Credit limit, interest rate among issues to be tightened in Buy Now, Pay Later framework

The move to regulate the Buy Now, Pay Later (BNPL) facility is timely and among the issues that need to be addressed is the amount of credit an individual can take, said economic expert Professor Datuk Dr Shazali Abu Mansor.

BNPL is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. The existing arrangement does not really look into the consumers’ credit ratings or BNPL providers running a thorough credit check.

Approvals are loosely granted with basic financial information of the consumer or if they have the capability to repay the credit amount.

“Therefore, tightening the BNPL regulatory framework needs to be done urgently and it must be regulated accordingly because not all citizens can afford to pay back if the interest rate and penalties imposed are too high,” he told Bernama when asked about the enactment of the Consumer Credit Act (CCA).

The CCA is expected to be presented in the second quarter of 2023 to ensure the stability and growth of the financial system.

The Act will serve as a pre-emptive approach after observing the trend, risk and potential impacts on consumers’ financial position. The CCA will be administered by the Consumer Credit Monitoring Board, which is led by the Ministry of Finance.

“In my opinion, the areas that should be tightened for BNPL are the amount of credit (limit) that can be approved for customers, the interest rate offered, the pricing and type of goods allowed to use BNPL, as well as the payment period for the scheme,” Bernama reported him saying.

Most industries depend on purchasing goods on credit or loan basis, he said, adding that the credit card facility is a common BNPL instrument.

“So, if you look at the major causes of household loan issues, most of them are due to loans from credit cards that use schemes like BNP, and most credit-based items are seen as wants rather than needs.

“It is best that we control strictly how credit card approvals are granted and the criteria to own a credit card, and not merely granting BNPL facilities to those we believe are vulnerable,” he added.

Based on a survey conducted on 10 non-bank BNPL providers, the BNPL market’s transaction value skyrocketed to RM1.49 billion in 2021 from RM55 million in 2020.

Comparatively, Malaysia’s household debt rose to RM1.375 trillion as at the end of 2021, from RM1.27 trillion in 2020.

Amid concerns that BNPL services risk exacerbating the debt constraints faced by Malaysians, Shazali said the mechanism that needs to be emphasised is ethics over responsible ability.

“It is all right for people to want things and to shop, as long as it is done responsibly. However, in granting approval for any credit-related application made, customers must declare honestly if they have debts that exceed their means.

“For that reason, this Act needs to be studied for its pros and cons, we can’t keep saying ‘no’, and it needs to be balanced to protect all parties,” he said.

The CCA will adopt a federated regulatory approach modelled after the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

The transition of the consumer credit regulatory architecture is anticipated to take place in phases.

Phase 1 (upon enactment of CCA, tentatively by end of 2023), Phase 2 by 2025, and Phase 3 after 2030.

Commenting on the timeframe of the Act’s enactment, Shazali said the time given seems to be sufficient for industry players to comply and adjust their businesses.

“The purpose of the Act is to protect industry players and customers, so the earlier the better.”

“The current regulation is not suitable, for example, if someone is unable to pay the debt (BNPL), it harms the industry, increases the number of people who go bankrupt and leads to more social problems,” he said.

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