Buy Now, Pay Later-Lifesaver or Debt Traps: A Research into the Legal Uncertainties, Consumer Risks and the Future of FinTech Lending
Author : Dr. Malini N and Varshini Janardhana
Abstract :
The past years have seen drastic implementations and developments in FinTech, the introduction of the model of Buy Now, Pay Later (BNPL) has received rapid growth due to its option enabling the consumers to purchase the products and services without having to make the full payments at the moment. The BNPL offers instant credit to consumers who cannot use traditional banking processes to claim loans. While the model enhances the financial handiness, the expansion of these developments has led to immense regulatory challenges and significant exposure of consumers to financial risks. The lack of a classification of-whether BNPL should be considered as a loan, credit service, or payment mechanism-has led to ambiguity in the regulatory frameworks, and, loopholes in consumer protection.
This article explores the legal uncertainties surrounding BNPL, with a prime focus on consumer protection-debt accumulation of consumers, financial transparency, and hidden fees. Rather than relying on credit or debit cards, consumers are more likely to rely on the BNPL services spread across interest-free installments. Apart from legal uncertainties, the article emphasizes the Future of FinTech Lending, which would be deeply influenced by the stringent regulations placed for the BNPL. While the regulations might affect the smaller BNPL startups, they will lead to better consumer protection, enhanced financial stability, and long-term innovation in the digital lending space.
The BNPL operates in a very gray area in India since it is not classified either under loan or credit under the existing laws. The primary attempt to regulate these challenges was made by the Reserve Bank of India (RBI)-by introducing the Reserve Bank of India (RBI) Digital Lending Guidelines (2022-23) to enforce stringent Know Your Customer (KYC) norms, and mandating partnerships with Non-Banking Financial Companies (NBFCs), no automatic credit line extensions, no prepaid credit instruments for BNPL loans. The existence of the Consumer Protection Act, of 2019 [1], protects consumers from fraud, misrepresentation, and unfair practices. Banking Regulation Act, 1949 [2], where the BNPL providers must function only if they are licensed by the Reserve Bank of India (RBI).
This article further concludes by recommending equitable regulatory frameworks to provide the best innovations for consumers without any potential risks hidden in the BNPL.
Keywords :
FinTech, Buy Now Pay Later (BNPL), Reserve Bank of India (RBI), Finance, Credit Risks, Legal Challenges, Consumer Protection, Consumer Finance, Regulation.
