As pay-later use surges, Bank Negara sees new laws soon to rein in wanton lending

Malay Mail
Malay Mail

KUALA LUMPUR, June 21 — The rapid growth of “buy now, pay later” (BNPL) schemes here has moved Bank Negara Malaysia to directly regulate the industry, with proposed laws to increase consumer protection against the risks of unfettered borrowing.

Over the past year alone, BNPL transactions have also nearly doubled, going from just around 17 million in the first quarter of 2023 to more than 31 million during the same period this year.

The initial scrum for market share also appears to have settled, with three BNPL providers — Shopee, Grab, and Atome — now dominating the market and accounting for 97 per cent of total transactions and 96 per cent of value in the first three quarters of 2023.

In that nine-month period, 52 million total transactions worth RM4.3 billion were made by 2.9 million active users nationwide, according to data from the Consumer Credit Oversight Board (CCOB) Task Force.

Today, over one in 10 Malaysians count as active users, having made at least one BNPL transaction in the previous 12 months.

Despite this surge, however, BNPL lending schemes that benefited from Covid-19 lockdowns that drove online shopping and spending are largely unregulated, exposing consumers to the risk of excessive borrowing.

But all of that is about to change with the proposed enactment of the Consumer Credit Act (CCA) that will also entail the establishment of the CCOB and the Council for Consumer Credit Malaysia (CCC).

The CCOB is an independent competent statutory authority set up under the Finance Ministry, while the CCC will act as the platform for coordination and collaboration amongst the various Ministries and their agencies to ensure the CCA is implemented effectively.

“We (BNM) felt the need to ensure all financial service providers (FSP) including banks that their consumers are treated and given assurance, subjected to the same level of fair treatment regardless of entities they choose to get their loan from,” BNM’s director of consumer and market conduct Lim Hsin Ying told Malay Mail in an interview recently.

“BNPL is good for those not having a credit history and want to build one but given its nature, as we have seen elsewhere as well it can also be a tool that tempts you to overspend because it is so easy to access.

“As regulators, we do not dictate the good or bad but what we can ensure is ‘fine, if you want to give easy credit which can benefit society, you have to play within a certain set of rules’, but we cannot impose these rules if you are not under anyone’s regulation.”

This change is long coming. The CCA was proposed as far as 2020, during the height of the Covid-19 pandemic, when BNM saw the need to strengthen consumer protection and ensure non-bank credit providers such as those offering BNPL schemes adhere to a minimum standard of fair treatment.

BNPL lending schemes that benefited from Covid-19 lockdowns that drove online shopping and spending are largely unregulated, exposing consumers to the risk of excessive borrowing. — Bernama pic
BNPL lending schemes that benefited from Covid-19 lockdowns that drove online shopping and spending are largely unregulated, exposing consumers to the risk of excessive borrowing. — Bernama pic

BNPL lending schemes that benefited from Covid-19 lockdowns that drove online shopping and spending are largely unregulated, exposing consumers to the risk of excessive borrowing. — Bernama pic

By definition, non-bank credit businesses include BNPL, leasing, factoring, impaired loan buyers and debt collection agencies.

But four years later, the Bill has yet to see the light of day.

“We have had several changes of (federal) government and every time there is a change we need to lobby them just to get their support.

“It is fair enough because new ministers, prime ministers, you do not expect them to sign a blank cheque.

“So because of the political dynamics in Malaysia, we just had to re-engage but the plan remains the same. We hope to table (the Bill) in the second half of this year (during Parliament),” she explained.

What are the CCOB and CCA?

Set up in July 2021, the CCOB Task Force is currently led by the Finance Ministry, BNM and the Securities Commission Malaysia (SC) to drive the enactment of the CCA where the existing Task Force will be transformed into a statutory body as it will be known.

Explaining the functions of the CCOB, Lim said there were multiple laws and ministries governing consumer credit activities at present which were fragmented and offered varying levels of protection accorded to consumers.

They include the Hire-Purchase Act and Consumer Protection Act (Domestic Trade and Cost of Living Ministry); the Co-operative Societies Act (Entrepreneur Development and Cooperatives Ministry) and the Moneylenders Act and Pawnbrokers Acts (Housing and Local Government Ministry).

“In the first phase (upon enactment of the CCA), we intend to bring in within the regulated space the unregulated credit providers out there.

What this means is that BNM, the Securities Commission, Co-operative Societies Commission of Malaysia and existing ministries will still continue to act as the regulatory and supervisory authority (RSA) for their respective sectors under the first phase.

“In the second phase, the CCOB will be expanding and taking over supervision and regulation of non-bank hire-purchase companies, moneylenders and pawnbrokers (under existing ministries).

Over the past year alone, BNPL transactions have also nearly doubled, going from just around 17 million in the first quarter of 2023 to more than 31 million during the same period this year. — AFP pic
Over the past year alone, BNPL transactions have also nearly doubled, going from just around 17 million in the first quarter of 2023 to more than 31 million during the same period this year. — AFP pic

Over the past year alone, BNPL transactions have also nearly doubled, going from just around 17 million in the first quarter of 2023 to more than 31 million during the same period this year. — AFP pic

“That also makes for more consistent rules, fiscal spending efficiency, cutting of red tapes and more importantly mitigating consumers’ confusion on parties responsible over arising issues,” she said.

Based on a frequently asked questions (FAQ) guideline released by the CCOB Task Force, the CCOB is also developing a one-stop complaints management system (CMS) to enable credit providers or credit service providers to receive complaints from credit consumers.

This means that any aggrieved credit consumer may lodge a complaint via the CMS which will be interoperable with providers’ internal complaints handling system that allows information sharing, engagement and coordination between the CCOB and the respective RSAs.

In its simplest form, the establishment of the CCOB is intended to regulate non-bank credit providers and credit service providers; while protecting credit consumers from unfair and deceptive market practice.

All systems go

With the Bill finally set to debut, Lim said Prime Minister Datuk Seri Anwar Ibrahim and his Cabinet had given their full support for the proposed tabling during the second half of this year when Parliament convenes for its Third Meeting from October 14 to December 12.

In fact, Anwar had in his Budget 2023 speech last year announced the formation of the CCOB and the enactment of the CCA to monitor BNPL services.

“For us, it is about getting the Act out first.

“It has been quite a long tunnel for us but we are finally seeing the light, so we are confident it should pass by the end of this year,” she said, adding that rationalisation of the regulatory framework of non-banks credit providers under one roof will thereafter commence in phase two.

Click here for Malay Mail’s story on how BNPL works and the many platforms offered to Malaysians.