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'Buy now, pay later' code of conduct launched to protect consumers against debt accumulation

The new code of conduct aims to protect consumers against over-indebtedness amid a growing BNPL industry.

'Buy now, pay later' code of conduct launched to protect consumers against debt accumulation

BNPL services allow individuals to pay for their purchases over time without interest or service fees charged. (Photo: CNA)

SINGAPORE: Customers will not be able to chalk up more than S$2,000 in outstanding payments with a “buy now, pay later” (BNPL) provider, unless they pass an additional credit assessment which will consider details such as income and credit information shared across all BNPL providers.

Customers will also be suspended from making further BNPL purchases once a payment is overdue.

These are part of a code of conduct announced on Thursday (Oct 20) to protect consumers in Singapore against over-indebtedness amid a growing BNPL industry.

BNPL is a payment service that allows payment for purchases over time. It differs from usual instalment plans by enabling one to split the cost for small-ticket everyday items – from a meal at a restaurant to a new dress – at zero interest, and without having to own a credit card.

The new code, developed by a working group led by the Singapore FinTech Association (SFA), states that it recognises the “transformative use” of BNPL, especially for the under-served and the under-banked.

It hopes to promote best practices to ensure that BNPL offerings continue to “benefit” Singapore.

The working group was formed by SFA in March under the guidance of the Monetary Authority of Singapore (MAS). Members include BNPL providers like Atome, Grab Financial Group and ShopBack.

Apart from creditworthiness safeguards, the new code lays out guidelines for BNPL providers in other areas such as ethical marketing practices and allowing consumers to voluntarily exclude themselves from such services.

Providers must also be fair and transparent when it comes to their fees. For example, BNPL firms will cap all fees, including late fees and other charges, and not charge compounding interest. Fee disclosures must be made to customers in a clear manner.

Consumers are also entitled to make full repayment at any time, without early repayment fees.

BNPL providers will also consider extending "hardship assistance” to customers facing financial hardship, and work out a “mutually acceptable” payment arrangement. During this time, customers will not be allowed to make further transactions. 

Providers will also commit to not initiating bankruptcy proceedings against their customers.

To encourage adoption and compliance with the new code, BNPL providers will be required to undergo an audit and accreditation process by an independent expert assessor. They will then be able to display an accredited trustmark indicating that they are compliant with the code for three years, before having to be re-accredited.

An independent oversight committee will be formed to ensure enforcement of the code. This committee will have the power to request for written submission from a provider on suspected violations and remove an accredited provider from the BNPL registry, among others.

The code of conduct also mentioned the set-up of a credit information sharing bureau which is expected to be completed in late-2023, alongside the accreditation process and awarding of the trustmark to those accredited.

BNPL, which started primarily as a payment method for e-commerce, has been growing in popularity in overseas markets, especially Australia, Europe and the United States.

The pandemic fuelled its growth as more took up selling and shopping online.

But the ease with which shoppers, especially younger ones, can make purchases through these schemes has stirred concerns among regulators in countries such as the United Kingdom and Australia.

Last month, the US Consumer Financial Protection Bureau said it plans to start regulating BNPL companies due to worries about how their fast-growing financing products are harming consumers.

In Singapore, BNPL started gaining traction in 2020 and while convenient, consumers “may be at risk of spending more than what they have budgeted for” when using such services, the Monetary Authority of Singapore (MAS) told CNA last year as it mulled an “appropriate regulatory approach”.

Latest figures from the authorities showed that BNPL transactions in Singapore have grown to S$440 million last year, from S$114 million in 2020.

This remains a “very small” sum compared to other means of consumer payment – less than 1 per cent of total credit and debit card payments last year – said Senior Minister Tharman Shanmugaratnam in a written reply to a parliamentary question on Sep 12.

MAS’ assistant managing director in policy, payments and financial crime Loo Siew Yee described the new code of conduct as setting out “important industry-agreed standards and safeguards to mitigate the risk of debt accumulation and protect the interests of users”. 

“We will continue to monitor developments in the BNPL sector and work with the industry to address any risks to consumers,” she added.

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Source: CNA/sk(jo)
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