Services or applications like Sezzle, Afterpay, Klarna or Affirm allow you to pay for your makeup or jeans in multiple installments. Please note the terms of use…
These technology companies that offer financial services, or fintechs, define themselves as a means of payment and not as a lender. The resulting legal ambiguity opens the door to credit conditions that disadvantage consumers.
However, the latter love these services, as evidenced by a study just published by Option Consommateurs. You appreciate the ease of use: you shop online or with your phone, go to the virtual checkout, where you are offered several payment methods, including these services.
You pay the bill in three, four, five or even nine installments in as many weeks as you like, without fees or interest. You decide where the money will be debited (credit or debit card). Dead easy.
When things go badly
If the transaction goes smoothly, everything is fine. When promises are not kept, things get complicated.
For example, if you do not receive your purchase or want to return it, you must reach an agreement with the seller. What happens if their service is crap, they’re based in China or Bangladesh, or they illegally tell you that you have to consent to the messaging service?
“You cannot benefit from the chargeback to the credit card because the transaction was carried out with the fintech, even if the money is debited from your card,” explains Me Clarisse N’Kaa, lawyer at Option Consommateurs and author of the study.
To make matters worse, consumers often complain about the poor quality of customer service provided by these fintechs.
However, if the money is not available at the time of payment, it can be costly for you. If you bought $35 worth of mascara and are charged a $7.50 deferred payment fee, your makeup is costing you a fortune.
Worse, in the event of a lack of funds (or NSF), your financial institution could charge you a $35 fee. And fintech at the same rate. I pay $70 in fees for $35 worth of mascara…
Some fintech companies also charge a $15 fee to reactivate an account. Additionally, a late or missed payment can affect your credit report. Only Affirm states this clearly in its terms of service.
The problem is that no one reads them. However, the consequences can be unfortunate, such as having to deal with a debt collection agency for a pair of jeans or a pair of headphones. If this happens, your credit report is likely corrupted.
Advice
• Option Consommateurs considers these financial technology companies to be at risk of over-indebtedness: they multiply their purchases and have to make a series of payments in the coming weeks. It is often difficult to find your way around.
• If you lose your job and have to make all those payments, your life will become seriously complicated.
• It is best to pay in cash or use your credit card and bring the balance to zero when it is due. This is how you stay in control.