LETTERS: According to the Consumer Credit Oversight Board (CCOB) website, there are about 2.9 million active Buy Now Pay Later (BNPL) scheme users.
From January to September 2023, there were about 52 million transactions totalling RM4.3 billion. The volume of transactions grew at an average of 21 per cent every quarter.
What is worrying is the negative impact the BNPL schemes have on consumers.
As at the end of September 2023, overdue payments for BNPL were four per cent with 1.3 per cent missing out on payments for more than three months. The balance not paid for BNPL transactions was RM0.9 billion.
The relative ease of BNPL, that is, without credit assessment of the buyer, and the relatively "low" monthly payments may often give buyers a false sense of purchasing power, causing them to spend more than they can truly afford, resulting in them often being caught in a debt trap.
This is partly why the Finance Ministry is currently developing the Consumer Credit Act (CCA).
Here, the Federation of Malaysian Consumers Associations (Fomca) fully supports the CCA, which aims to protect the interests of credit consumers by regulating the credit services, ensuring responsible lending practices by BNPL companies, as well as promoting a fair, efficient and transparent credit industry.
In many jurisdictions, due to the severe negative impact on consumers, governments are seeking to regulate the industry to protect consumers.
Bank Negara Malaysia (BNM) should be lauded for its proactive actions to protect consumers in the BNPL space. Consumers International has also called for greater regulation of BNPL schemes at the global level.
Too often, the victims of BNPL are youths as well as low-income consumers. It has been reported that of the 2.9 million BNPL users, 47 per cent were between the ages of 31 to 45.
Also, in the Financial Stability Review for the second half of 2022, BNM reported that more than 80 per cent of BNPL users earn less than RM3,000 per month and were, therefore, more susceptible to financial stress.
The central bank indicated that the relatively easy access to BNPL may place users at higher risk of spending beyond their means without considering their ability to promptly pay their scheduled amount.
Thus, financial empowerment programmes are crucial. And financial literacy must begin at a young age in school to form the right values and habits to ensure financial wellbeing in the current market environment.
Further, some form of assessment of the consumer's credit worthiness is crucial to ensure if he or she can fulfil the financial obligations.
Credit assessment is being considered by regulators in many jurisdictions to ensure consumers do not fall into severe debt.
In regulating the industry, all charges should be made clear and transparent, especially "late charges", "administrative charges" and any other fees.
Equally important, the consequences of late or non-payment must be clear to consumers at the time of purchase.
The easy access to BNPL services is already having a serious negative impact on consumers. However, financial empowerment must also be given priority.
Consumers need to be empowered with the right knowledge, skills, values and attitudes to adopt positive measures to minimise personal financial risks as well as work towards greater financial wellbeing.
DR PAUL SELVA RAJ
Deputy President
Fomca
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times