By Lukwagh Simon Mgbanyi Esq. and Augusta Yaakugh Esq.
In 2019, the Central Bank of Nigeria (CBN) issued a directive mandating banks to increase their loan portfolios. This was further to the recommendation of the Monetary Policy Committee (MPC) meeting held on 19th and 20th September, 2019 where members lamented the significantly low credit to the private sector relative to the absorptive capacity of the economy and the need to grow consumer, mortgage and corporate credit to drive aggregate demand and increase output. The effect of this directive was a surge in personal loans as conditions for loan applications and disbursements were relaxed by Banks in compliance with the Directive. While Banks have complied with the Directive, there have been fears about probable spate of default obligation and increase of non-performing loans. This has led the apex bank as regulator of financial institutions in Nigeria to intervene by issuing guidelines to regulate the operations of the Global Standing Instructions (GSI) with the objectives of facilitating an improved credit repayment culture; reducing non-performing loans in the banking industry; and watch-listing consistent loan defaulters. It is the thrust of this piece to bring out highlights of the guidelines which will take effect from 1st August, 2020 and apply in retrospect to loans granted from 28th August, 2019, and the legal issues that may arise from the operation of same.
HIGHLIGHTS OF THE GUIDELINES
- The guidelines will take effect from 1st August, 2020 and applies to loans granted from 28th August, 2019
- The Guidelines apply to individual savings accounts, individual current accounts, individual domiciliary accounts, investment and deposit accounts, electronic wallets, and even joint accounts.
- The guidelines applies to all financial institutions in Nigeria.
- The borrower is compulsorily required to execute a GSI mandate in hard copy or digital form, ensure that the terms and conditions of the mandate are clearly understood before execution, and that all qualifying accounts are linked to his/her Bank Verification Number (BVN). This operates as consent that the borrower’s account in any Nigerian bank can be debited in the event of default.
- Any borrower’s qualifying account which is not linked to his/her Bank Verification Number (BVN) shall be watch listed.
- The GSI is limited to debt recovery only and cannot be used to recover penal charges that may have accrued on a loan and included as part of outstanding obligations of a borrower. This means that only the principal sum and interest would be swept from your other accounts. Penalty charges are excluded.
- The GSI provides for roles and responsibilities of the Borrower, the Creditor Bank, the Participating Financial Institution (PFI), the Nigerian Inter-Bank Settlement System (NIBSS) and the Central Bank of Nigeria (CBN) as stakeholders in the debt recovery process.
- PFIs are required to submit monthly returns to the CBN, while the NIBSS is also mandated to provide back-end related reports to the apex bank in a format and frequency as may be required. Provision is also made for reports to Creditor Banks.
- Penalties payable by Creditor Banks and PFIs for GSI breaches and violations are prescribed and shall be applied by the CBN, while an Arbitrator may propose additional sanctions for other violations not captured by the guidelines. This is in addition to other provisions to ensure completeness, integrity, accuracy and timeliness of the GSI processes.
-Thus, if there is a wrongful activation of GSI on your accounts and the bank refutes your claims, you can proceed to request for arbitration. Where the arbiter rules in your favour, the bank will pay a fine of Ten million Naira.
-Where also, a bank wrongfully activates GSI on your account and you have not defaulted on your loan, the bank would be liable to pay a fine of Five hundred Thousand Naira (N 500,000).
- The CBN and NIBSS are required to provide adequate training for PFIs on GSI related procedure and settlement.
LEGAL ISSUES ARISING FROM THE GUIDELINES
The GSI Guidelines are ultra vires the powers of the CBN. This is because the CBN as regulator of financial institutions even with enormous powers under the Central Bank of Nigeria Act (CBN Act) and the Banks and Other Financial Institutions Act (BOFIA) does not have power to control or regulate contractual obligations between bankers and their customers. Neither the CBN Act nor BOFIA gives the apex bank such powers. The courts have held in Incorporated Trustees of Diamond Bank Plc & Anor. v. Ogbonna Leonard Irechukwu & Ors (2018) LPELR-44866 (CA) that a loan facility is purely a civil contractual transaction, and in Borno State & Anor. v. Bams Investment (Nig.) Ltd (2017) LPELR-43290 (CA) Ltd that a statutory body must in its actions keep within the limit of the powers donated to it by the enabling law failing which all such excess acts shall be deemed as ultra vires. Consequently, the issuance of the Guidelines to the extent that it seeks to regulate simple contracts between a bank and its customers as well as make mandatory provision for a borrower to execute a mandate to recover the loan availed from any of its accounts in other banks, is ultra vires the powers of the CBN. 
