PETALING JAYA: There should be loan thresholds as well as stricter criteria for taking part in buy-now-pay-later (BNPL) schemes on top of a proposed Bill to regulate the industry, say experts.
This is because young Malaysians, they warn, are especially vulnerable to societal pressure to buy expensive goods and impulse buying, driving them into taking part in such schemes.
Putra Business School economist Assoc Prof Dr Ida Yasin said while these schemes target a broad audience, young individuals, lacking stable incomes, are particularly inclined to use them for purchasing items beyond their means.
“This can lead to a life burdened by debt,” she said.
The Consumer Credit Oversight Bureau (CCOB) Task Force reported that in 2023, 2.9 million active BNPL users were young and middle-aged adults.
In the first quarter of 2024, the total outstanding balance of BNPL schemes reached RM1.42bil.
A type of short-term loan that lets shoppers pay for products in small instalments spread over a set period of time, BNPL schemes are being offered over a variety of platforms – from online shopping to even food deliveries.
As they are usually interest-free and rarely carry other service fees, the schemes may tempt people to buy more than they can actually afford.
Welcoming the proposed Consumer Credit Act, Ida said it could address critical issues related to BNPL and consumer credit, including misleading advertising that pressures consumers into BNPL options.
“Some platforms offer discounts (for their goods) that apply only with BNPL services at the payment stage,” she pointed out, adding that such an Act should also be “resilient” to future challengers from lenders seeking loopholes.
She stressed the importance of empowering consumers to spend within their means to avoid reliance on such schemes.
Designed to protect credit interests and ensure responsible lending in the credit industry, the Bill was tabled for first reading in the Dewan Rakyat on Tuesday.
It aims to set up a Consumer Credit Commission as well as regulate credit businesses, including BNPL schemes.
Ideas Malaysia economist Doris Liew said although some platforms advertise their BNPL services as “zero-interest”, consumers often miss out on the monthly processing fees which could accumulate over time.
“The introduction of new legislation represents a significant and positive shift in regulating the BNPL sector.
“This policy framework is designed to ensure that BNPL providers implement responsible lending practices and offer clear, transparent information in their marketing efforts.
“By doing so, consumers can make well-informed financial decisions and better manage their credit commitments,” said Liew.
The setting up of a regulatory committee – comprising authorities such as the Securities Commission and Bank Negara – would add an additional layer of oversight to the sector, she added.
“Leveraging on their extensive experience in regulating the credit market, these bodies are well-positioned to closely monitor BNPL operations, enforce compliance and protect consumers from predatory practices.
“In the long run, this collaborative regulatory approach could contribute to a more stable and trustworthy consumer lending environment, ultimately reducing the risk of bad debt and at the same time encourage sustainable growth of the BNPL schemes,” she added.
Federation of Malaysian Consumers Associations (Fomca)chief executive officer Saravanan Thambirajah suggested stricter assessment criteria for BNPL users, similar to bank credit card application processes.
“If implemented effectively, the law will decrease financial vulnerability among youngMalaysians, making BNPL a financial tool rather than a debt trap,” he said.
The Bill, he added, was a crucial step toward regulating BNPL services and preventing reckless lending and debt accumulation, especially among the youth.
Saravanan suggested integrating financial education within the legislation to teach young consumers responsible borrowing practices.
“Youths are particularly prone to impulse spending via BNPL due to its illusion of affordability.
“Fomca supports the Bill’s goals and anticipates collaborating with the government to enhance financial literacy and responsible credit use among Malaysians,” he added.
Pertubuhan Mesra Pengguna vice-president Azlin Othman proposed including a loan threshold in the law to prevent consumer debt overload.
“The scheme’s attractive features can overly entice consumers,” she said.
Financial Planning Association of Malaysia certified member Linnet Lee said while regulation is timely, it may still not be able to address the attitude and spending habits of the consumers.
“It takes two hands to clap, so the consumers must also help themselves in terms of prudent money management.”
