KUALA LUMPUR: Bank Negara Malaysia is looking to abolish flat rate interest for personal financing, which includes Buy Now Pay Later (BNPL) arrangements.
In a draft exposure posted on Monday, BNM is looking for feedback on new requirements to abolish the offering of personal financing where interest/profit charges are computed using flat rate with Rule of 78 method.
Under the new rules, BNM plans to classify certain home financing as personal financing.
This includes extra financing beyond the current loan amount when refinancing a home loan; additional financing after paying down the original home loan and financing secured by a property that has no existing mortgage.
In the draft rules, BNM states that before granting a BNPL facility, a financial services provider (FSP) must assess the consumer's ability to repay the loan without causing financial hardship.
At a minimum, the FSP must review the consumer's repayment history on existing credit.
If the consumer has no credit history, the FSP should check their repayment record on other regular payments, like utility or phone bills.
Additionally, an FSP cannot offer BNPL to consumers who are declared bankrupt.
In the document, BNM also clarifies its expectations regarding the 10-year maximum tenure for personal financing, aiming to encourage responsible lending practices.
High levels of household debt heighten financial stability risks for both institutions and households.
As at end-2023, aggregate household debt stood at RM1.53 trillion, with 12.6 per cent attributed to personal financing.
Personal financing has also been identified as one of the top contributors
of bankruptcy, accounting for 46.26 per cent of total bankruptcy cases in 2023.
As at end-April 2024, 32.8 per cent of the loan facilities enrolled in Agensi Kaunseling and Pengurusan Kredit's Debt Management Programme also comprise of personal financing.
BNM observes that personal financing practices in other jurisdictions, such as in Australia and Singapore, set the maximum tenure for personal financing products up to 7 years.
This is lower than the maximum tenure of 10 years for personal financing products offered in Malaysia.
Feedback on the draft exposure must be submitted electronically to BNM by Feb 14, 2025.