Should You Offer a Layaway Plan?

Many people over 40 years old can remember back when layaway was a common way to pay for retail items a little at a time. If you wanted to buy something but didn’t have enough money, you could put down a deposit to hold the item and then make payments, taking possession once you paid in full.

Layaway has largely become a thing of the past, as most consumers now use credit cards to buy things they can’t immediately afford. But a funny thing happened in the midst of the economic crisis: Many people tightened up their personal finances, limiting or stopping their credit card use.

Many of these consumers are now taking advantage of layaway programs at national department stores and small local retailers alike, as well as utilizing online options such as eLayaway.com. What should you know about creating a layaway plan if you decide to offer this as a payment option to your customers?

From a legal perspective, no federal laws specifically govern layaway practices. However, both the Federal Trade Commission Act and the Truth in Lending Act may affect your plan. The FTC Act prohibits any unfair or deceptive practices affecting commerce, including the failure to clearly disclose the terms of your layaway plan. And any layaway plan that requires customers to agree in writing to make all payments until the item is paid in full is subject to Truth in Lending.

Many state and local governments have laws that govern layaway plans, and most states have general consumer protection laws that may apply to layaways. States with layaway laws include California, Idaho, Illinois, Massachusetts, Maryland, New York, Ohio, and Rhode Island, as well as the District of Columbia. State laws vary widely in their requirements for layaway plans, so check your state’s laws carefully when setting up your plan.

Legalities aside, it’s good business sense to provide a standard written disclosure to layaway customers and require them to sign it. Doing so ensures that customers have received notice of your layaway policies and that you’ve done your part to help them understand their payment obligation. It also helps protect you from claims of discrimination because all customers receive the same information, and it may help avoid customer misunderstandings and disputes.

The following are among the most important aspects of your layaway plan to disclose:

• Cancellation and refund policies: You may choose to give full or partial cash refunds if layaways are not completed, or you can just give customers credit toward future purchases. If your state has layaway laws, check to see if they dictate what refund policy you must follow.
• Terms of the payment plan: Explain whether a down payment is required and if so, how much; payment amounts and due dates (e.g., every two weeks); and whether payments must be completed by a certain date (such as within 90 days of the down payment).
• Service charges: You may choose to add a service charge to layaway purchases; again, check your state or local laws. Spell out any service charges clearly in your disclosure.
• Location, availability, and identification of layaway merchandise: You can physically set the merchandise aside for the customer or order it when a certain percentage of the purchase price has been paid. Either way, explain this clearly in your disclosure. It’s also a good idea to include a brief description of the item because months could pass between the time the layaway is made and when the customer actually takes delivery.

Don Sadler is a freelance writer and editor specializing in business and finance.