Beware of payment services in three or five payments

Services or apps like Sezzle, Afterpay, Klarna or Affirm allow you to pay for your makeup or jeans in several installments. Beware of the terms of use.

Technology companies that provide financial services, or fintechs, define themselves as a means of payment, not lenders. The resulting legal ambiguity opens the floodgates to credit terms that harm consumers.

However, the latter love these services, as evidenced by a study conducted by Option Consommateurs that was just published. They like the ease of use: You shop online or using your phone, and go to a virtual checkout where you are presented with several payment methods, including these services.

You pay the bill in three, four, five, or even nine payments over several weeks, without fees or interest. You decide where the funds will be withdrawn (credit or debit card). Easy as pie.

When things go wrong

When the deal goes smoothly, everything is fine. When promises are not kept, things become 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 bad, they’re based in China or Bangladesh, or they illegally tell you you have to agree to messaging?

“You cannot benefit from a credit card chargeback, because the transaction was made using financial technology, even if the money was withdrawn from your card,” explains M.^H Clarice Nka, a lawyer at Option Consommateurs and author of the paper.

To make matters worse, consumers often complain about the poor quality of customer service provided by fintech companies.

On the other hand, if the funds are not available when you pay, it may cost you dearly. If you buy a $35 mascara and are charged a $7.50 deferral fee, your makeup is costing you an arm and a leg.

Worse still: In the event of a shortfall in funds (or NSF), your financial institution may charge you a $35 fee. and fintech by a similar amount. Paying a $70 fee on a $35 mascara…

Some fintech companies also charge a $15 fee to reactivate an account. Additionally, a late payment or missed payment can affect your credit report. Only Affirm clearly writes this in their terms of use.

The problem is that no one reads them. However, the consequences can be unfortunate, such as having to deal with a collection agency for a pair of jeans or headphones. If this is your case, your credit report is likely damaged.

advice

• Option Consommateurs view these fintech companies as a risk of over-indebtedness: double up on purchases and have a series of payments to make in the coming weeks. It is often difficult to navigate.

• If you lose your job and have all these payments to make, it seriously complicates your life.

• It is best to pay in cash or use your credit card and have the balance reach zero when due. This way you can stay in control.