In order to protect potential borrowers and consumers against the provision of inadequate, misleading or failure to disclose information and guard against lack of transparency by financial institutions in their dealings, the Central Bank of Nigeria (CBN) has directed commercial banks to provide Key Fact Statement (KFS), giving a summary of key information on loans to consumers.
The new directive is contained in CBN’s new Consumer Protection Guidelines on Disclosure and Transparency to protect bank customers’ interest.
The new guidelines were issued in line with the powers conferred on the CBN by Sections 2 (d) and 33 (1) (b) of the CBN Act, 2007 (as amended) and Section 57 (2) of the Banks and Other Financial Institutions Act (BOFIA) of 2007, as amended.
What this means: With the new directive, banks are to allow consumers a minimum of two working days to review draft contract documents before execution. The guidelines provide minimum Disclosure and Transparency requirements for Financial Institutions under the regulatory purview of the CBN to ensure they provide consumers with information on their business relationship.
Financial institutions are to disclose to consumers the conditions of a product or service on offer, as well as the features, inherent risks, benefits, fees and other charges.
Also, to be disclosed are the contract documents for loans, the possibility of variations in the rate of interest or foreign exchange due to changes in market conditions. They also must disclose to consumers available similar or competing products and services for comparison and making informed choices.
Going forward, contracts, offer letters, statements of account, notices and other documents provided or made available to consumers shall be written in simple English language. Also, the bank is to state the name, details of the financial institution and the consumer.
Such document, the CBN added, would contain a statement that the financial institution is regulated by the CBN.
Following the signing of a deal within which the consumer may cancel the transaction without having to pay any charges, financial institutions have now been required to give consumers a cooling-off of three working days.
The Central Bank, however, made known that where the cooling-off option is exercised after a loan draw-down for credit contract, the bank is entitled to recover the amount drawn, interest and a fee of 0.25% of the amount. In case of a fixed deposit, the customer is entitled to interest.
Note that the guidelines shall apply to transactions by financial institutions licensed and regulated by the CBN and their agents, subsidiaries and associates.