An End to Unregulated Buy Now Pay Later Schemes?

Introduction and Background

Buy Now Pay Later (“BNPL”) services are known to be a rapidly growing industry, however, it has been unregulated all this while. This category of service has faced a fair share of scrutiny not only from the media, but from regulators themselves as it is seen to be bypassing credit laws. Non-bank operators are offering BNPL Services, which are not in line with the regulations set out by Bank Negara Malaysia or any sort of regulatory agency based on Bank Negara Malaysia’s 2021 Annual Report. Foundations have been laid for the introduction of regulating BNPL services as Bank Negara Malaysia have stated that they would work hand in hand with the Ministry of Finance and The Securities Commission Malaysia to push the introduction of the Consumer Credit Act. 

BNPL services may seem to be “too good to be true”, as there are certain companies which allow instalment payments with zero interest, but consumers may face hidden late-payment charges or processing fees. However, in comparison with regulated credit services, there are many laws or regulations in place to safeguard the interests of the consumers and the creditors themselves. 

By the end of next year, if it goes according to plan, the Consumer Credit Act (“the Proposed Act”) aims to supplement regulations to companies that are providing credit services to individuals or small enterprises (MSEs). With this being said, the Act would safeguard credit consumers within Malaysia with regard to BNPL activities. BNPL service providers are not obliged to submit reports to any regulatory agency which is also seen as one of the bigger issues regarding this service. This also allows consumers who do not have access to properly regulated loans or credits, to use BNPL services which may result in  consumers spending past their means, incurring more and more debt due to the accessibility  to potential consumers. Many regions including New Zealand, Australia and The United Kingdom have also begun regulating BNPL services, which is a clear sign that Malaysia may eventually follow suit.

Fate of BNPL schemes? 

The Proposed Act is being dealt with by Bank Negara Malaysia, the Ministry of Finance and the Securities Commission Malaysia. Not only that, a public consultation paper of the Proposed Act had also been drafted by the Consumer Credit Oversight Board (CCOB), which is an independent entity with authority for consumer credit that shall be formed upon the enactment of the Consumer Credit Act.

Companies which provide BNPL services in collaboration with licensed banks are presumed to be following certain regulations bound by them, however, companies which provide BNPL would then fall into the governance under the proposed Act for BNPL services tendered.

Objectives of the Proposed Consumer Credit Act 

• The Proposed Act aims to establish an authorisation framework onto BNPL services and its service providers.
• Sufficient and adequate framework of protection for BNPL customers by laying out codified standards and requirements on behalf of its conduct on providing its services, and those enjoying such BNPL services. 
• The Proposed Act shall also aim to lay out adequate standards of conduct to avoid unfairness and unethical substances to protect consumers or creditors.

Execution of the Proposed Consumer Credit Act 

The Proposed Act will be rolled out and will be followed up by a gradual transfer of regulatory powers by various ministries, in phases.

• Phase 1 (from 2023 until 2024). In this stage, those under Consumer Credit Oversight Board’s (“CCOB”) regulations would be BNPL services, factoring and leasing companies, impaired-loan buyers and debt collection agencies.
• Phase 2 (from 2025 until 2029). The following would affect moneylenders, pawnbrokers, hire-purchase companies, and credit sale providers which would allow the Proposed Act to be expanded.
• Phase 3 (2030 onwards). The Proposed Act to be further examined to rationalise conducts and regulations of individual  financial service providers.

The consultation paper provides that consumers within the Proposed Act shall be safeguarded if they obtain credit for personal, domestic and even household reasons. Furthermore, the CCOB are to provide a second consultation paper in the final quarter of 2023, and will highlight further issues.