Many companies have brought back layaway plans for the holiday season. But before you put a purchase on layaway, make sure you understand what it is and how it works.
Layaway plans allow you to pay installments for items on reserve. You receive the item when it is paid in full.
Layaway may be a good idea for some consumers; however, there is some risk involved. The Ohio Attorney General’s Office has received about a dozen complaints about layaways since January 1, 2011. In their complaints, many consumers said the business closed while they were paying for items on layaway. As a result of the closing, they never received a refund and they never received the merchandise.
It is important to know the risks and all the fees associated with a layaway plan, which may include initiation or cancellation fees.
Here are sample terms and conditions for a layaway plan:
- Service fee (5% or $10 whichever is greater, non-refundable)
- Deposit (20%, paid up front)
- Contract term (8 weeks)
- Cancellation fee (10% or $25 whichever is less)
If you bought a product for $100 using the above sample terms, the service fee would be $10. The deposit would be $20. The weekly payment would be $10 for the 8-week contract, and you would receive the item for a total cost of $110.
If you canceled the agreement, the store would be entitled to a $10 cancellation fee in addition to the $10 non-refundable service fee you paid at the start of the plan. You would pay $20 but would receive nothing.
Under Ohio law, in a layaway plan for an item worth less than $500, stores are not required to provide a written contract to consumers, but they must give consumers written notice if they miss a payment. Consumers then have 10 days to make up the missed payment. If they don’t make up the payment, the store is entitled to $25 or 10 percent, whichever is less.
For layaway agreements of $500 or more, the store must provide the consumer with a written contract. If they want to cancel, consumers must do so in writing. They can cancel within 5 days with no penalty. After 5 days, if the consumer cancels or defaults, the store can keep up to 50% of the amount the consumer has already paid.
Warnings and tips
Some companies work with major retailers to provide layaway plans through the Internet. As with in-person layaways, make sure you understand all the terms and conditions before using these services. Doing business with reputable companies can be safer than arranging layaways where you do not know the company’s reputation.
Tips for layaways:
- Ask for a written description of the store’s layaway program before you agree to it, regardless of the cost of the items you place on layaway.
- Ask if you can get a sale price for an item if it goes on sale during the time you have it on layaway.
- Understand the terms and conditions of the layaway. Some stores only offer certain merchandise, or have days where layaways may not be available.
- Save all payment receipts, contracts, and related documentation until you receive your product.
- If a company files for bankruptcy, you may file a proof of claim with the bankruptcy court. However, even if you do this, it can be difficult to recover money from companies that are no longer operating.
- If a branch of a company shuts down, call the corporate headquarters and explain the situation citing all necessary documentation.
Consumers are almost always better off saving their money until they can afford to pay the full amount for the purchase.
File a consumer complaint with the Ohio Attorney General’s Office
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