BUY now pay later schemes can have a severe impact on consumer well-being. While the concept is relatively new in Malaysia, it has been around for long time in the global economy.

Its negative impact has been so severe that it warranted Consumers International to launch a global campaign: “A call for effective regulation of buy now pay later products”.

Some of the major concerns in terms of consumer protection are that the industry is unregulated; there are no proper checks on whether consumers can afford to pay for the products; and exorbitant charges for late fees.

The greatest concern of this type of scheme is it leads to overconsumption, harming consumer welfare.

The consequences of buy now pay later have already begun to appear in Malaysia.

According to the Financial Stability Review for the second half of 2022, Bank Negara Malaysia (BNM) noted that the share of buy now pay later customers with overdue payments had risen to 17% by the fourth quarter of 2022.

This compared to 14% in Q2 and 7% in the fourth quarter of 2021.

Another major concern highlighted by BNM was that these schemes attract younger people and those of lower income.

At least 44% of customers are between 18 and 30 years old. Furthermore, more than 80% of customers earn less than RM3,000 a month.

The concern is the combination of easy access to buy now pay later products and youth may result in higher risk of people spending beyond their means, without considering their ability to repay the loan.

Even before buy now pay later, a survey of young workers aged 20 to 33 by the Asian Financial Centre found that 70% of respondents were living beyond their means.

Given the lack of transparency in fees and charges – particularly late payment penalties and processing fees – customers may be unaware of the real costs involved.

The Federation of Malaysian Consumers Associations (Fomca) fully supports the actions of the Consumer Credit Oversight Board (CCOB) to take critical measures to regulate the industry for the protection of Malaysian consumers.

First and foremost, all companies offering these schemes must be registered with the authorities.

A registration and licensing process will help identify the players and ensure compliance.

Fomca also supports the proposal that firms be subjected to the RM2 million minimum requirements to ensure that the company has sufficient resources to keep its commitments to consumers.

Three other key measures that must be taken include:

1. Companies need to conduct an affordability assessment for each potential customer.

Consumers must be able to afford the products they purchase.

2. Companies need to comply with existing responsible lending standards and ensure full disclosure of all applicable fees and consequences of late payments.

Also, late payment charges must be reasonable. Consumers must be aware of these charges and possible consequences of late payments.

3. Marketing and promotion must be clear and transparent, and not deceptive. Key information such as risks, applicable fees and charges must be prominently displayed.

Information must be presented in a form that is easily understood.

The measures being taken through the CCOB must be fully supported to enhance financial consumer protection and consumer empowerment to mitigate the risks of the schemes.

Finally, the government should continue to provide financial education extensively to all but especially young workers, to empower consumers towards responsible financial management. – April 14, 2023.

* Paul Selva Raj is secretary-general of Fomca.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.