COSASE Grills Bank Of Uganda Over Consumer Protection in Digital Lending

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Dr. Atingi Ego, Governor, Bank Of Uganda (Courtesy photo)
Parliament’s Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) has grilled Bank of Uganda (BoU) officials over consumer protection in Uganda’s rapidly expanding digital lending sector, questioning whether borrowers are adequately protected from unclear charges, disputed deductions and unauthorised guarantor obligations.

The committee raised concerns about products such as mobile money advances, mobile loans and other digital lending platforms, with legislators questioning whether the central bank has clear guidelines to protect consumers who increasingly rely on these services.

The committee particularly questioned whether BoU has specific consumer protection measures governing products such as MoMo advances, where borrowers are charged interest and other fees.

“I don't know whether Bank of Uganda is aware or it has any guideline, consumer protection guideline, on anything related to this so-called Momo Pay, mobile Momo advance. Very many Ugandans are paying the interest on this Momo advance,” the committee said.

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COSASE also raised concerns that some borrowers may be making regular payments without seeing a corresponding reduction in the principal amount owed.

The committee questioned whether deductions from customers’ accounts are sometimes being absorbed by interest and other charges, rather than significantly reducing the outstanding loan.

“How the deductions end up being released from the customer's accounts, not actually paying off the loan, but paying ease,” the committee questioned.

The legislators asked BoU to investigate how digital lenders structure their deductions and whether customers are adequately informed about how their payments are allocated between principal, interest and other charges.

BoU Governor Dr Michael Atingi-Ego said the regulator would investigate the complaint before determining appropriate measures.

“We need to investigate and find out how is this operating? What do they do? So what measures do we need to put in place to mitigate against this?” Atingi-Ego said.

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Another major concern raised before the committee was the use of guarantors by mobile money companies and online lenders.

Atingi-Ego told COSASE that some lenders may require borrowers to provide guarantors without adequate safeguards to ensure that the people named have actually consented to the arrangement.

“The concern is on guarantor. The mobile money agents, I think those lenders, require a guarantor. Unfortunately, I think there are no safeguards on requiring a consent from a guarantor,” he said.

According to the Governor, some lenders may simply enter another person's telephone number as a guarantor without obtaining their consent.

He said the alleged practice means some people only discover that they have been listed as guarantors when the lender begins pursuing them for repayment after the original borrower defaults.

“They just fill your number, and upon failure to repay, these mobile money companies and online lenders proceed to recover from guarantors and the guarantors learn from the first time that they are actually guarantors when the companies are making attempts to recover from them,” Atingi-Ego said.

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The committee also questioned whether BoU has an effective mechanism for resolving complaints between financial institutions and their customers without forcing consumers into lengthy and costly court processes.

Members suggested that an in-house regulatory complaints mechanism could allow certain disputes to be investigated and resolved more quickly.

“If the regulator maybe had an in-house mechanism where they can handle some of these complaints… maybe some of these would be fast-tracked by the regulator than being looked at there,” the committee said.

The questioning places renewed focus on the growing gap between the rapid expansion of digital financial services and the safeguards available to consumers.

For COSASE, the central issue is whether Ugandans using increasingly convenient digital loans understand what they are paying, how their payments are applied, who carries responsibility for the debt and where they can turn when something goes wrong.

BoU is now expected to investigate the concerns raised by the committee and consider measures to strengthen consumer protection in the digital lending market.

Courtesy Photos