Beware 'buy now, pay later' ads
We've all seen the ads: "Don't pay a cent for 18 months," and "No payment, no interest!" But are the deals really as great as they appear to be, or can they end up costing you even more than the item itself?
The answer to both is yes. If you play by the rules and are very careful, deferred payment, deferred interest plans can save you money. If you don't stick right to the letter of the agreement you signed, though, you could end up paying big.
Deferred interest loans allow you to make interest-free payments on financed items for a certain period, generally anywhere from three to 18 months. You've probably seen such offers at retailers such as The Brick, Home Depot or other places where big-ticket items are sold.
However, once the period is up, if you have a balance remaining, the interest rate on it skyrockets. Plus, you'll have to pay back all the interest you avoided during the promotional period. For a one-year contract, those costs add up.
"A lot of people go
over the one year [deadline] and don't realize
there's a clause that says you then pay the full interest rate you would have paid for that year," said Bruce Cran, president of the Consumer's Association of Canada (CAC).
Many retailers offer both
deferred interest and deferred payments --
that means pay nothing on the item upfront, just make sure the full balance is paid by the time the deal ends. But what they don't tell you is that you may have to pay other upfront fees, such as
"administration fees," "processing fees," taxes or delivery charges.
Breaching your contract is
Of course, many people simply forget when the deadline is. But even those who make all payments on time can default through no fault of their own -- and they still have to pay the consequences.
"We've had complaints that even though payments were sent in they were either delayed in their processing or they weren't put in there at all," Cran said. This happens for two reasons. Sometimes, you end up paying the wrong company. As soon as you sign the contract, the company sells it to somebody else, he said.
"Sometimes you can make payments to the furniture company and they don't pass it on to the finance company," he said. "Those can be rectified, but you've got to go into it pretty deeply."
The second problem occurs when there's a delay between when you pay and when your payment clears. "I've seen cases when people made the payment and got a receipt dated a day or two before, but the company has some fine print that says the payment won't be deemed to be received until it's cleared the bank," said Cran.
Unfortunately, according to Cran, there's really nothing the association can do if a mistake results in you breaching your deferred interest plan.
"We explain the situation and refer customers to the Consumer Protection Branch of the province in which they live," he said. "They can state their case there but ... their mistake was made the year before when they signed that contract, first of all, and secondly when they defaulted on the payment. If the contract they sign is legal and hasn't been violated, there's nothing they can do."
The best thing to do is make sure you understand the full terms of your contract before you sign anything, and then make sure you follow the rules exactly. Cran said in some provinces businesses are required to show you a calculation of the interest rate, so it's always wise to know if your province is one of them. Don't be afraid to ask questions before you sign if there is anything you don't understand.
"Don't assume the [advertising] claim corresponds to the agreement that you're being asked to sign," competition and advertising lawyer Steve Szentesi said.
"No matter how much we tell people to read contracts a very high percentage get caught up in the moment and don't do it at all," Cran said.
If you have to finish payments before a certain date, set yourself a deadline of one month before that date. It's easy to forget a date a year or more in advance, so activate reminders on your phone or write it down in a calendar so you don't forget.
Another issue is some companies argue deferred payment expenses are financing costs that should be excluded from the sale price because they're not directly related to the product or service provided.
Szentesi maintains that competition law and sections of the Competition Act don't support that fine distinction. "A deceptive ad is literally a claim to the public that's either false or misleading to promote a product or a business interest and is material -- that is, likely to cause a consumer to buy your offering. Regardless of what any contract says, advertising law may -- and often does -- require more upfront disclosure before a consumer purchases or checks out. Advertising law and contract law are often two different things."
Consumers who fall victim to unfair marketing practices have several legal remedies, according to Szentesi:
- File an oral or written complaint with the Competition Bureau, an independent enforcement agency.
- Contact your provincial or territorial consumer protection office.
- Launch a private civil action lawsuit, either singularly or as a class action. This option is usually reserved for extreme cases.
- Finally, you can approach the Better Business Bureau with your case.
Additional reporting by Daniel Workman and Georgie Binks.
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