Klarna to Report Payment Failures to Credit Agencies

The Swedish firm only offers accounts to those it deems able to pay on time, closing or freezing the accounts of those who miss too many payments. Photo: Thomas Trutschel / Photothek via Getty Images

Klarna has announced plans to notify credit bureaus if customers are missing or failing on their payments, it has been revealed.

The company buy now, pay later, which was recently valued at £ 7.5 billion ($ 9.9 billion), offers customers different ways to pay for the items they buy online, including by three installments or within 30 days, free of charge and interest. However, it currently does not report customers who are missing payments.

The Swedish company only offers accounts to those it deems able to pay on time, closing or freezing the accounts of those who miss too many payments or don’t pay at all.

Alex Marsh, the UK’s head of the company, told the BBC Radio 4’s piggy bank on Saturday: “What we are looking for in terms of consumer protection is to work with credit bureaus to enable reporting in the future.

“We work with debt collection agencies to support clients on payment plans. They [debt collectors] do not have the ability to report to credit reference agencies.

March added that deferred payment services such as Klarna, ClearPay and LayBuy are expected to be regulated by the Financial Conduct Authority (FCA).

“For now, with a complaint, we will deal with them the same internally. But once it has reached a certain stage, consumers will no longer have the right to appeal to the financial mediator, ”he added.

Buy Now, Pay Later services have been the subject of a lot of reviews in recent months, with numerous warnings that customers are losing control of their finances and going into debt.

READ MORE: COVID-19 Will Definitely Change The Way We Shop, Says Klarna CEO

Money guru Martin Lewis told MPs at a House of Commons select committee hearing this week that regulation was urgently needed.

He said: “It is absolutely the fastest growing form of credit and it is for those under 30. And if you forgive me, most of the decision makers are as young as 30 and that has gone under the radar. The advertising is done by influencers on Instagram, where they push the hashtag feelgood Klarna. This is fundamentally inappropriate for a credit product.

“My problem is, just like with payday loans, it will be too late. It is unregulated, unchecked in both product design and communications. When people have a problem – and it often works quite well – there’s no ombudsman you can go to because it’s unregulated. I would call at maximum speed to get this into the regulatory environment. “

The FCA and the UK Treasury Department are currently reviewing how the deferred payments market is regulated in the UK.

Klarna has around 10 million customers in the UK and opens 95,000 accounts per week. It has 85 million customers worldwide.

Founded in 2005, the company has raised over $ 1 billion (£ 760 million) to date and is one of Europe’s most valuable private tech companies. Backers include H&M, fund manager BlackRock, and even rapper Snoop Dogg.

Watch: Should I pay off my debts or save money during the coronavirus pandemic?

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