Buy now, pay later schemes need to be regulated

IT’S almost like getting free stuff – and therein lies the danger of “buy now, pay later” (BNPL) schemes.

The consumer doesn’t feel the pain of paying out money at the point of purchase and might buy more items or services through these schemes – then, suddenly, there are multiple payments to make for months or even years.

This is how people can find themselves in a debt trap.

According to studies, it is those lacking financial experience who are particularly vulnerable to impulsive purchases; in other words, they tend towards the younger end of the age scale – the majority of 5.1 million active BNPL users are aged 21 to 45, according to a report given in Parliament earlier this month.

In his reply to a question in the Dewan Rakyat, Finance Minister II Datuk Seri Amir Hamzah Azizan said that BNPL transactions surged in the second half of 2024, reaching RM7.1bil, up from RM4.9bil in the first half of last year.

For a form of credit that is so popular, BNPL schemes are frighteningly unregulated.

Personal loans, credit cards and hire purchase loans are all under the purview of Bank Negara, so financial institutions have to check your debt level before giving you any of these forms of credit.

But companies offering BNPL schemes don’t have to report to any regulatory authority and are not part of the debt-monitoring system.

This could lead to a double whammy: BNPL schemes don’t check to see if you can afford all those payments; and secondly, when you apply for credit at a bank, your BNPL debt doesn’t show up so banks think you are debt free and extend credit. And you now have the bank to pay back on top of making all the BNPL payments.

We obviously need a tighter regulatory environment for BNPL schemes, and we’re hoping to see that in the Consumer Credit Bill 2025, which was tabled for its first reading in the Dewan Rakyat on March 4.

One aspect of the proposed law is the Consumer Credit Commission that will regulate credit providers involved in moneylending, pawnbroking, hire purchase, credit sale, BNPL schemes, leasing, and factoring (ie, selling outstanding invoices to a third party to receive immediate cash).

The law proposes that credit businesses be barred from featuring information deemed “misleading, deceptive, or likely to mislead in terms of its nature, features, terms, or price of products or services offered”.

Basically, the commission’s role will be to promote ethical conduct among credit and service providers and grow the consumer credit industry.

Stricter regulations, tighter credit controls, and enhanced financial literacy are crucial to protect BNPL consumers.