5 October 2023
“Buy Now, Pay Later”: Assessment of Risks and Remedies
A new financing formula, known as “Buy now, pay later” (or “BNPL”) is steadily making its presence felt on the Canadian consumer landscape. Unlike the model offered by traditional financing companies, BNPL permits consumers to obtain financing for small purchases. The emergence of this new formula, offered by “fintechs” such as Sezzle, Affirm, Afterpay and Klarna, raises numerous questions, particularly as they relate to consumer protection.
In our study, we examined the risks associated with credit and indebtedness, recourse in cases of dispute, and consumer literacy regarding the phenomenon.
Accordingly, our study led us to consult the relevant regulations in force, the contracts/ agreements of these companies and the information posted on their websites. We supplemented our data by holding two focus groups, one in Québec and one in Ontario. This procedure revealed important discrepancies between, on the one hand, the relevant legislation in force and the content of the contracts/agreements, and, on the other, between consumers’ perceptions and the actual content of the agreements and regulations.
For example, when it came to credit and indebtedness, our research revealed difficulties of interpreting "Buy now, pay later" agreements as credit contracts, due to general vagueness and the diversity of practices, particularly with regard to fees and whether these companies have a lender’s license. One consequence was that credit provisions to protect the consumer from excessive indebtedness were not always included in the agreements. Other practices, such as NSF charges, loan stacking or entries in the consumer’s credit file also gave cause for concern.
As regards recourse and dispute resolution, our research brought to light the need for an effective service to assist consumers in resolving their problems, the existence of certain clauses that might limit consumers’ access to justice, and the need to clarify the applicability of chargebacks to this phenomenon.
Ultimately, our research revealed the need to improve consumer literacy about these new financing products.