"Buy now – pay later". Many enterprises have chosen to allow this option of buying on credit in web shops through third-party providers. However, a new bill proposes making it much harder for enterprises to offer such credit. If the bill is adopted, it will mean that such "buy now – pay later" credit agreements will be regulated in the same way as other consumer credits agreements.
In recent years there has been a rise in the number of enterprises providing "buy now – pay later" credit agreements, offered free of interest and charge. However, even though such credit is offered at no interest or cost, consumers run the risk that even minor credit amounts may grow large, as the credit is subject to default interest and reminder fees if the consumer fails to observe the repayment plan.
Several politicians and organisations have been critical of such credit agreements, and the Danish Ministry of Industry, Business and Financial Affairs has paid special interest to developments in this area. Thus far, these credit agreements have not fallen under the scope of the Danish Act on consumer loan providers (lov om forbrugslånsvirksomheder) or the Danish Credit Agreements Act (kreditaftaleloven) like other traditional credit agreements (consumer loans), as this type of credit has been exempt from the provisions of these Acts.
Since at present the "buy now – pay later" credit agreements are not regulated, the relevant credit providers are not obligated to conduct any initial assessment of creditworthiness, etc.
That is what legislators now wish to change with a new bill proposing amendment of the Acts on consumer loan providers and credit agreements.
What do the amendments involve?
With the bill, the Danish Financial Supervisory Authority proposes that "buy now – pay later" credit agreements only in very particular cases will be exempt from the Credit Agreements Act and the Act on consumer loan providers.
As such, "buy now – pay later" credit agreements will be exempt from the Acts solely if they concern (i) purchase of goods or services (ii) offered free of interest and charges, (iii) allowing the consumer to pay for the goods or services at a point in time after conclusion of the purchase agreement, although no later than 90 days after conclusion, and (iv) only in the event that the enterprise itself offers such credit.
Since the current providers of "buy now – pay later" credit agreements often are third parties (e.g. Klarna), most "buy now – pay later" credit agreements will no longer be exempt from the two Acts if the amendments are adopted.
What are the consequences of the amendments for credit providers?
If the amendments are adopted, this will have various, radical consequences for enterprises that wish to continue to offer "buy now – pay later" credit agreements.
Relative to the Act on consumer loan providers, the amendments will mean that credit providers must comply with the request for conducting an initial assessment of creditworthiness, compliance with the APR cap and the cap on costs.
Relative to the Credit Agreements Act, the amendments will mean, for instance, that credit providers must observe their initial duties to obtain information, assess creditworthiness and generally observe their many obligations under the Act.
When may amendments take effect?
If the bill is adopted, the amendments will take effect on 1 January 2023.
The amendments will impact credit agreements concluded after the effective date of the Act. Consequently, "buy now – pay later" credit agreements concluded prior to 1 January 2023 will not be subject to the new rules.