With the Holiday Season upon us, I am reminded—as I am sure many of you in Rockland County are—of the old “pay-before-you-play” method of financing a new purchase: layaway.
Growing up as a kid in the Bronx, layaway was a common part of our consumer lexicon. The idea was there was something you wanted to buy but you didn’t have enough money. The retailer’s solution was for you to first make a down payment; then he or she would hold the item for you, and you would pay it off over time.
When I was 12-years-old there was Redline BMX bicycle I desperately wanted, but I didn’t have the money. I gave a down payment to the bike shop and each week I would scrounge whatever money I could from my odd jobs and drop it off to the shop-owner. Lucky me, as I delivered my weekly payment, I was fortunate enough to visit my bike for a short time... although I wasn’t yet allowed to ride it.
Eventually, I paid off the bike and took home my prize. Unfortunately, by the time I paid it off, winter had set in and I had to wait until the spring to ride the bike any further than my apartment building hallways.
For a while, layaway had disappeared, due in large part to the extraordinary prevalence and availability of credit cards. However, as the economy took a nose dive and the credit crunch ensued, low and behold, layaway is back with a vengeance. Some of the biggest “Big Box” retailers here in Rockland County have been offering layaway plans including Sears, Wal-Mart, PC Richards and Toys''R''Us.
So if you are one of the many holiday shoppers this year who plan to use layaway, doing a little home work before your purchase might save you a few crucial bucks. With that in mind, here are five tips to look out for when considering layaway:
- IS THERE A LAYAWAY FEE? Does the retailer charge a layaway fee? Not all retailers offering layaway charge a layaway fee. For example, PC Richards does not charge a fee, but they do require a 10% down payment.
- Are You Paying More Than You Would With A Credit Card? For retailers charging layaway fees (not all do), as modest as that fee may seem, you may be paying more than you would if you used your credit card. Due to the short duration of layaway programs (generally around 8 weeks), the fees can exceed the interest charges you would have paid on your credit card. For example, if you make a $10 down payment on a $100 item, held on layaway for eight weeks, paying a $5.00 layaway fee, you will have paid the equivalent of a 44 percent annual percentage rate on a credit card. Also, consider if you have a credit card with an awards or cash back program. If so, you ought to calculate the value of that program into your purchase equation.
- IS THERE A CANCELLATION FEE? Buyer’s remorse may turn into a punishment if you change your mind after agreeing to layaway your purchase as most retailers charge a cancellation fee. If you had made your purchase with a credit card, you simply could have returned the item with no penalty at all.
- IS THERE A PENALTY FOR MISSING A PAYMENT? If you miss a payment, many retailers will cancel your layaway plan and return your item to its inventory. While they will return any payments you made, they will also ding you for that cancellation fee.
- WHAT IF THE ITEM GOES ON SALE? During the holiday shopping season sales come and go without any warning, an item at full price one day may be discounted by 40% the next day. So what happens if the item you put on layaway goes on sale? More likely than not, you’ll be charged whatever the price was when you signed the layaway agreement. A little persistence with a manager may get them to honor the sale price but who needs to argue with store managers when you have more shopping to do?
While there are no specific federal laws concerning layaway purchases, there are a few related federal protections and an on point New York State law.
Federal Trade Commission Act prohibits unfair or deceptive acts or practices in or affecting commerce. A retailer’s failure to disclose important terms of the layaway plan may violate the FTC Act.
Also, the layaway plan may be covered by the federal Truth in Lending Act if the retailer requires customers to agree in writing that all payments must be made before the item will be released.
New York General Business Law - Article 26 - §396-T (Unlawful Practices Relating to Layaway Plans), regulates certain layaway plans offered in New York and defines a layaway plan as “a purchase over the amount of $50.00 where the consumer agrees to pay for the purchase of merchandise in four or more installments and the merchandise is to be delivered in the future.” New York State law requires, among other things, that the retailer disclose to the consumer, in writing (1) a description of the merchandise to be purchased; (2) the total cost of the item, including tax, installation, delivery or freight charges; and (3) the amount of any charge for the use of the layaway method of payment such as a service or carrying charge or cancellation fee.
So, the lesson with a layaway purchase, as with every purchase is buyer beware. Do your homework and you will increase the likelihood that you are getting the most for your money.
About the Author
Robert Nahoum is a Hudson Valley attorney practicing consumer protection and general litigation in the Tri-State Area including New York City, Westchester, Rockland, Nassau, Suffolk, Bergen County New Jersey and Fairfield County Connecticut. His practice includes consumer protection, Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), debtor’s rights, debt defense, mortgage foreclosure and general civil litigation.
Robert J. Nahoum, Esq.
The Nyack Business Center
99 Main Street, Suite 311
Nyack, NY 10960-3109
Ph: (845) 450-2906
Fax: (888) 450-8640
Knowledge is power and it is my intention to empower my readers to be victors instead of victims when the go out in the marketplace.