What is Buy Now Pay Later service?
Buy Now Pay Later (BNPL) is a rapidly growing industry. If a customer is looking to buy a new smartphone, laptop or other items but does not have the budget at that time, BNPL is an increasingly popular option.
BNPL is a type of loan in which a merchant sells goods to customers and allows them to pay for the goods in monthly instalments. BNPL is also known as deferred payment or deferred payment plan. Much like credit cards, BNPL help customers who do not have access to a credit card or don’t want to use credit card. BNPL allows customers easy access to buying goods and services, whilst, the merchant can achieve sales from customers who could or would not pay the amount immediately.
Typically, there are 2 BNPL models:
- the merchant is the BNPL provider and assumes the credit risk. Typically, no interest is charged but if a customer misses a payment a late payment interest and processing fee are chargeable. The instalment payment is paid to the merchant directly in accordance with the terms of sale entered between the merchant and the customer; and
- the merchant uses a BNPL provider. The merchant receives payment in full at the point of sale from the BNPL provider excluding BNPL provider transaction fee. Then it is the BNPL provider’s responsibility to collect the instalment payments from the customers in accordance with the terms of sale entered between the BNPL provider and the customer.
The Existing Laws Are Not Ideal To Regulate BNPL
BNPL is not regulated under existing laws, as a result, customers who have been taken advantage of by BNPL providers often find themselves in limbo with little or no legal recourse. The consumer credit activities are governed by multiple legislations:
- Hire Purchase Act and Consumer Protection Act administered by the Ministry of Trade and Consumer Affairs (KPDNHEP);
- Moneylenders Act and Pawnbrokers Act administered by the Ministry of Housing and Local Government (KPKT);
- Cooperative Societies Act administered by Malaysia Co-operative Societies Commission (SKM), which is under the Ministry of Entrepreneur and Cooperatives Development (KUSKOP);
- Financial Services Act, Islamic Financial Services Act and Development Financial Institutions Act administered by Bank Negara Malaysia (BNM), which is under the Ministry of Finance (MOF);
- Capital Markets and Services administered by the Securities Commission Malaysia (SC), which is under MOF.
With the increasing number of unregulated providers in the consumer credit that include BNPL MOF, BNM and the SC in collaboration with KPDNHEP, KPKT, KUSKOP and SKM are working towards the consolidation of the credit industry regulatory framework through the enactment of the Consumer Credit Act (CCA).
The enactment of the CCA aims to reduce harm to credit consumers and promote the orderly development of the consumer credit landscape by:
- holding credit providers and credit service providers to consistent and high professional standards in their dealings with the public;
- preventing predatory practices including the offering of consumer credit products which exploit uninformed and vulnerable credit consumers;
- promoting clear, accurate, consistent, and timely disclosures of information to credit consumers for decision-making;
- requiring credit providers to observe responsible lending standards including performing credit checks and affordability assessments to reduce risks of individuals falling into financial hardship as a result of excessive and unaffordable debt; and
- prohibiting practices that are inherently unfair to credit consumers, such as engaging in deceptive conduct to mislead or adopting abusive practices to intimidate borrowers when pursuing debt collections.
The CCA will provide a legal framework that will protect consumers from predatory lending practices and ensure that they are not taken advantage of.
As a consumer, make sure you understand the BNPL terms and conditions, and know exactly what you’re getting into. If you can’t afford to pay off your purchase in full by the end of the payment period, you could end up with a lot of debt. Think before you buy but if you do need to make purchases then BNPL could be an option for you if there is no other way out.