Layaway Plans and the Law

Layaway plans can be an attractive way to buy expensive products, especially if they might sell out fast. The holidays are a popular time to get big-ticket gifts on a layaway plan.

You may be unable to afford a product outright but still want to secure your opportunity to own it. Layaway plans avoid some downsides of other purchase options, such as consumer credit, but layaway agreements can have drawbacks of their own.

Customers often wonder how layaway plans work and the potential risks. This article will explain your rights and obligations for these plans under consumer protection laws.

How does a layaway plan work?

With a layaway plan, you put down a deposit on the product's sale price. The store will set aside the item while you make regular installment payments. Once you make the final payment, the store will give you the product.

To illustrate, buying a product on a layaway plan is like asking the seller to keep a piggy bank in your name at the store. Every time you send a payment, they'll add it to your piggy bank. Once it's full enough, the seller will trade your savings for the exact product you want.

A layaway plan carries special terms, whereas a piggy bank doesn't. Before reserving a product, ensure you understand any other costs and rules it may involve.

Do layaway plans charge interest?

No, a layaway plan doesn't involve interest because the customer doesn't borrow money to get the item sooner. Unlike using credit or a loan, you wait to take the item home until you finish paying the total price.

The exception is when you pay layaway installments with a credit card. Credit card charges may incur interest, but the interest would come from your card rather than the seller's layaway plan. Your credit card company's policies and your debt determine the interest.

Deferred Interest and Pay-Later Purchases

Let's compare layaway plans to a few purchasing options that give you access to products before paying the full amount of money. Like a layaway plan, you may pay the seller or payment service over time rather than upfront. Unlike a layaway plan, these options may or may not charge interest.

For example, a buy now, pay later plan lets you receive an item immediately. You then pay installments according to the plan's terms, including potential interest and fees.

Deferred interest financing options also let you enjoy goods now rather than later. A deferred interest advertisement might say something like “no interest for the first six months." If the customer hasn't paid in full by then, the customer would be liable to pay back the total interest accrued during those six months.

In contrast, layaway plans do not charge interest, even if you fail to complete payments on time. Instead, layaways may penalize lack of payment with late fees or by canceling your order.

Why use caution with layaway plans?

Consumers should take care while considering layaway options because they often carry strict terms. Customers sometimes skim over the contract or policy details and end up paying more than they expected to. They stand to lose their item reservation if they break the agreement.

The payment terms of a layaway agreement may specify:

• The initial down payment cost
• Service or holding fees, and whether the fees are per individual item versus the entire order
• Duration of the layaway plan and the exact schedule of payments
• The final payment deadline and whether an extension is possible
• Consequences for missing a payment, such as automatic cancellation or extra fees
• Whether the sales prices and payment amounts are variable or fixed
• Whether the seller will automatically charge your debit or credit card
• What happens if you decide not to buy the item after making initial payments

Once you sign the sales agreement, you'll be subject to its terms. For example, you might not realize the item's price could increase, raising the cost of your installments. Arguing against this new cost could be challenging if the contract stated it was possible. 

The seller may be willing to renegotiate, but if not you'll have to dispute the fairness of the contract itself or cancel the purchase to avoid the cost increase.

What should I do before agreeing to a layaway plan?

In addition to understanding the layaway's costs and fees, verify the following:

• Which consumer protection laws for layaway plans apply in your state
• Which specific product(s) the seller will place on hold, including their size, color, model number, or other qualities
• How many such goods the seller will set aside for you
• The seller's refund policy if you no longer want a product after receiving it
• The seller or manufacturer's warranty for the item(s)
• Whether a written statement or contract agreement will record all details of your purchase

Maintain good records of the purchase and your payments. These records may be helpful if you need to take legal action in the future.

Can I cancel a layaway purchase?

Yes, you can often cancel a layaway plan before the final payment. Be aware you may face any of the following consequences by doing so:

• You will not receive the product(s) you reserved
• Your item(s) will become available for other customers to buy
• You could receive store credit for the installments you've already paid
• You could get a partial or full refund back to your original form of payment
• You could lose the entire value of payments you made (no refunds)
• The seller may deduct restocking or cancellation fees from your refund

Read the seller's layaway cancellation policies to learn what will happen when you stop paying installments. Contact the store or customer service department to cancel the purchase and stop recurring charges for future installments.

What legal rights do layaway buyers have?

Your specific rights depend on your state's consumer protection laws. Some federal laws also grant protection, though none directly address layaway plans. Many of these laws cover a broad array of transactions and sales practices.

Federal Laws Affecting Layaways

The Federal Trade Commission Act (FTCA) prohibits business practices that are unfair or deceptive. For example, hiding details about a purchase agreement is a deceptive act. A seller might violate the FTCA by failing to fully disclose the terms of your layaway plan. As the customer, you could seek a remedy under the FTCA.

The Truth in Lending Act (TILA) can apply to your layaway plan if you consented to pay in a written agreement. If so, the store must follow TILA requirements, including standardized disclosures about the costs and charges. A verbal agreement doesn't hold the seller to TILA. That's one reason why written layaway agreements can give you more transparency and protection.

The Federal Trade Commission (FTC) manages enforcing these laws. This agency can be a resource if a seller's trade practices violate your rights. The FTC allows you to send consumer complaints online for review.

State Laws for Layaway Purchases

Some of the states and localities with direct layaway plan laws include:

• California (CA Civil Code § 1749)
• Connecticut (CGS § 42-125aa to 42-125cc)
• Idaho (Idaho Admin. Code r. 04.02.01.150 to 04.02.01.152)
• Illinois (815 ILCS 360/1 to 360/7)
• Massachusetts (940 Mass. Reg. 3.12)
• Maryland (Md. Code Ann. Commercial Law § 14-1104)
• New York (NY GBL § 396-t) and New York City (6 RCNY § 5-23 and 6-47)
• North Carolina (NCGS § 25-2-106)
• Ohio (ORC § 1317.21 to 1317.24)
• Rhode Island (RI Gen L § 6-32-1 to 6-32-6)
• The District of Columbia (D.C. Code § 28–3818)

Many of these laws require businesses to provide written layaway agreements with specific terms. States often have general trade laws that apply to layaway plans without specifically mentioning them.

An Example of State Layaway Laws

Under California law, businesses offering layaway plans must provide written agreements that describe the following:

• The deposit amount the seller receives
• The length of time the seller will hold the goods on layaway
• A description of the goods the customer will purchase
• 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

Other state laws differ from California's rules, so check your state's code for specific consumer protection requirements. State and federal laws can help you detect unfair acts or practices.

What are some common layaway disputes?

Some of the problems customers may face from a layaway plan include:

• A sudden cancellation of the order
• Product damage or defects, such as a lower-quality substitution
• Refusal to refund your payments or accept a return of the product
• A seller's failure to deliver an exact duplicate of the product you chose
• A seller's failure to provide a written agreement
• Discrepancies between the agreed-upon pricing and how much the seller charged
• Undisclosed fees or limitations

Disputes can develop regardless of whether you purchased the goods online or through a physical store, but customers aren't out of luck when a seller breaks their end of the bargain. Your consumer rights may give you a way to get the correct product or your money back.

Have a Layaway Plan Problem? Speak With an Attorney

First, ensure you have documentation and review the terms of your purchase. You may use emails, papers, and other written communications with the store to create a record of the transaction. Legal agreements can be confusing, so you may want to contact a consumer rights attorney to help you.

You may also get assistance or file a complaint through government resources. Your local or state consumer protection agency or attorney general's office can offer more information.