In recent years, various banks and individual platforms have launched “Buy Now, Pay Later” (BNPL), a newly trending financial product that claims to offer interest-free payment by instalments, enticing consumers to “enjoy first, pay later”. Despite the appeal of this consumption mode, consumers should bear in mind that there is no such thing as a free lunch. According to the Consumer Council’s review of the service contents and terms and conditions of BNPL platforms on the market, it was found that in the event of overdue payment, consumers need to bear various charges, whereas the account might even be suspended or terminated without being notified. Besides, a number of issues were found, such as limited customer service and support provided by the relevant platforms, lack of transparency for some terms, unclear liability between the platform and trader, disparate chargeback mechanisms, etc., casting much doubt on the protection of consumer rights. The Council reminds the public that BNPL products are in reality advance spending. Consumers should carefully examine the terms and charges involved, and should not overestimate their own repayment capacity which could result in overspending.
Concerned about regulatory issues for BNPL instalment payment products that are not provided by banks, the Council urges non-bank BNPL service providers to apply to the Companies Registry for the Money Lenders Licence, as well as reference the recent guidelines issued by the Hong Kong Monetary Authority (HKMA) to banks, so as to implement consumer protection measures as soon as possible.
BNPL Promoted as Interest Free but Might Include Other Fees
BNPL products have become available for small-value online transactions in recent years. To use the service, consumers simply need to open an account on the BNPL platform, enter their personal information, upload proof of identity for verification, and bind a locally issued credit card or debit card. When shopping at the online or physical stores of the BNPL platform’s partners, the consumer can then pay for the transaction amount in instalments within a designated period after collecting the goods. Generally, BNPL platforms do not require a proof of income or credit record check, hence appealing to consumers without a fixed income to apply for the services, such as freelancers, students, housewives, unemployed individuals, etc. Due to the low threshold of BNPL products, long-term use could lead to dependency and unintended over-spending. If consumers are unable to repay the bill, they might need to bear penalties due to overdue payment, while it might even affect their credit record.
BNPL platforms often tout interest-free payment by instalments, usually with a shorter repayment period of around 3 months. However, the Council reviewed the overdue payment terms and found that the terms varied across platforms, or involved charges under various pretexts, such as deferred payment administrative charge, account reactivation handling charge, etc., ranging from $50 to $300 or calculated as annual rates. The interest-free instalment period of some platforms was limited to the first 3 months, while a handling charge equivalent to 0.2% of the transaction amount would be charged for each subsequent month. The terms of some platforms showed that the administrative charges could be adjusted at their own discretion without any advance notice. If the consumer is unable to repay on time, the incurred charges could be quite hefty. The platforms could even commission a third party to collect the debts, as well as rejecting, suspending or terminating the consumer’s account with any given reason.
Platforms and Consumers –
Unequal Power Brings Doubt in Consumer Protection
Both the customer service and after-sales service of BNPL platforms have much room for improvement. In 2021 and between January to August 2022, the Council received 9 and 18 complaint cases relating to BNPL respectively. The complaints involved the traders failing to clearly explain their relationship with the BNPL platforms. As a result, the consumer might have used BNPL for their purchases without knowing that such services were provided by a third party. Besides, the Council found that many BNPL platforms operating in Hong Kong had headquarters based overseas, with some platforms only providing an email address for enquiries or complaints. After some consumers had their account frozen or wanted to cancel the transaction, they could not contact the relevant platform immediately, or only received a reply from a chatbot. Not only were they unable to receive timely assistance, the consumers also had difficulty seeking a refund. As the liability between the platform and the trader is unclear, they could easily shift responsibility when disputes arise, reflecting lack of safeguard for consumers.
Furthermore, the return and chargeback mechanisms varied among different BNPL platforms, placing consumers in a vulnerable position with questionable consumer safeguard. For example, some platforms stated that the refund would be processed only after the trader confirms and completes the goods return procedure; before confirmation by the platform, the consumer must proceed with completing the payment. Besides, requests involving refunds and returns might also need to be approved by the platforms.
BNPL platforms could also utilise artificial intelligence or data analytics, ranking consumers according to their information and offering different spending limits or even freezing their account. However, the decision factors would not be transparently communicated to platform users, which could be potentially unfair for consumers.
Many jurisdictions around the world have commenced consultation on the regulation of BNPL products in recent years. For example, the UK recommended that relevant platforms should review the consumer’s repayment ability before granting a loan; Australia published a code of conduct requiring platforms to strengthen monitoring of their current clients’ repayment capacity. As for Hong Kong, the HKMA issued a circular to banks on BNPL products in September this year, requiring the banks to implement a series of consumer protection measures, such as assessing the applicant’s credit status and taking into account their ability to repay before approving any applications for BNPL products; clearly and prominently disclosing that BNPL products are “credit products”, to avoid creating the impression that BNPL does not entail borrowing; disclosing relevant fees and interest charges in a clear manner; and listing out the relevant fees and interest charges in the calculation of Annualised Percentage Rate for customers’ reference, etc.
Although currently BNPL products provided by banks (including virtual banks) must comply with the HKMA’s guidelines for personal loan products, BNPL platforms that are not operated by banks are not bound by these guidelines. Besides, BNPL platforms currently do not have a standardised mode of operation. If the business of individual platforms involves providing loans to users, the platform must apply for a Money Lenders Licence in accordance with the Money Lenders Ordinance. However, the several mainstream BNPL platforms do not hold a Money Lenders Licence at present. The Council recommends BNPL platforms not operated by banks to apply to the Companies Registry for a Money Lenders Licence, as well as to reference the HKMA’s recent guidelines to banks in order to safeguard the rights of consumers.
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