Class Action Says Klarna Fails to Disclose ‘Cash-Strapped’ Users Might Be Hit with Huge Overdraft, NSF Fees [UPDATE]

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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.

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