M’sian BNPL regulations affect startups, merchants, users

Naturally, the continued level of buy-now, post-pay services in Malaysia and globally has attracted some scrutiny.

And this scrutiny comes not only from financial bloggers and the media, but also from regulators.

Many countries have begun to recognize the need to rein in BNPL companies, which, since their inception, have largely ignored credit laws.

This is true in Malaysia, where BNPL programs offered by non-bank operators are actually not in the sights of Bank Negara Malaysia (BNM) or any regulatory body, according to the Regular Report. BNM’s year 2021 was announced in March of this year.

In the UK, plans for BNPL regulation have been negotiated since early 2021 following the conclusion of the Woolard Review, which was set up to look at the unsecured credit market.

According to US law firm Skadden, the review highlights the potential for harm to consumers due to inappropriate BNPL advertising, poor consumer understanding, lack of affordability assessment and visibility. of these products on credit records and inconsistent treatment of customers in financial difficulty.

Malaysia is likely to move forward, with Bank Negara Malaysia having said in March 2022 that it would work with the Ministry of Finance and the Malaysian Securities Commission to enact the Consumer Credit Act this year.

But with only three months left in the year, the law has yet to take effect. So, when will the regulations actually be enforced and is it really as serious for BNPL services as one might think?

Why is it important?

Some may still wonder what the big problem with BNPL and regulations is.

The main problem with BNPL services is that they do not have to report to any regulatory authority. Like what Woolard Review outlined, there are no guidelines for how these programs are promoted.

Previously, we interviewed financial bloggers about how to use BNPL responsibly. Some of them actually expressed that BNPL can be dangerous.

We asked financial bloggers how to use BNPL responsibly / Image credit: Yi Xuan / KC Lau / Suraya Zainudin / Helmi Hasan

This is because BNPL allows users without access to loans or credit to spend beyond their means, which can lead to a debt culture.

According to an article by The Edge, BNM said that although BNPL programs allow customers to make payments in installments at zero interest, BNPL providers may charge customers other fees through through processing fees and late fees.

Allowed, some claim that there aren’t any hidden fees, processing or late payments, but this doesn’t apply to every BNPL service provider, as we found in our review I’m about four big companies in Malaysia.

With credit cards, there are many laws in place to ensure that consumers are protected and that consumer credit providers are doing it responsibly.

As a result, BNPL is more accessible, with pros and cons. This is because certain credit operations can target vulnerable and less financially savvy consumers.

Who is the manager and regulator?

As mentioned, the proposed Consumer Credit Act (CCA) has been worked on by BNM, the Ministry of Finance and the Malaysian Securities Commission.

A public consultation document regarding the proposed CCA has also been written by the Consumer Credit Oversight Board (CCOB) Task Force in collaboration with the three aforementioned organisations.

The CCOB is an independent consumer credit authority that will be formally established after the CCA is issued. CCOB complements the supervisory role of existing ministries and agencies.

The article also shared that BNM expects BNPL programs to be offered by or in partnership with banking institutions that have adhered to practices consistent with responsible lending expectations.

Those most likely to be impacted by CCA will be non-bank BNPL players in Malaysia, including Atome, ShopBack PayLater, Split, myIOU, FavePay, Grab’s PayLater and SPayLater.

However, it is important to note that the CCA will regulate companies that provide credit services to individuals as well as micro and small businesses (MSEs). This includes not only BNPL companies but also factoring companies, leasing companies, discount loan buyers, collection agencies, etc.

What is going to happen?

To understand what CCA can do, here are its goals:

  • Establish an authorization framework for non-banking organizations to conduct credit business and credit services;
  • Provide a comprehensive and consistent framework for consumer credit protection through the application of minimum standards of conduct for credit providers and credit service providers;
  • To establish an effective monitoring, surveillance and enforcement framework to prevent and reprimand unfair, unethical and predatory behaviour; and
  • To ensure effective coordination between the Regulators and Supervisors in delivering better outcomes for consumers through the establishment of the Malaysian Consumer Credit High Council.
Conjugated regulatory model from the Consumer Credit / Credit Act Public Consultation Papers Image: Consumer Credit Oversight Board

But targeting aside, how will the real consumer be affected?

Basically, it is important that the CCA will require credit providers to adhere to responsible lending standards such as performing credit checks and assessing affordability. This will make BNPL services a little less accessible.

The act would also promote clear, accurate, consistent, and timely disclosure of information to credit consumers for decision-making, so presumably BNPL services would have to include multiple statements more disclaimer now.

Above all, prohibit practices that are “inherently unfair to credit consumers,” such as engaging in deceptive practices to mislead or employ abusive practices to intimidate borrowers. pursuing debt collection.

Key areas of consumer protection under the CCA will include prohibited business conduct, advertising and solicitation, credit agreements, sponsorship fees, credit assessments, debt collection and merchandise collection , and alleviate financial difficulties.

When will it take effect?

The CCA is expected to come into effect from 2023 to 2024 in Phase 1 of CCOB’s consumer credit regulator transition.

Perhaps BNPL companies will get an extension before they have to comply. Maybe they were prepared for it.

The point is, regulations are bound to come in. But what’s uncertain is whether the ever-enticing BNPL programs will succeed because of it.

It seems that the general consensus is that these regulations will pose a threat to the growth of the industry. In addition, merchants and retailers who popularize through BNPL providers may experience a loss on some sales.

Consumption may also decline due to increasing difficulty in accessing credit. Those who are unbanked or underbanked will likely feel the effects hardest.

But maybe it’s because of the improvement of the economy, especially in the long run.

According to a Forbes article, regulation could even benefit BNPL players. This is because regulatory scrutiny can benefit the reputation of BNPL companies, even bringing them to the same playing field as the big banks. I believe investors may also find BNPL companies more attractive.

However, I think increased regulation could be an obstacle for new smaller BNPL startups to join, thus reducing competition.

  • Read other articles we have written about BNPL here.

Featured image credit: Bank Negara Malaysia

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