in Magistrates’ Court if:
(a) the Defendant or one of the Defendants resides or carries on business in Lagos; or
(b) the cause of action arose wholly or in part in Lagos”.
Therefore, for example, where a money lending company located in Lagos lends a certain amount of money to a borrower resident in Ogun State, and the borrower defaults in repaying the contract sum or breaches the terms of the contract, the company could either institute an action to recover the contractual sum either in Lagos or Ogun State respectively. This is because the loan (cause of action) took place in Lagos whilst the debtor (defendant) resides in Ogun State.
Note that where there is a conflict between a federal legislation and a local state law on the same subject matter, the federal legislation would prevail. Nwandiaro v. S.P.D.C (1990) 5 NWLR (150) 322. Even where there is no conflict between the two legislations but they make the same or similar provisions on the same matter, the federal legislation takes precedence over the state legislation. Oguguo v. Medical Dental Practitioners Disciplinary Tribunal. (2019) LPELR- 51530 (CA).
7. Where more than one law applies to a BNPL transaction, which law’s interest rate should apply where there is conflict of laws involving loan credit?
The interest rate applicable in the state where the contract was entered into should be applied.
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About KORIAT & CO.
We are a commercial law firm in Nigeria with network of lawyers and consultants in Ghana, Kenya and Rwanda.
We assist local and foreign clients to process company registration and business licences in Nigeria, Ghana, Kenya and Rwanda. We also provide legal advisory and support services to promoters and registered businesses.
The above article is not legal advice and does not automatically make its readers our clients unless they have engaged our services to represent them in any way.
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