Afterpay, Affirm, Sezzle and Klarna are technology companies popularizing “Buy now, pay later”, also known as deferred payment. By partnering with merchants, they offer to pay in several installments for purchases as small as clothes or makeup. However, the legislation in place in Quebec does not sufficiently protect consumers from the possible abuses of this method of financing, according to the organization Option consommateurs. Following the publication Thursday of their study on the issue, the organization recommends that Quebec act.
“Most of these companies present themselves as alternatives to credit,” reports the author of the report, entitled “Buy now, pay later”: review of risks and remedies. Lawyer Clarisse N’Kaa analyzed the information conveyed on the websites, conditions of use and contracts of the four fintechs named above. Discussion groups were also conducted in Quebec and Ontario with people who had used it.
Me N’Kaa believes that these products should nevertheless qualify as credit under the Consumer Protection Act, which aims in particular to protect citizens against over-indebtedness. The proposed formula generally corresponds to automatic withdrawals from a checking account or credit card. Although many of these companies advertise their services as fee-free, the reality is that they often charge late payment fees, application fees and even interest rates.
But a certain legal confusion seems to reign on this subject in Canada, so much so that “these products are offered somewhat haphazardly, without necessarily respecting the rules relating to credit contracts,” notes the analyst. For example, at the time of his research, only one of the four companies involved had a money lender license from the Consumer Protection Office.
“These permits allow control over the practices of these companies, for example by excluding those which are not serious and which could use prohibited practices, such as making misleading representations,” reports Me N’Kaa. She points out that Klarna is also the subject of a class action lawsuit in the United States alleging that certain costs were hidden.
Risky practices
Other dangerous practices observed include the ability to accumulate many different loans, the imposition of non-sufficient funds fees in addition to those charged by banks, and direct and unrestricted access to bank accounts for collections. Option consommateurs believes that vulnerable people are likely to be hit hard.
Furthermore, since many transactions are carried out online, the customer could be dissatisfied with their purchase and want to return it. They might also not receive the product in question due to a delivery problem. If the consumer fails to be reimbursed by the merchant or the provider of the deferred payment service, he risks finding himself without recourse, estimates Me N’Kaa. “I don’t think chargeback could work, that is, turning to your credit card issuer to get reimbursed,” she warns.
As a solution, Option consommateurs suggests that the Quebec government clarify the section on credit contracts of the Consumer Protection Act, for example section 66, to unequivocally subject deferred payment services to it.
At the time of writing these lines, the office of the Minister of Justice, Simon Jolin-Barrette, to whom the Consumer Protection Office reports, had not responded to questions from the Duty.