KUALA LUMPUR: 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, says economics 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 later date, often without interest. The existing arrangement does not really look at consumer credit scores or BNPL providers performing a thorough credit check.
Approvals are loosely granted with basic financial information about the consumer or whether he has the ability to repay the credit amount.
“Therefore, the tightening of the BNPL regulatory framework needs to be done urgently and it needs to be regulated accordingly as not all citizens can afford to repay if the interest rate and penalties imposed are too high.” , he told Bernama when asked about the enactment of the law. Consumer Credit Act (CCA).
The CCA is expected to be introduced in the second quarter of 2023 to ensure the stability and growth of the financial system.
The Act will serve as a preventive approach after observing the trend, the risk and the potential impacts on the financial situation of consumers. The CCA will be administered by the Consumer Credit Supervisory Board, which is headed by the Ministry of Finance.
“In my view, the areas that should be tightened for BNPL are the amount of credit (limit) that can be approved for customers, the interest rate offered, pricing and the type of goods allowed to use BNPL, as well as the payment term for the scheme,” he said.
Most industries depend on purchasing goods on credit or credit, he said, adding that credit card facility is a common BNPL instrument.
“So if you look at the main causes of household lending problems, most of them are credit card lending that uses systems like BNP, and most of the credit-based stuff is seen as wants rather than needs.
“It is better that we strictly control how credit card approvals are given and the criteria for owning a credit card, and not just grant BNPL facilities to those we think are vulnerable,” he said. added.
Based on a survey of 10 non-bank BNPL providers, BNPL market transaction value skyrocketed to RM1.49 billion in 2021 from RM55 million in 2020.
Comparatively, Malaysian household debt rose to RM1.375 trillion at the end of 2021 from RM1.27 trillion in 2020.
While BNPL services risk exacerbating the debt constraints faced by Malaysians, Shazali said the mechanism to be emphasized is ethics rather than responsible capacity.
“It’s okay for people to want things and shop, as long as it’s done responsibly. However, when approving any credit application made, customers must honestly state if they have debt beyond their means.
“For this reason, this law must be studied for its pros and cons, we cannot continue to say ‘no’ and it must be balanced to protect all parties,” he said.
The CCA will take a federated regulatory approach inspired by the Anti-Money Laundering, Terrorist Financing and Proceeds of Illegal Proceeds Act 2001.
The transition of the consumer credit regulatory architecture is expected to occur in phases.
Phase 1 (upon promulgation of the CCA, tentatively by the end of 2023), Phase 2 by 2025 and Phase 3 after 2030.
Commenting on the timeline for the enactment of the law, Shazali said that the time given seems to be enough for industry players to comply and adjust their activities.
“The purpose of the law is to protect industry players and customers, so the sooner the better.
“Current regulations are not suitable, for example, if someone is unable to pay the debt (BNPL), it hurts the industry, increases the number of people who go bankrupt and leads to more social problems”, did he declare.Bernama