“Buy Now, Pay Later” (BNPL) Regulations and Related Laws in Bangladesh: An Overview

“Buy Now, Pay Later” (BNPL) financing has become increasingly popular globally, offering consumers the flexibility to make purchases upfront while deferring payments over time. Bangladesh, with its rapidly growing e-commerce sector and rising consumer demand, has seen a gradual adoption of BNPL options. However, this growth has led to calls for clear regulations and legal frameworks to govern BNPL transactions and protect consumer interests. This article explores the current regulatory environment, legal considerations, and potential challenges for BNPL services in Bangladesh.

1. Understanding Buy Now, Pay Later (BNPL)

Buy Now, Pay Later (BNPL) is a financing model that enables consumers to purchase goods or services upfront while paying in installments over a specified period. Unlike traditional credit systems, BNPL agreements often come with minimal or zero interest rates for short-term payments. BNPL options are widely used in Bangladesh for retail, electronics, travel, and other consumer goods.

Key components of a BNPL agreement include:

•Installment Terms: The number of installments and the total repayment duration.

•Interest and Fees: Many BNPL providers charge no interest for short-term payments but impose interest or late fees for longer payment periods or missed payments.

•Eligibility Criteria: Requirements vary, but providers typically assess creditworthiness or impose spending limits to manage risks.

2. Current Regulatory Framework Governing BNPL in Bangladesh

In Bangladesh, BNPL is relatively new, and there is no specific legislation targeting this financing model. However, various existing laws and regulations provide a basis for BNPL operations, primarily within the framework of consumer protection, financial services, and e-commerce regulations.

A. The Bangladesh Bank and Non-Bank Financial Institutions Act, 1993

Many BNPL providers work through partnerships with non-bank financial institutions (NBFIs) or banks. The Non-Bank Financial Institutions Act, 1993 and Bangladesh Bank guidelines regulate NBFIs, requiring them to meet specific capital adequacy, reporting, and transparency standards. Key provisions include:

•Consumer Protection: Bangladesh Bank requires financial institutions to follow fair lending practices, including clear disclosure of interest rates, fees, and other terms.

•Risk Management: Banks and NBFIs involved in BNPL schemes must follow risk assessment and management protocols to minimize default risk.

B. The Digital Commerce Policy, 2018

As most BNPL transactions occur in the e-commerce space, the Digital Commerce Policy, 2018 provides critical guidelines on online transactions. Key areas covered by the policy include:

•Transparency: E-commerce platforms offering BNPL options must display accurate product prices, terms of payment, and potential charges, ensuring consumers have full knowledge before committing to a purchase.

•Consumer Rights: The policy mandates fair treatment of consumers and prohibits fraudulent or deceptive practices, protecting consumers in BNPL transactions.

•Dispute Resolution: Platforms must have clear channels for customer complaints and dispute resolution.

C. The Consumer Rights Protection Act, 2009

BNPL transactions must comply with The Consumer Rights Protection Act, 2009, which safeguards against unfair trade practices and misleading information. This Act covers:

•Misrepresentation: Consumers have the right to truthful information on pricing, interest rates, and fees associated with BNPL purchases.

•Protection against Exploitation: The Act prohibits excessive fees or unfair practices, which could apply to certain BNPL late fees or penalty structures.

D. The Money Lending Act, 1940

The Money Lending Act, 1940 can apply to BNPL services offered directly by non-financial firms. BNPL providers who operate independently of formal banking or NBFI partners must comply with the money lending regulations, which include interest rate limits, reporting requirements, and fair lending practices.

3. Tax Implications of BNPL Transactions

The Income Tax Ordinance, 1984 and Value Added Tax (VAT) and Supplementary Duty Act, 2012 address taxation concerns for BNPL transactions:

•VAT on Sales: Retailers must charge VAT on BNPL sales, just as they would for regular sales transactions.

•Corporate Income Tax: Profits generated from BNPL interest or fees are subject to corporate income tax for BNPL providers.

4. Key Consumer Protections in BNPL Regulations

BNPL transactions carry risks for consumers, such as high-interest rates, penalty fees, and debt accumulation. To address these, consumer protections in Bangladesh include:

•Transparency of Terms: BNPL providers are obligated to disclose all fees, interest rates, and payment terms upfront, allowing consumers to make informed decisions.

•Cap on Late Fees: Bangladesh Bank or other relevant regulatory bodies may impose limits on late fees to prevent exploitative practices, ensuring that BNPL providers do not excessively penalize consumers.

•Data Privacy: The Digital Security Act, 2018, protects consumer data privacy, a critical aspect of BNPL services that rely on data for risk assessment and marketing.

5. Dispute Resolution and Legal Recourse

Disputes between consumers and BNPL providers are resolved through various legal avenues:

•Arbitration and Mediation: Many BNPL agreements include dispute resolution clauses allowing parties to resolve issues through arbitration or mediation.

•Legal Proceedings: Consumers may pursue litigation if they believe a BNPL provider has engaged in unfair or deceptive practices, seeking recourse through the Consumer Rights Protection Act or civil courts.

6. Regulatory Challenges and Future Outlook for BNPL in Bangladesh

While BNPL has enormous growth potential in Bangladesh, several regulatory and operational challenges exist:

•Lack of Specific Legislation: The absence of BNPL-specific regulations creates ambiguity for both providers and consumers, leading to inconsistent practices and potential legal issues.

•Over-indebtedness: BNPL services can lead to excessive debt, especially for consumers with limited financial literacy. Regulators may need to impose responsible lending standards or spending limits to protect vulnerable consumers.

•Need for Licensing: The rapid rise of BNPL providers outside the formal financial sector calls for licensing requirements to ensure accountability and adherence to industry standards.

Proposed Regulatory Measures for BNPL in Bangladesh

To address these challenges, the following regulatory measures could enhance the BNPL landscape in Bangladesh:

•Clear Licensing Requirements: Introducing licensing for all BNPL providers, including e-commerce platforms offering BNPL directly, would increase accountability.

•Interest and Fee Caps: Establishing limits on interest rates and penalty fees would protect consumers from exploitative practices.

•Mandatory Credit Checks: Requiring BNPL providers to perform basic credit checks could reduce default rates and prevent consumers from accumulating unmanageable debt.

•Enhanced Data Privacy Standards: Specific data privacy measures for BNPL providers would protect sensitive consumer information and improve trust in the industry.

Conclusion

“Buy Now, Pay Later” services offer significant benefits, from improved purchasing power to increased e-commerce sales, contributing to economic growth in Bangladesh. However, the lack of BNPL-specific regulations presents challenges, particularly around consumer protection, transparency, and financial stability.

As BNPL continues to expand in Bangladesh, a comprehensive regulatory framework will be essential to balance innovation with consumer protection and financial stability. By implementing clearer regulations and enhanced consumer protections, Bangladesh can foster a more sustainable and inclusive BNPL market, offering both convenience and security for consumers and businesses alike.