SPEED UP DRAFTING OF LAW TO REGULATE BNPL – FOMCA

By Muhammad Saufee Rosman & Afifitri Muhammad

The influx of mobile platforms providing buy now, pay later services is putting consumers, particularly the younger segment, at risk of piling up debts that may eventually lead them to bankruptcy. This is the final of a two-part special report on this issue.

KUALA LUMPUR (Bernama) – The interest-free instalment payments offered by an online buy now, pay later (BNPL) provider seemed too tempting to disregard, especially in the case of Ahmad who was facing financial constraints.

The 24-year-old graphic designer, who declined to give his full name, ended up buying a washing machine fitted with a dryer costing RM3,000 and a refrigerator priced at RM1,800 sometime last year.  

It did not take him long to fall for the BNPL scheme as he felt that was the best way for him and his wife to buy essential household gadgets.

“Earlier, my wife and I surveyed the prices of the items we wanted on e-commerce sites but found that delivery took a long time.

“So, we surveyed other options until we came across a BNPL advertisement on Instagram… what attracted us to it was the catchphrase ‘interest-free instalment payments’,” he told Bernama.

Photo for illustrative purposes. -- Shutterstock

Initially, the couple, whose monthly household income is about RM5,000, did not have trouble making the instalment payments of RM450 and RM250 a month for the refrigerator and washing machine respectively.

The full payment for the refrigerator was settled in September last year but the couple is still paying for the washing machine as it involved a year-long payment term. However, Ahmad and his wife are now facing difficulty making the monthly payment as their financial commitments had increased following the birth of their first child in February this year.

“We have been incurring unexpected expenditure as our baby has been falling sick often,” Ahmad said, adding that he has now taken up a part-time job as an e-hailing rider to make ends meet.   

He also did not rule out the possibility of resorting to BNPL services in the future if there is a pressing need to purchase something.

LEGISLATION NEEDED

The Federation of Malaysian Consumer Associations (FOMCA), meanwhile, urged the authorities to speed up the drafting of the proposed Consumer Credit Act (CCA) to regulate the consumer credit market including BNPL providers.

It said the CCA, which is expected to be tabled in Parliament in the second quarter of 2023, is timely as it would ensure the stability and growth of the nation’s financial system.

Mohd Yusof Abdul Rahman. --fotoBERNAMA (2021) ALL RIGHTS RESERVED

FOMCA deputy president Mohd Yusof Abdul Rahman said since BNPL has yet to be regulated by the authorities, the system is vulnerable to interest rate manipulation by service providers.  

BNPL allows customers to purchase goods and services and pay for them in monthly interest-free instalments. However, other charges are imposed on them such as for processing and late payments.

In some cases, the total charges imposed by BNPL providers may be higher than the interest and other fees imposed by conventional lenders.

“Bank Negara Malaysia (BNM) must speed up the process of enacting the CCA so that all legislation related to the financing system, such as the credit act, hire purchase act and money lending act can be regulated (by the government).

“Currently, only those involved in hire purchase schemes are regulated (by the Hire-Purchase Act 1967) but other schemes like BNPL are not regulated by any law,” said Mohd Yusof.

BNPL CHOICE OF YOUNG COUPLES

At present, any person – regardless of their creditworthiness – can opt for a BNPL scheme. This is the reason BNPL has become the choice of newly-married couples who resort to this scheme to purchase household items like television, washing machine and refrigerator.

“Young people or families turn to BNPL because, being young, they don’t earn enough to buy things like electrical gadgets, mobile phones and furniture on cash terms.

“The worrying part is that if they fail to manage their finances well, they face the possibility of being imposed penalty charges or having their goods seized,” said Mohd Yusof.

BNPL can also potentially be abused by shopaholics during their shopping sprees, thus exposing them to the risk of racking up debts.

The easy payment schemes promoted by BNPL providers are a sure-fire way of attracting the attention of shopaholics who are known for their compulsive shopping tendencies.

“BNPL is one of the marketing techniques used by sellers to increase their sales… they have 1,001 ways to influence buyers, especially shopaholics,” said Prof Datuk Dr Mohamed Fadzil Che Din, an expert in counselling psychology at Universiti Pertahanan Nasional Malaysia.

“A strategy like BNPL will indirectly pique the interest of shopaholics to go shopping even if their credit status is problematic.”

IMPROVE FINANCIAL LITERACY

He told Bernama things can go out of hand if the interest-free instalment payment strategy offered by BNPL providers compels shopping addicts to spend indiscriminately.

“What we are concerned about is that these people are not spending on essential stuff but on things that they desire just because they want to be seen as trendy and don’t want to be left behind.  

“As a result of this, each time a new product is introduced, they are willing to queue up for 24 hours just to buy what they want even though it is not essential,” he said.

Dean of the Human Ecology Faculty, Universiti Putra Malaysia, Prof Dr Mohamad Fazli Sabri opined that it is not wrong for a person to opt for BNPL as long as they are equipped with knowledge of sound financial management.

“It’s not wrong to go for BNPL (schemes) but avoid becoming overexcited and spending too much on items your heart desires instead of essentials,” he pointed out.

He also cited a study by BNM in 2020 which found that 75 percent of the nation’s population did not have emergency savings of at least RM1,000.

He said the younger generation, especially newly-weds, must learn to spend prudently, more so when they make use of BNPL schemes.

“They make up the high-risk group as they have various financial commitments such as housing and vehicle loans. They also have their children to take care of and other expenses as well,” he said, adding that people who love shopping should refrain from visiting websites or social media sites that may entice them to shop and go into debt.

Translated by Rema Nambiar

-- BERNAMA