Klarna Financial Services UK Limited · DRN-6120528

The complaint Mr S complains Klarna Financial Services UK Limited (“Klarna”) made unfair repayment demands in relation to a loan agreement after he lost his job. What happened On 27 November 2021, Mr S bought a games console from a retailer (which I’ll call “R”) with a 0% interest fixed-sum loan provided by Klarna. Under the agreement, Mr S had to make 24 monthly repayments of £28.99, totalling £695.76. On 30 January 2022, Mr S told both R and Klarna that he wanted to return the goods and cancel the agreement because he had lost his job and could no longer afford the loan. R and Klarna declined his request because they considered it had been made too late. Mr S then made the January, February and March 2022 monthly payments, bringing the unpaid balance to £608.79. But because he remained out of work and said he could not afford further payments, Klarna paused his repayments for 90 days from April 2022. Because Mr S remained unemployed and had no income, Klarna agreed a number of further payment pauses over the next three years, sometimes up to six months at a time. On 12 March 2025, Klarna agreed one final 90-day payment pause, to give Mr S time to seek debt advice. That pause ended on 10 June 2025. Between April 2022 and June 2025, no interest or charges were added, so the unpaid balance remained at £608.79. Mr S complained to Klarna on 8 September 2025, and added additional complaint points on 5 October 2025. In summary, he said: • Klarna should have cancelled the agreement when he asked to return the console. • He was unable to access his account in 2022 for a period and didn’t receive arrears notices, which he says meant the agreement became unenforceable. • Klarna should not have demanded repayment after he complained, which he additionally says was disproportionate given his financial difficulties. To put things right, he asked Klarna to write off the balance or reduce the amount he owed. In its final response dated 6 October 2025, Klarna didn’t uphold the complaint. It didn’t think Mr S had a valid claim under section 75 of the Consumer Credit Act 1974 (“section 75”), and it thought it had provided appropriate support once Mr S fell into financial difficulty. Klarna sent Mr S a default notice dated 19 October 2025. It said if he didn’t repay the arrears by 5 November 2025, Klarna would terminate his agreement. Mr S made no further payment and Klarna terminated the agreement and referred the balance to a debt collection agency. Our investigator thought Klarna acted fairly for broadly the same reasons as Klarna. As Mr S disagreed, the complaint has come to me for a decision.

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What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’m aware I’ve summarised the complaint briefly and in my own words. No discourtesy is intended by this. Instead, I’ve focused on the points that go to the heart of the matter. If there’s something I’ve not mentioned, it isn’t because I’ve ignored it. Instead, I’m satisfied I don’t need to comment on every individual point or argument to be able to reach what I think is a fair outcome. Our rules allow me to do this. This simply reflects the informal nature of our service as a free alternative to the courts. It’s also important to note that Klarna didn’t supply the games console. Its role is limited to what would reasonably be expected of it as a provider of financial services. In that respect I consider section 75 to be potentially relevant here. Additionally, I need to consider whether Klarna acted fairly while asking Mr S to repay his loan, given his financial difficulties. Section 75 Consumer Credit Act 1974 If a consumer buys goods or services on credit, section 75 can sometimes make the credit provider equally responsible for a breach of contract or misrepresentation by the supplier (R). Certain technical criteria must be met for section 75 to apply. I’m satisfied they are met. Mr S hasn’t referred to any “misrepresentation” by R, and there’s no evidence of a misrepresentation. So I won’t expand on this further. Instead, I’ve focused on Mr S’s claim that he returned the games console within R’s returns period, and R’s refusal to take the console back amounted to a breach of contract that Klarna is equally responsible for. The evidence I have suggests Mr S received the console on around 27 November 2021 and asked to return it on 30 January 2022, around 64 days later. But under R’s terms, R allowed him 28 days to request a return. I also haven’t seen any wider contractual or statutory right that gives Mr S the right to return the console outside the 28-day returns period. In those circumstances, I don’t think R acted in breach of contract by refusing the return. I understand why Mr S wanted to unwind the transaction after he lost his job. But his change in circumstances didn’t, by itself, contractually obligate R to accept his return request outside R’s returns period. So I don’t think Klarna acted unfairly by declining his section 75 claim. How Klarna treated Mr S between April 2022 and June 2025 Once Klarna became aware Mr S was in financial difficulty, it needed to treat him with forbearance and due consideration. The Financial Conduct Authority’s Consumer Credit Sourcebook (“CONC”) says that can include deferring payment, or accepting no or reduced payments for a reasonable period. Any arrangement must be sustainable. I’ve looked carefully at how Klarna treated Mr S, once it became aware of his financial difficulties in early 2022. Based on the correspondence between the parties, it appears Klarna generally followed the same process before deciding to offer Mr S a payment pause. Each time Mr S requested a payment pause, Klarna got him to fill out a “hardship” form, to get an idea of Mr S’s income and expenditure. Mr S would confirm that he doesn’t have a job and that his income is £0, following which Klarna would offer a payment pause of up to six months. Each time, Klarna warned Mr S that he would still receive arrears notices, and that his credit file would be impacted. Mr S agreed to the payment pauses offered.

