The Bank Negara Malaysia (BNM) has released a new policy document on personal financing which took effect on 15 December 2023, with the goal of promoting responsible financing practices while discouraging unaffordable borrowing.
This policy encompasses Buy Now Pay Later (BNPL) products where it addresses concerns regarding such emerging financing products that may initially appear affordable but could lead to the imprudent accumulation of debt.
This policy document applies to licensed conventional and Islamic banks, prescribed development financial institutions as well as approved issuers of designated payment instruments including the Islamic ones.
However, this policy document presumably does not apply to BNPL firms that are currently not regulated under the central bank. These firms will likely fall under the Consumer Credit Act, scheduled to be enacted by year-end.
The document includes; general and additional requirements on BNPL, affordability assessments, fees and charges, Shariah requirements on Islamic BNPL, as well as merchant and reporting requirements.
Affordability assessment for personal loans including BNPL
Among the essential policy requirements outlined is that, in terms of tenure, the duration of a personal financing product cannot exceed 10 years.
Financial service providers (FSPs) are prohibited from offering pre-approved personal financing products. Instead, financing can only be granted upon a financial consumer’s acceptance and a satisfactory affordability assessment.
The policy places restrictions on BNPL, mandating that FSPs assess a financial consumer’s ability to repay without causing undue financial hardship.
Repayment history on existing credit facilities must also be considered in the assessment. As part of the affordability assessment, FSPs will need to ascertain whether those who have a cumulative BNPL credit limit of RM1,500 or above is able to fully repay the new BNPL facility by using a prudent debt service ratio (DSR) as specified in the policy document.
For those who do not have any credit repayment history, FSPs will be required to look into their repayment history on other recurring payment obligations, such as utilities or telecom bills.
It is worth noting that BNM also outlined that consumers who have been declared bankrupt cannot be offered the BNPL payment option.
Late Payment Charges and Shariah Compliance in BNPL
In terms of fees and charges, FSPs are required to obtain BNM’s approval before introducing any fees and charges on BNPL or increasing the current fees and charges on BNPL, including the Late Payment Charge (LPC).
Moreover, it’s crucial to note that FSPs must not view the LPC as an additional source of income for the BNPL facility.
Furthermore, the LPC imposed by FSPs must cover only the actual costs incurred for recovering overdue installments from financial consumers, and FSPs are prohibited from setting a minimum LPC.
Effective communication such as SMS or in-app notification with consumers is emphasised, requiring FSPs to inform consumers clearly about LPCs, provide reminders before payment due dates, and suspend BNPL accounts for consumers with repeated missed payments.
For Islamic BNPL facilities, FSPs must comply with Shariah requirements and seek approval from the Shariah Advisory Council (SAC) when necessary.
In the policy, there’s a provision related to Islamic BNPL facilities. It says that if there’s a late payment charge (LPC) from a court judgment, FSPs can consider it as compensation for the actual costs.
If this charge is more than the actual costs, the extra amount should be given to a charity. But, FSPs need approval from their Shariah Committee (SC) before giving this extra money to a charity.
Merchant requirements dictate that FSPs must ensure that merchants do not set BNPL as the default payment option for consumers.
Reporting requirements obligate FSPs to report both conventional and Islamic BNPL in the Central Credit Reference Information System (CCRIS) as a facility named “Buy Now Pay Later”.
BNM’s intention with these policy requirements is to create a sustainable retail credit market and a resilient household sector. This initiative seeks to balance the facilitation of credit access with consumer protection against excessive debt burdens.
Featured image credit: Edited from Freepik
