This article first appeared in The Edge Malaysia Weekly on August 8, 2022 - August 14, 2022
A Consumer Credit Act (CCA) aimed at regulating companies that provide credit or credit services to individuals as well as micro and small enterprises (MSEs) could be in place by the end of next year, if things go as planned.
The act, which is being formulated by the government to provide better protection for credit consumers in Malaysia, will result in, among others, buy now pay later (BNPL) activities — a rapidly growing industry — finally being regulated.
It will also lead to the consolidation of the credit industry regulatory framework. Industry observers see this as a positive development as, currently, there are multiple consumer credit laws under different regulators.
For example, there is the Hire-Purchase Act 1967, administered by the Ministry of Trade and Consumer Affairs; Moneylenders Act 1951 and Pawnbrokers Act 1972 (by the Ministry of Housing and Local Government); and Cooperative Societies Act 1983 (by the Malaysia Co-operative Societies Commission), among others.
The fragmented regulatory frameworks have given rise to an unlevel playing field and uneven standards of protection accorded to consumers of the different providers of consumer credit.
“Concerns are further heightened when credit activities are targeting consumers who are vulnerable, financially less savvy and less resilient, such as individuals who earn lower incomes and MSEs,” according to a public consultation paper released last Thursday, which seeks feedback on the proposed CCA enactment by Sept 5.
The paper, the first of two, was prepared by the Consumer Credit Oversight Board (CCOB) Task Force, with support from the Ministry of Finance (MoF), Bank Negara Malaysia and the Securities Commission Malaysia (SC), in collaboration with the relevant ministries and agencies.
Upon the CCA’s enactment, the task force will be formally established as the CCOB, which will then become the new independent competent authority for consumer credit. It will complement the oversight role of existing ministries and agencies.
According to the consultation paper, the transformation of the regulatory landscape will be done in a phased manner so as to minimise any unintended disruptions.
To start with, the CCOB — which falls under the MoF — will regulate all consumer credit activities that are currently not subject to direct regulation by any authority, such as BNPL. This will then be followed by a gradual transfer of regulatory powers from existing ministries and agencies to the CCOB (see table).
Hence, under Phase 1, which is envisioned to run from 2023 to 2024, those that will come under the CCOB’s regulatory and supervisory oversight are BNPL, factoring and leasing companies, as well as impaired-loan buyers and debt collection agencies.
Phase 2 (2025-2029) will see hire-purchase companies, credit sale providers, moneylenders and pawnbrokers come under the CCOB. To enable this, the CCA will be reviewed and expanded.
In Phase 3 (2030 onwards), the CCA and relevant legislation will be reviewed further to rationalise the conduct, regulation and supervision of all financial service providers.
Based on the consultation paper, consumers that will be accorded protection under the CCA are individuals who obtain credit for personal, domestic and household purposes; MSEs that obtain credit up to RM500,000; and individuals who act as guarantors (not for the purpose of making profit) on loans obtained by others.
Interestingly, in the case of MSEs, the threshold of RM500,000 would cover almost 70% of current SME loans.
The CCOB Task Force will issue a second consultation paper in the final quarter of this year, which will outline further details.
The bill is targeted to be tabled in parliament in the second quarter of 2023. Hence, if passed, the act could be enacted within that year itself. There will be a grace period to allow the industry and businesses to make the necessary preparations to comply with the CCA.
BNPL, which is largely an unregulated business globally, is a type of short-term financing that essentially allows consumers to make a purchase and pay for it later at one go or via instalments over a short-term period.
In Malaysia, the space is dominated by foreign players. It is understood that there are currently 19 BNPL providers here, the big names being SPayLater by Shopee, Grab, Atome and Hoolah.
With BNPL expected to grow strongly over the next few years, there is a growing risk that consumers, especially the young or desperate, could fall into a debt trap.
Pine Labs Pte Ltd head of payment business for the Asia-Pacific, Chayan Hazra, told The Edge in an interview in July last year that, increasingly, authorities around the world were looking to regulate BNPL.
“Will it kill BNPL? I don’t think so. I think it is here to stay, but obviously within a guided regime of the regulatory framework. What is very important for the industry to understand is responsible credit, both from the consumer side as well as the BNPL provider side,” he said. Pine Labs is one of Asia’s leading merchant commerce platforms and a BNPL provider.
According to a projection by Frost & Sullivan, the total value of BNPL transactions in the Asean region will increase to US$28 billion in 2026 from US$8.2 billion in 2022, with the number of active users to rise to 127 million from 37 million.
Meanwhile, based on the 2021 Global Payments Report by FIS-Worldpay, BNPL’s share of e-commerce spend in Asia-Pacific is expected to more than double from 2020 to 2024, from 0.6% to 1.3%. “These share gains will come largely at the expense of credit cards, bank transfers, cash on delivery and prepaid cards, all of which will lose share through 2024,” the report says. Globally, BNPL’s market share is projected to double from 2.1% in 2020 to 4.2% by 2024.
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