Class Action Says Klarna Fails to Disclose ‘Cash-Strapped’ Users Might Be Hit with Huge Overdraft, NSF Fees [UPDATE]
Last Updated on December 8, 2023
Edmundson v. Klarna, Inc.
Filed: June 2, 2021 ◆§ 3:21-cv-00758
Thousands of Klarna users have been deceived into using the buy now, pay later app as a result of misrepresentations and omissions, a class action claims.
December 8, 2023 – Klarna Insufficient Funds, Overdraft Fees Class Action to Be Sent to Arbitration
The plaintiff in the proposed class action detailed on this page was compelled to take her claims before an arbitrator after defendant Klarna filed a successful appeal with the United States Court of Appeals (USCA) for the Second Circuit.
Want to stay in the loop on class actions that matter to you? Sign up for ClassAction.org’s free weekly newsletter here.
In a 35-page order issued on November 3, 2023, a three-judge panel reversed the Connecticut federal court’s decision to deny Klarna’s August 2021 motion to send the allegations to arbitration.
In a 23-page order issued in February 2022, the Connecticut court found that the plaintiff was not bound by the mandatory arbitration provision in Klarna’s terms because the woman did not have “reasonably conspicuous notice” of or “unambiguously” agree to the service terms.
The appeals panel disagreed with the district court’s decision, arguing in its order that the plaintiff was presented with and consented to the company’s terms—which contained the arbitration clause—numerous times when she used the Klarna app and checkout widget. The USCA panel wrote that “the burden was then on her to find out to [sic] what terms she was accepting,” the document relays.
In the order, the USCA panel found that when purchasing a product via the Klarna widget, “a reasonable user could not avoid the notice of Klarna’s terms, which were hyperlinked in the statement, ‘I agree to the payment terms.’”
“Indeed, this statement was placed directly above the ‘Confirm and continue’ button, the interface was, as a whole, uncluttered, and the terms were presented at a time when a reasonable user would expect to receive them,” the order continued.
Though the panel conceded that the interface has certain flaws, “none of these deficiencies are fatal to our finding that, under the totality of the circumstances, the Klarna Widget provided, as a matter of law, reasonably conspicuous notice of Klarna’s terms, including the mandatory arbitration provision,” the document says.
As such, the USCA panel determined that the plaintiff did, in fact, agree to arbitrate her claims against the company and instructed the district court to grant Klarna’s motion to compel arbitration.
Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s free weekly newsletter here.
Thousands of Klarna users have been deceived into using the buy now, pay later app as a result of misrepresentations and omissions as to the “true operation and risks of the service,” a proposed class action claims.
The 13-page case says Klarna users, more specifically, have not been adequately informed of the real and repeated risk of incurring multiple insufficient funds (NSF) fees or overdraft fees from their banks as a result of automated transfers pulled from their checking accounts.
The lawsuit also alleges Klarna, one of the largest buy now, pay later services in the U.S., “specifically targets poor consumers and those struggling to make ends meet on a week-to-week basis” as its core constituency. Klarna’s representations that it can provide cash-strapped consumers with the ability to pay for purchases at a later date with “no interest, no fees and no hassle” are false in that they may be hit with huge, undisclosed fees and interest, the complaint alleges, claiming the risks of the service are known to the defendant yet intentionally left out of all of its marketing.
“Klarna’s services thus cause unsuspecting consumers like Plaintiff to incur significant overdraft and NSF fees on their linked bank accounts,” the case says. “Unfortunately, Klarna’s operation, along with its deceptive and incomplete marketing materials, means that users like Plaintiff end up paying huge amounts of fees and interest, which Klarna falsely assures users they will not receive.”
Per the case, Klarna, in “a rush to tout itself as convenient, simple, automatic, and free,” keeps hidden that overdraft and NSF fees are a “likely and devastating consequence” of using its service. Worse, the suit says, Klarna “exacerbates” the overdraft and NSF fee risk by using undisclosed processing choices—including reprocessing debits on the same or next day, when the defendant knows a user’s checking account is already negative—that cause users to incur even more bank fees than they would otherwise.
“Had Plaintiff and the Class members known of the true operation and risks of the Klarna service, they would not have used the Klarna service,” the suit asserts.
The defendant, founded in Sweden in 2015, has expanded to 17 countries and serves 90 million shoppers, the case says. The service works when a consumer, at check out at an in-person or online store, accepts a Klarna loan as an alternative to other, traditional payment methods, per the complaint. Those who choose to use Klarna provide basic personal details, including a debit card number, and get charged for the first payment for a purchase and then automatically charged for the rest every two weeks until the balance is paid in full, the lawsuit says
Although consumers are told there is no “catch” to use Klarna, the case says there’s “a big one” in that they may incur huge amounts of interest in the form of overdraft fees assessed by banks. According to the suit, the same group of consumers who suffer the most from banks’ overdraft charges—i.e., those living paycheck to paycheck—are the same users Klarna knew or should have known face the highest risk of being saddled with huge fees.
“In short, the entire premise of Klarna is to provide immediate access to goods and services and avoid bank fees and interest charges,” the case reads. “That is why consumers are shocked to discover that Klarna causes significant bank fees and interest charges.”
The suit looks to cover all persons who’ve used the Klarna service and incurred an overdraft or NSF fee as a result of a repayment deduction from their checking account.
Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s free weekly newsletter here.
Hair Relaxer Lawsuits
Women who developed ovarian or uterine cancer after using hair relaxers such as Dark & Lovely and Motions may now have an opportunity to take legal action.
Read more here: Hair Relaxer Cancer Lawsuits
How Do I Join a Class Action Lawsuit?
Did you know there's usually nothing you need to do to join, sign up for, or add your name to new class action lawsuits when they're initially filed?
Read more here: How Do I Join a Class Action Lawsuit?
Stay Current
Sign Up For
Our Newsletter
New cases and investigations, settlement deadlines, and news straight to your inbox.
Before commenting, please review our comment policy.