Klarna Fails to Disclose ‘Massive’ Overdraft Fee Risk of ‘Buy Now, Pay Later’ Service, Class Action Says

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A proposed class action claims Klarna has misrepresented its “buy now, pay later” service by failing to disclose the “real and repeated risk” that users will incur massive overdraft fees stemming from automatic withdrawals from their bank accounts.

The 17-page case alleges that although Klarna advertises its installment payment service as free, with no hidden interest or fees, these representations are false. According to the suit, Klarna, whose service allows shoppers to break up purchases into four installments to be repaid at a later date, fails to disclose the “massive risk” that users will incur insufficient funds (NSF) and overdraft fees from their banks when the company debits their linked accounts.

“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,” the complaint alleges. “In its rush to tout itself as convenient, simple, automatic, and free, Klarna does not disclose that overdraft and NSF fees are a likely and devastating consequence of the use of its service. No reasonable consumer would run this risk.”

Further, the lawsuit claims that Klarna specifically markets its services to low-income consumers and thus “knew or should have known” that users were at an “extreme risk” of incurring expensive overdraft fees.

Per the suit, Klarna markets its service as a “completely free” way for consumers to make online and in-store purchases and pay for them later without incurring any interest. The case says that at the point of sale, a customer is offered a Klarna loan as an alternative form of payment and simply provides the company with basic personal details and debit card information. Klarna breaks up the total purchase amount into four smaller payments, with the first installment due at checkout and the remaining three deducted from the user’s bank account every two weeks, the suit relays.

At no point in the sign-up process, or anywhere in Klarna’s marketing materials, are consumers warned of the “true risks” of using the service—namely, that it is likely they will incur massive overdraft and NSF fees when Klarna makes automatic deductions from their bank accounts, the filing says.

The lawsuit claims that because Klarna positions itself as a means for customers to obtain immediate access to goods and services while avoiding bank fees and interest charges, users are “shocked to discover” that the service causes them to incur significant fees and interest charges.

Moreover, the complaint contends that Klarna exacerbates this risk by reprocessing debits on the same or next day, when the company is aware that a user’s account is already negative.

The plaintiff, a San Diego, California resident, says he would not have used Klarna had he known the small automatic repayments would cause him to incur $29 overdraft fees from his bank. According to the suit, the plaintiff had no idea that Klarna would process transactions when users had insufficient funds in their accounts.

“Klarna’s marketing never discloses the most devastating risk of using the service—that days of earnings can be wiped out by bank fees associated with using the service,” the lawsuit states.

The suit looks to cover anyone who used the Klarna service and incurred an overdraft or NSF fee as a result of a Klarna repayment deduction.

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