KUALA LUMPUR: The "Buy Now, Pay Later" (BNPL) industry may be new, but Malaysian Consumers Associations (Fomca) says the negative effects seen in this short time is already alarming.
Fomca deputy president Dr Paul Selvaraj told Business Times, of particular concern is the impact BNPL has on youth and the low-income community.
Yesterday, Khazanah Research Institute called for more stringent regulations and monitoring to reduce the impact that BNPL may pose on the economy, particularly household debt.
Consumer Credit Oversight Board (CCOB) statistics show that 44 per cent of the 2.9 million active users of BNPL were aged 21-30 years, while 47 per cent were aged between 31-45 years as at end September 2023.
It recorded 52 million transactions worth RM4.3 billion for the period.
CCOB said of the RM900 million outstanding balance as at end-September 2023, 4 per cent were overdue, with 1.3 per cent having missed more than three months of payments.
Spending amount also averaged at RM84.
The CCOB task force was set up in July 2021 and is led by the Ministry of Finance, Bank Negara Malaysia (BNM) and the Securities Commission Malaysia to drive the enactment of the Consumer Credit Act (CCA).
CCOB is intended to regulate non-bank credit providers and credit service providers.
Paul said 80 per cent of users of BNPL earned less than RM3,000.
"The relative ease of access may place users at a higher risk of spending beyond their means," he said.
"It is certainly clear that as BNPL consumers default on payments that this will only worsen household debt, Paul added.
Furthermore, he said the CCA aims to mitigate specific risks within the BNPL sector, which remains unregulated and has been observed to cause significant negative impacts on consumer welfare, not only in Malaysia but globally.
"Currently, there is no assessment made on the consumers ability to pay their purchase. It is expected that there will be some form of affordability assessment before a purchase is approved and this could reduce over indebtedness."Secondly there are often hidden charges. Also late and punitive charges can be excessive. Regulation means all charges must be regulated and approved by the authority to ensure fairness and justice for the consumer," he said.
Paul emphasised the importance of transparency in all charges at the point of purchase.
He also noted that if consumers feel deceived or dissatisfied, there must be a system for addressing their grievances, and the act should create such a system.
"For the well being of consumers, it is crucial that consumers are protected from the negative impacts of BNPL," he added.
According to Bank Negara Malaysia, BNPL schemes typically have three common features: shorter instalment plans, repayments drawn from linked debit or credit cards, and being marketed as 'no interest.'
However, they often include additional charges such as processing fees or late payment fees that can accumulate quickly.