Malaysians are getting screwed by Buy Now Pay Later. This new law might stop it

You know how it goes. You see a nice new phone or that plush new sofa set that you REALLY want, but your wallet is emptier than a Gen-Z’s hope for the future. But, omg, there’s an option to pay by installment – no credit card needed! So, you eagerly buy that phone and walk out the store feeling like a million bucks in debt. From this, a few outcomes might happen:

• You realize you paid more because there were processing/service fees in the T&Cs
• You get debt collectors hounding you because you suddenly couldn’t pay
• You miss a payment and have to pay a LOT of interest and late fee charges
• All of the above

Welcome to the world of Buy Now Pay Later (BNPL). You might think these aren’t different from credit cards or small bank loans, but there’s one huge difference….

There are no regulations for BNPL in Malaysia

The main difference between BNPL and credit card/bank loans is that banks are regulated by Bank Negara’s policies. For example, no bank can charge you more than 1.5% interest a month if you’re late on credit card bills or send debt collectors to harass your grandmother because of these policies.

On the other hand, many BNPL providers (credit providers) are not banks – they are private companies that provide financial services. We won’t name names, but more popular examples you’ll recognize are a mammoth example for furniture and that online shopping platform with a name that’ll make your pet happy:

At the moment, these companies and the supporting industries like debt collectors (credit service providers) are regulated under a bunch of different laws, which then fall under different ministries or agencies. For example, the Moneylenders Act is under the Ministry of housing and Local Government, while the Financial Services Act is under Bank Negara.

Essentially, this fractured structure makes it hard to control the industry; and the difference between paying an extra RM10 versus RM100 or getting a warning letter versus a call from your confused crying grandmother can be down to just….. plain luck.

There’s a law to regulate BNPL in the works

So, BNPL and other credit loans aren’t necessarily a bad thing because it allows you to afford something you ordinarily wouldn’t be able to. However, the lack of regulations like credit checks mean that you may end up putting yourself into more debt than you can afford to pay – which is an increasingly serious issue since Malaysia’s household debt was at RM1.375 trillion in 2021. So having a law in place would – ideally – make things fairer and safer for both consumers and legit credit providers.

If all this law and finance stuff makes your head go spinny-spinny-boom-boom, we’ll keep it simple.

The Consumer Credit Act (CCA) is a law that’s currently being put together and expected to be presented in Parliament in the second quarter of 2023. We’ll get into the details over the course of this article, but it’ll essentially solve the fragmented law issue by providing a single law to govern credit and credit service providers.

Not just that, the fragmentation of the ministries and agencies overseeing these companies is also resolved through the Consumer Credit Oversight Board (CCOB), an independent authority set up under the Ministry of Finance. This Board will supervise and enforce the regulations on top of developing the consumer credit industry.

So you can think of it as the government taking all those different laws and agencies and combining them into a single powerful unit – or what we’d like to call Captain BNPLanet.

Jokes aside though…

It’s not just BNPL, but also industri-industri yang sewaktu dengannya

We used BNPL as the main example because it’s the one that most Malaysians have encountered. However, the CCA will also cover business related credit services such as factoring, leasing, and Impaired Loan Buyers.

As an overview, the CCA isn’t only meant to protect regular consumers who want to buy a new phone, but also Medium-and-Small Enterprises who may need to get credit for suppliers in order to start or run their business (up to RM500k). And perhaps most importantly, it will also protect guarantors who may tak pasal-pasal get harassed because they backed the wrong friend or family member.

Just to note though, it doesn’t cover loan sharks because that one is still illegal and a crime lah.

When the law comes into effect, the regulations will be implemented across three phases, which are:

Phase 1:

• BNPL
• Factoring
• Leasing
• Impaired Loan Buyer
• Debt Collection Agencies

Phase 2: 

• Hire Purchase
• Credit Sales
• Moneylenders
• Pawnbrokers

Phase 3: 

Review and improve whatever they’ve been doing in Phases 1 & 2

You can add your 2 sen to this new law

We got most of the information for this article from the CCA Consultation Paper, which is kind of like an early draft of what the law is going to be. We also attended a media briefing on August 3rd, where the CCOB Task Force informed us that they want to hear what the general public thinks about the CCA, which you can email directly to them at [email protected]. Otherwise you can also read their full press statement here.

So what do you think about the CCA? Let us know in the comments! them know directly by emailing them.

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