Digital buy now, pay later services may make it easier to click “buy” when you’re shopping online. But when it comes to returns and refunds, using a BNPL lender can add a layer of complexity to the process of getting your money back.
“When we’re online shopping, sometimes what we receive at our doors is a bit of a surprise,” said Omar Ha-Redeye, a lawyer at Toronto-based Fleet Street Law. “When using buy now, pay later plans, the challenges with dealing with a return or a refund might be the bigger surprise out of the two.”
Apps such as Afterpay, Klarna, Sezzle and PayBright, which allow shoppers to pay for even small purchases in instalments, have seen their business soar during the e-commerce boom brought on by the COVID-19 pandemic.
As public health restrictions forced homebound consumers to do more of their buying online, Canada recorded an unprecedented $38-billion in online retail sales in 2020, up 74 per cent from the previous year, according to Statistics Canada. That trend held up in 2021, data from January to November shows.
But with more ordering online come more returns. U.S. retailers, for example, have seen merchandise returns climb to an average of nearly 17 per cent in 2021, up from nearly 11 per cent a year ago, according to a survey by the National Retail Federation and Appriss Retail. In Canada, returns average 15 to 20 per cent per category, Daniel Ornstein, a management consulting partner at KPMG Canada, said via e-mail.
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Returns, while costly for merchants, are also a nuisance for consumers. Often they come with only a partial refund, shipping costs and unwelcome trips to the post office. But using a BNPL provider can add to the pain, Mr. Ha-Redeye said.
With some lenders, consumers may have to temporarily keep making payments as set out in their BNPL agreements even after they’ve returned what they bought.
Afterpay, for example, warns users it may take several days for a merchant to process a refund. Until then, consumers are held to their original payment schedule, although they can postpone their next payment by up to two weeks, according to the company’s site.
The same is true for Uplift, which allows customers to pay for flights, cruises and vacation packages in instalments. The service has partnered with Air Canada, Porter Airlines and Sunwing, among others.
Shoppers may have an obligation to keep up with their payment schedule even if they believe the merchant didn’t uphold its end of the deal, Mr. Ha-Redeye said.
He recalled recently assisting a client who had halted payments after receiving an order that didn’t match the merchant’s product description. In response, the BNPL provider swiftly sent the client’s account to a collections agency, Mr. Ha-Redeye said.
As with credit cards, BNPL users usually have to bring up issues such as missing or defective orders directly with the merchants.
But while credit card customers who can’t resolve a dispute with a retailer may be able to initiate a chargeback, some BNPL providers have a more hands-off approach.
Afterpay, for example, says in its user agreement it is not responsible for resolving disputes between borrowers and merchants.
PayBright will investigate and work with the consumer and the merchant to reach a resolution, according to San Francisco-based Affirm, which acquired the Canadian BNPL lender last year.
PayBright also seeks to “avoid processing payments for merchant partners who have refund policies that we believe are likely to result in significant customer dissatisfaction or disputes,” the company said.
“Consumers really have to be very, very careful about which one of these plans they sign up for and what the terms and services are,” Mr. Ha-Redeye said.
Canadians can generally file a complaint against a business under their provincial consumer protection legislation, he said. They can also take the matter to small claims court, although they will likely face long backlogs created by the pandemic, he added.
In some provinces, such as Ontario and British Columbia, consumers who have paid for goods or services they didn’t receive – including travellers facing cancellations – may have legal ground to cancel their contract with the merchant and any other related agreements, said Gabor Lukacs, president of Air Passenger Rights, a consumer advocacy group.
But Mr. Lukacs added that he hasn’t seen any case law involving BNPL services.
Around the world, financial watchdogs are eyeing tighter rules for BNPL providers and better protection for consumers. Britain, for example, recently wrapped up public consultations on new rules for interest-free BNPL products. In the United States, the Consumer Financial Protection Bureau opened an inquiry into BNPL providers in December.
In Canada BNPL, providers are operating in a legal grey area, although the services are drawing scrutiny, Mr. Ha-Redeye said.
In a 2021 pilot study, the Financial Consumer Agency of Canada found that 36 per cent of surveyed BNPL users had trouble understanding how to resolve a potential dispute.
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Erica Alini