Earlier this week, Carlton Fields released its annual class action report, in which it predicted that consumer fraud claims would “soar” in the coming year.
While the report specifically called out companies’ use of social media, denial of medical claims, and debt collection practices as drivers of that trend, another strain of consumer protection litigation appears to be emerging.
Law.com Radar editors have noticed an uptick in consumer lawsuits challenging “buy now, pay later” features on e-commerce websites and targeting companies like Klarna, Affirm and PayPal.
The three class actions surfaced by Law.com Radar over the past year allege that companies offering ”buy now, pay later” options fail to disclose to customers unfavorable loan terms and the risk of incurring significant fees if lendees fall behind on payments.
Filed in federal courts in Florida, New York and Connecticut, each of the lawsuits brings claims under state consumer protection laws.
>> On Tuesday, PayPal Holdings was slapped with a consumer class action Tuesday in California Northern District Court over its “Pay in 4″ buy now, pay later service.
The complaint, brought by KalielGold and Edelsberg Law on behalf of users who were charged overdraft fees, claims that PayPal markets the offering to “poor consumers and those struggling to make ends meet on a week-to-week basis” and fails to disclose the risk of incurring significant fees.
Additionally, the complaint accuses PayPal of operating the service in a way that compounds overdraft charges.
“To that group, PayPal purports to offer a solution to cash-strapped consumers: PayPal prominently markets Pay in 4 as a service that allows users to pay for purchases at a later date, with no interest, no fees and no hassle. These representations are false,” the complaint alleges. “In fact, there are huge, undisclosed fees and interest associated with using the service.”
That language and large portions of the rest of the complaint are lifted verbatim from a class action complaint filed last June by different plaintiffs firms against Klarna, an e-commerce payment options provider based in Stockholm. That case was filed in the U.S. District Court for the District of Connecticut. The identical language in these two cases suggests that this type of litigation may be widely replicable.
The complaint against Klarna was filed by Hayber, McKenna & Dinsmore and the Kick Law Firm on behalf of individuals who used Klarna and incurred a bank overdraft fee as a result of an automated Klarna payment. The case is 3:21-cv-00758, Edmundson v. Klarna Inc.
>> Also last June, Affirm, a microlender that offers “buy now, pay later” loans to retail shoppers, was hit with a class action in the U.S. District Court for the Southern District of New York over alleged violations of consumer protection laws.
The complaint, brought by Sheehan & Associates on behalf of New York borrowers, alleges that Affirm positions its loans as an alternative to paying by credit card without disclosing less favorable terms. The case is 7:21-cv-05241, Shephard v. Affirm Holdings Inc.
“Affirm touts itself as an alternative to ‘traditional’ lenders like credit cards, payday loans and banks,” the complaint alleges. “However, the interest rates charged through Affirm exceed most credit cards, without any of the protections of this regulated form of payment.”
Affirm Holdings is represented by Stroock & Stroock & Lavan. Last fall, Affirm moved to compel arbitration in the case and the plaintiffs opposed that motion in December. There’s been no movement in the case since then.
In the Klarna case, meanwhile, U.S. District Judge Sarala V. Nagala of the District of Connecticut in February rejected the defendant’s attempt to compel arbitration.
Nagala said the Klarna’s app’s introductory screen is “simply too puzzling for the court to find that it would have provided a reasonable user with inquiry notice of Klarna’s terms and conditions.”
According to Nagala, the screen features text stating, “‘By clicking ‘Sign in’ I approve Klarna’s User Terms and confirm that I have read Klarna’s Privacy Notice.’”
However, the only clickable buttons on that screen are labeled “Sign up,” “Log in” and “Pay in-store.”
“Klarna argues that such a typographical error would not prevent a reasonable user from understanding that by proceeding, the user was agreeing to the terms and conditions,” according to Nagala’s opinion.
But the judge rejected that contention.
“…[B]y referencing a ‘Sign in’ button when none exists, Klarna has created significant confusion over which button or buttons would commit the user to the User Terms and, as relevant here, the arbitration agreement,” Nagala wrote.
Klarna is represented by O’Melveny & Myers.