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After carefully considering Klarna’s regulatory obligations, I find that Klarna’s payment pauses were a fair way to address what Mr S often described as a temporary loss of income. I appreciate he hadn’t found a job in several years, but at the point each pause was granted, I don’t think Klarna unreasonably concluded there was a prospect of Mr S returning to work. This was also a 0% interest loan, and no further interest or charges were added during that period. So although the balance remained outstanding, it didn’t increase. In the circumstances, I think Klarna gave Mr S substantial and meaningful forbearance between April 2022 and June 2025 and treated him fairly. I’ve come to that conclusion while bearing in mind Mr S’s concerns in 2022 relating to accessing his account and receiving arrears notices. That’s because even if I accept Mr S had issues accessing information about his loan, I don’t think him having access to the information would have likely made any material difference to how events had played out. Between April 2022 and June 2025, Mr S was unemployed and would have still likely agreed to the payment pauses, which he had managed to arrange without incurring any charges. In that time, his unpaid balance remained the same and his financial burden hadn’t increased. So I don’t think there’s any material detriment for Klarna to remedy during this period. Termination of the loan agreement As Mr S’s main concerns relate to how Klarna acted after the final payment pause ended on 10 June 2025, I’ve carefully considered Klarna’s actions after this date. Klarna said it gave Mr S numerous payment pauses over several years and, in line with its new policy, Klarna was unable to pause the payments any further. It had also considered putting Mr S on a reduced repayment plan instead, but as Mr S’s income was still £0, it concluded a reduced repayment plan was inappropriate. I don’t think Klarna acted unfairly here. While Klarna must treat customers in financial difficulty with forbearance and due consideration, that doesn’t mean it had to keep the repayments paused until such time as Mr S was able to repay the loan. On the contrary, where a firm accepts no payments as a forbearance measure, CONC 7.3.5 states this should be for a “reasonable period of time”. I think Klarna was entitled to conclude that several years of payment pauses more than fulfils this requirement and refuse further payment pauses. I also don’t think Klarna acted unfairly by deciding a reduced payment arrangement wasn’t appropriate when Mr S’s income was still £0. In those circumstances, there was no evidence of disposable income from which any genuine repayment plan could be sustained. Guidance issued by the Information Commissioner’s Office (“ICO”) in collaboration with the credit industry allows lenders to take steps towards recording a default with the credit reference agencies (“CRAs”) once an account — that is no longer subject to an arrangement such as payment pause — reaches three months in arrears. And as Mr S hadn’t made any repayments towards his loan since March 2022, and made no further payment after the final payment pause ended on 10 June 2025, I don’t think Klarna acted unfairly by then taking steps towards terminating the agreement. I can see Klarna sent Mr S several arrears notices and a final default notice before it terminated the loan agreement, all of which I can see were addressed to his current address. These include several arrears notices sent at roughly six-month intervals across 2022 and 2025, a letter dated 22 September 2025 stating that Mr S didn’t have a connected bank

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account, and a default notice sent on 19 October 2025, demanding that Mr S repay his arrears by 5 November 2025. Klarna sent a final termination letter on 5 November 2025. Having regard to the relevant rules, I haven’t found anything to indicate Klarna acted unfairly by terminating the agreement, especially given Mr S had not made any repayments since March 2022, and he hadn’t repaid the arrears by the deadline set out in the default notice. I also don’t think Klarna had to stop its recovery activities simply because Mr S had made a complaint. The Financial Conduct Authority’s rules about disputed debt (CONC 7.14.1R) apply where the debt is disputed on valid grounds, or what may be valid grounds. Such grounds can include an individual being pursued for someone else’s debt, or for a debt that doesn’t exist. But Mr S’s complaint was really about Klarna not upholding a section 75 claim, or failing to offer further forbearance because of his financial difficulties. As those aren’t valid grounds, I don’t think Klarna had to suspend its recovery activities under the relevant rules. In short, I haven’t seen anything within the regulatory rules that persuade me Klarna ought to stop its debt collecting activities simply because Mr S raised a complaint. I appreciate Klarna’s debt collecting activities after the final payment pause ended felt disproportionate and had come as a surprise to Mr S, given he still had no income. But Klarna had already provided over three years of forbearance before that point. In the circumstances, I don’t find Klarna acted unfairly by terminating Mr S’s agreement, recording a default on his credit file to reflect the relationship between him and Klarna had, in fact, broken down, and appointing a debt collection agency to pursue him for the unpaid balance. I appreciate this outcome will be disappointing to Mr S, especially given his ongoing financial difficulties. But, for the reasons I’ve explained, I don’t think it would be fair, at this stage, to require Klarna to write off or reduce the remaining balance. If Mr S still can’t pay the debt in full, he can try to agree an affordable repayment plan with the debt collection agency. My final decision My decision is that I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S to accept or reject my decision before 28 April 2026.. Alex Watts Ombudsman

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