Buy Now, Pay Later Scheme Regulated: Navigating the Consumer Credit Act 2025 (Act 873)

As of today, the buy now, pay later (“BNPL”) financing scheme no longer needs an introduction. BNPL has been widely adopted as a payment option in line with the boom of e-commerce, attracting younger generations with  its flexibility and often interest-free features. However, the convenience comes with a catch, without proper financial planning, consumers may find themselves trapped in the cycle of purchasing beyond their means and incurring high interest rates due to their inability to pay on time. 

Prior to the introduction of a comprehensive regulatory framework, many BNPL providers operated outside the traditional financial regulatory perimeter. Unlike licensed banks and credit card issuers, BNPL operators were not subject to uniform licensing requirements, prudential standards, or responsible lending obligations, which lead to scrutiny by the regulators. 

What is the Act all about? 

The Consumer Credit Act 2025 (Act 873) (“the Act”), was introduced in response to the growing consumer credit market, particularly the proliferation of BNPL schemes and other non- financial institutions lending activities.  The Act seeks to establish a unified regulatory regime governing non-bank consumer credit providers. Its primary objectives include: 

1. Strengthening consumer protection safeguards; 

2. Promoting responsible lending practices; 

3. Enhancing transparency in consumer credit transactions; 

4. Standardising regulatory oversight across the industry; and

5. Reducing systemic risks arising from unregulated credit activities.

Importantly, the Act does not prohibit BNPL services. Instead, it formalises and regulates them to ensure that consumers are adequately protected while allowing financial innovation to continue in a controlled and sustainable manner. 

Key Provisions of the Act

The Act introduces a comprehensive regulatory framework governing the provision of consumer credit and related credit services in Malaysia. 

Definition of Credit Consumer and Credit 

Under section 5(1) of the Act, a “credit consumer” includes: 

• An individual who obtains or intends to obtain credit wholly or predominantly for personal, domestic or household purposes; 

• A micro or small enterprise within prescribed thresholds; and 

• A social guarantor. 

“Credit” is defined broadly under section 5(2) of the Act to include any arrangement, agreement or facility (including Islamic financing) which results in a person being in debt or incurring a financial obligation, including arrangements allowing payment for goods or services by instalments. This wide definition ensures that modern financing models, including BNPL schemes, fall within the regulatory framework. 

Licensing and Registration Requirements 

A central pillar of the Act is the introduction of a mandatory licensing and registration regime. Under section 40 of the Act, no person may carry on a credit business (as defined under Schedule 2 of the Act) which includes providing credit, such as loans or financing, directly to consumers without holding a valid licence issued under the Act. Separately, section 57(1) of the Act requires persons carrying on a credit service business (as defined under Schedule 3 of the Act) which includes providing services that facilitate or arrange credit on behalf of others such as credit counselling or intermediary services to be registered under the Act. 

Standards of Conduct and Responsible Lending

The Act places statutory obligations on credit providers and credit service providers to uphold appropriate standards of conduct. Under section 84 of the Act, such providers must ensure that their business is conducted in a fair, responsible and professional manner. 

Section 87 of the Act prohibits credit providers and credit service providers from engaging in “prohibited business conduct” as set out in Schedule 6 of the Act. These include, among others, unfair or misleading advertising, charging excessive fees, providing credit without assessing a consumer’s ability to repay, harassment of consumers for repayment, and other improper practices. 

Role of the Regulatory and Supervisory Authority

The Act establishes a dedicated Regulatory and Supervisory Authority (“RSA”) to oversee compliance with its provisions under their respective legislations. 

The RSA comprises of: 

1. the Commission; 

2. the Central Bank of Malaysia; 

3. the Securities Commission Malaysia; 

4. the Ministry of Domestic Trade and Cost of Living; 

5. the Ministry of Housing and Local Government; and 

6. the Malaysia Co-operative Societies Commission. 

Under section 88 of the Act, the RSA is empowered to examine the business and affairs of licensed credit providers and registered credit service providers. This includes the authority to require the production of information and documents necessary for supervisory purposes. 

Where non-compliance is identified, section 106 of the Act empowers the RSA to take administrative action, including the imposition of monetary penalties and other enforcement measures. 

The establishment of the RSA marks a significant shift towards a consolidated and structured supervisory regime, replacing the previously fragmented oversight landscape governing consumer credit activities in Malaysia. 

Implementation of the Act: Phased Rollout by CCOB

To ensure an orderly transition and effective supervision of the consumer credit sector, the Consumer Credit Oversight Board (“CCOB”) has been established as the dedicated body responsible for implementing the Act. The CCOB will adopt a phased approach to ensure orderly transition and effective supervision: 

Phase 1: Initial Regulation of Unregulated Credit Providers 

• This phase focuses on bringing currently unregulated credit and credit service providers under the regulatory framework. 

• CCOB will assume oversight over entities in this phase including BNPL providers, debt collection agencies, and other credit service providers which were not previously supervised by a regulator. 

• During this phase, the RSA continues to maintain oversight of entities that are still governed under their respective existing legislations, ensuring supervision remains in place while the new licensing and conduct framework is phased in. 

Phase 2: Expansion of Regulatory Authority 

• During this phase, CCOB will gradually assume regulatory responsibility for sectors currently governed under other existing legislation by RSA, consolidating supervision under the Act. 

• Examples of providers included in this phase: 

1. Moneylenders regulated under the Moneylenders Act 1951 

2. Pawnbrokers regulated under the Pawnbrokers Act 1972 

3. Hire-purchase providers regulated under Hire Purchase Act 1967 

Phase 3: Integrated Regulatory Framework 

• In the final phase, the CCOB will oversee the entire consumer credit sector, including all non-bank and formerly regulated providers. 

• This phase establishes a mature, fully integrated conduct regulator, capable of supervising compliance, enforcing standards, and protecting consumers across all types of credit services under one roof. 

Conclusion

The Act establishes a comprehensive regulatory framework for BNPL and other non-bank consumer credit providers. By introducing licensing, transparency, responsible lending, and enforcement standards, BNPL providers and other non-bank credit operators are subject to consistent oversight, promoting responsible lending and protecting consumers from overindebtedness. For consumers, this means greater confidence and clarity when using BNPL schemes and for providers, it signals a clear framework for compliance and responsible business practices.