Activation of the GSI mandate may constitute a usurpation of the powers of the court. The CBN seems to have overlooked the provisions of Sections 6(6) (b), 251 and 272 of the Constitution of the Federal republic of Nigeria, 1999 (asamended) regarding the powers of the courts to determine the civil rights and liabilities of a person in addition to the jurisdiction to determine disputes pertaining to banker and customer relationship. It is common in loan transactions for the borrower to either dispute the amount of indebtedness claimed by a Creditor Bank or the indebtedness itself. In that scenario, will it be appropriate for the Creditor Bank armed with the Guidelines on GSI and the consequent GSI mandate to activate same to its benefits and appropriate such funds standing to the credit of the borrower in other banks irrespective of the dispute? Such an act would constitute the Creditor Bank as the Judge in its own cause which in itself is an infringement of the constitutional rights of the borrower to approach the court for the determination of his civil rights and liabilities. That the borrower has executed a GSI mandate cannot be construed as conferring adjudicatory powers on the Creditor bank or the CBN where there is a dispute. See Adedeji v. NBN Ltd (1989) 1 NWLR (Pt.96) 212.
The application of the GSI to joint accounts as provided in clause 2.0 of the Guidelines does not accord with the doctrine of privity of contract, and the settled position of law that a loan agreement can only be enforced against a party to it. See Ebhota & Ors. v. Plateau Investment and Property Development Co. Ltd (2005) LPELR-988 (SC). Consequently, the application of the Guidelines to joint accounts in circumstances where one of the parties is a non-defaulter would render the Creditor bank and/or the PFIs liable in damages.
Although the Guidelines on GSI appear to be directed only to individuals, assuming they were also directors to limited liability companies, it would constitute an assault on the concept of juristic personality as established in the locus classicus case of Salomon v. Salomon & Co. Ltd (1896) UKHL 1. This is because the Guidelines contemplate a situation where the banks without first approaching the courts to lift the veil of incorporation as provided for under the Companies and Allied Matters Act (CAMA), 1990 would be able to proceed against individual directors. Whereas, it is trite that the powers to lift the veil of incorporation are vested in the courts. See Vibeko (Nig) Ltd v. NDIC (2006) 12 NWLR (Pt. 994) 280.
The retrospective effect the Guidelines will have on loans granted as far back as 28th August, 2019 is also another issue to consider since retrospective legislations are by their nature considered offensive to social justice. See University of Jos & Anor v. Aro (2019) LPELR-46926 (CA). It is possible that borrowers who obtained loans before the dawn of the Guidelines may contend that application of same to them is unfair since they never executed the GSI mandate at the time.
While the intentions of the CBN as provided in clause 1.1 of the Guidelines on GSI appear to be in the best interests of the financial industry, it is anticipated that the issues discussed above and many more will spring up between bankers and their customers in the days to come. It will be interesting to see how the situation plays out and the pronouncements of the courts on the rights and liabilities of all parties concerned. However, let us bear it in mind that the intent the CBN’s GSI is to fight serial loan defaulters and allows banks to more readily give out loans. This as a matter of fact, will allow a bank to give you a loan without operating an account with it.
Lukwagh Simon Mgbanyi Esq is an Ibadan based Legal Practitioner and Volunteer Writer for Lex Community NG.
Augusta Yaakugh is an Abuja based Legal Practitioner and the Founder of Lex Community NG
 . ‘Central Bank of Nigeria Communique No. 126 of the Monetary Policy Committee Meeting of Thursday 19th and Friday 20th September, 2019’ (CBN Website 20 September 2019) <https://cbn.gov.ng> accessed 27 July 2020
. Tope Adebayo LLP, ‘Overview of the Central Bank’s Circular on Operational Guidelines on Global Standing Instruction (GSI) For Individuals (Tope Adebayo LLP Blog 17 July 2020) <https://topeadebayollp.org/blog/>accessed on 27 July, 2020.
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