Layaway Plans and the Law
Layaway plans can be an attractive way for consumers to purchase products that they can't afford without using credit. With a layaway plan, a consumer makes a deposit on the sale price of a product, followed by subsequent installment payments and, in return, the store agrees to hold the product in reserve. Upon final payment, the store hands the product over to the consumer.
Using Caution with Layaway Plans
Layaway plans tend to be more frequently used during the holiday season as consumers plan their gift purchases. However, you should use caution before utilizing a layaway plan during the holidays, or at any time. Although there is no interest charged since no money is being borrowed, consumers can still find themselves paying more than they originally thought. Consumers may also be unaware of all the details of the layaway agreement, including those related to:
- Fees (including service/holding fees and cancellation fees, whether the fees are per item or per person and whether the fees are refundable)
- Duration of the layaway plan (including the due dates for all payments and for the final payment)
- Consequences for missing a payment
- Whether the sales prices are fixed or can change
- Whether the payment amounts are fixed or can change
- What happens if the consumer decides not to buy the item after making initial payments
What Are Your Legal Rights?
Although there are no federal laws that apply directly to layaway plans, there are certain federal laws that can still apply. Some states also have consumer protection laws that apply directly to layaway plans.
The Federal Trade Commission Act (FTCA) prohibits business practices that are unfair or deceptive. As a result, if you believe that important terms of your layaway plan were not adequately disclosed to you, this could constitute a violation of the FTCA. The federal Truth in Lending Act can apply to your layaway plan if you were required to agree, in writing, to make all payments until the product is paid in full. If so, then the store may be required to make certain disclosures regarding costs and charges.
The Federal Trade Commission (FTC) is the federal agency responsible for implementing and enforcing these laws. If you believe that a business has violated any of these laws, the FTC allows you to submit complaints online.
The states/localities that have laws specifically governing layaway plans include:
- New York
- New York City
- Rhode Island
- Washington D.C.
Many of these laws require businesses offering layaway plans to provide written agreements with specific terms. Under California law, for example, businesses offering layaway plans are required to provide written agreements that describe:
- The amount of deposit received.
- The length of time the goods will be held on layaway.
- A description of the goods.
- The total purchase price and any handling or processing charges.
- Any other terms and conditions.
- Refunds for layaway deposits and any subsequent payments if the goods become unavailable in the same condition at the time of sale.
What Should I Do Before Agreeing To A Layaway Plan?
If you are going to be setting up a layaway plan, it’s important to determine what laws apply in your state. Also, regardless of the laws of your state, it’s always a good idea to get the terms of the plan in writing. Specifically, be sure to have the business confirm the product being held, the sales price, all applicable fees, payment deadlines and what will happen if payments aren’t made in time. Finally, be sure to maintain good records of the purchase and your payments in case you need to take legal action in the future.
What Should I Do If I Have A Problem With A Layaway Plan?
If you have a dispute with a business over a layaway plan, it’s important to make sure it’s documented. Written communications with the store's management with the relevant information about the transaction are a good way to create a documented record. You can also receive assistance from, or file a complaint with, your local or state consumer protection agency or your state attorney general’s office. You can also contact a local attorney who specializes in consumer rights to assist you. To find attorneys in your area, see FindLaw's attorney directory.
For additional tips on what to do when setting up a layaway plan, see FindLaw's, "Top 5 Layaway Tips for the Holidays." For general information on consumer rights in purchasing goods, see FindLaw’s, “Buying Goods.”