A “buy now, pay later” company promoted by social media influencers and reality TV stars is set to introduce late fees for customers within weeks.
Klarna, which is backed by Love Island star Molly Mae, among others, will carry out penalty payments in the UK from March 16.
It means customers who miss payments will be hit with a £5 late payment surcharge, in a move debt experts fear could be a ‘real problem’ for struggling families.
Klarna has insisted that customers are not unfairly stung, and the company added that it has set up a new financial support service to get those who are “behind on payments” back on track.
With ‘Buy now, pay later’ consumers can buy products on account and pay later, or split over several payments.
Molly Mae (pictured) is one of the social media influencers who promoted Klarna online
The programs can help families pay for essentials if used responsibly, but critics have raised concerns about how easily they make it easy for people to rack up debt.
Klarna previously did not issue fines for late payments in the UK. Instead, customers’ credit scores could be compromised.
Alex Marsh, head of Klarna UK, said: ‘Not charging feels customer-friendly, but we’re concerned it will lead to wrong behavior and our data now shows that a total absence of late charges actually leads to less favorable outcomes for customers: With less reason to pay on time, customers are more likely to fall behind.
‘It’s like a city without parking fines; it sounds great, but turns out not so great in practice.’
Klarna already has similar rates in other countries, including Belgium and the Netherlands.
Under the new UK scheme, customers are now given a seven-day grace period, with a minimum of four reminders sent before the first fine is issued.
Klarna said customers will not receive more than two charges per order, so if multiple payments are missed, customers cannot be charged more than £10.
There will be no further charges for those who miss two payments, with a maximum of 25 percent of the cost of the order for lower value purchases. No interest is charged on missed payments.
Klarna claimed that a YouGov survey found that 75 percent of UK customers were more likely to pay on time if there was a late fee.
But debt expert Sara Williams, who works at Debt Camel, has warned that the introduction of fines could push struggling families over the edge.
Klarna said it will introduce a financial support scheme to help customers falling behind on their payments – and will limit penalty amounts
“Klarna’s big selling point has always been no interest and no late fees,” she said The sun.
“Many people use Klarna for a lot of small purchases, sometimes for essentials.
“Adding a late fee of £5 per purchase will be a real problem for people who are already struggling.”
However, James Daley, managing director of Fairer Finance, said he was “satisfied” with the new fees.
“When used responsibly, late fees are an important deterrent and a reminder that buy now, pay later is a form of credit and should be taken seriously as a loan,” he added.
The changes come amid concerns from a financial watchdog about how “buy now, pay later” companies advertised by social media influencers could mislead consumers by failing to warn them of the risk of debt.
The Financial Conduct Authority (FCA) warning came after supermarket Iceland was criticized for ‘exploiting’ customers after announcing its own interest-free loan options it claimed would help shoppers amid the cost crisis of livelihood.
The FCA alleged that companies could commit a criminal offense for misleading and harmful advertising by failing to warn of the risks of taking on debt they cannot pay, the FCA said.
Love Island star Molly Mae (pictured) is one of the influencers previously paid to promote Klarna to their followers
The warning comes after supermarket giant Iceland announced its own interest-free loan options last year, which it claimed would help shoppers with their grocery needs amid the worsening cost-of-living crisis.
Social media influencers such as Molly Mae of Love Island – who has 7.4 million followers on Instagram – have advertised the “buy now, pay later” schemes on social media without including risk warnings.
In an Instagram post in August 2022, Molly Mae shared a photo of herself in sportswear with “@klarna ad” in the caption, but there seemed to be no warning to her millions of followers about the risks of going into debt.
The FCA raised concerns about financial advertising on websites and social media, including “influencers” promoting such products, which could violate legal regulations.
Klarna’s new late payment scheme brings it in line with other big buy now, pay later schemes, where Laybuy and Clearpay already charge a £6 penalty.
Klarna said it will use the fees collected to fund its customer recovery program, which will begin later this year.
It will offer the financial firm to forgive 50 percent of the balance of eligible customers who have fallen into arrears, rather than bailiffs being called in.
The company is also introducing an autopay feature to its Pay in 30 days scheme, allowing customers to set up payments to be automatically debited from their account.