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Be Fully Informed Before using Layaway Plans to Purchase Gifts for the Holidays

WalMart, Toys “R” Us, And Sears Are Bringing Back Layaway Programs to Entice Shoppers to Purchase Big-Ticket Items Without Using Credit Cards, But High Fees Leave Consumers With A Raw Deal

Washington, D.C. – As Black Friday draws near, thoughts turn to holiday shopping, and how to get the items you want for a price you can afford.

If you don’t want to pay with plastic and you don’t have the necessary cash on hand, you may want to ask a merchant about a layaway plan. Layaway purchase plans are designed for people who want to buy products and services without using credit or paying the full price immediately.

Layaway programs allow shoppers to effectively enter into a payment plan with stores in order to make holiday purchases by making an initial down payment and paying a service fee, then paying the rest of the bill over a period of time, picking up the item when the bill is paid in full. These layaway programs, however, charge fees that when calculated as an interest rate, would far exceed even the highest rates charged by credit card companies – and in many cases would violate state usury laws.

At Toys ‘R’ Us for example, consumers will pay the equivalent of at least an 81% annual percentage rate (APR) for a $100.00 purchase they put on layaway today. Because stores refer to these charges as ‘fees’ instead of interest rates, it is difficult for consumers to compare the effective cost of layaway programs to the cost of using a credit card. To add insult to injury, when a customer wants to cancel a layaway purchase, retailers often do not refund service fees and also charge additional cancellation fees of $10.00 or more.

“These layaway programs are nothing more than hideaways for sky-high interest rates that consumers would never tolerate with a credit card,” said U.S. Senator Charles E. Schumer. “Retailers know this is going to be a difficult Christmas shopping season for families who are having a tough time making ends meet. The holiday season is supposed to be about giving and not taking, but these layaway programs are taking advantage of people and charging them outrageous interest rates, under the guise of making it easier and more affordable to shop.”

Here is a breakdown of the layaway programs being introduced at three major retailers in the United States and what the equivalent APR would be for three popular gift purchases this year:

Walmart

The layaway program offered by Walmart requires a $5.00 service fee for a payment plan, a 10% down payment, and requires final payment and pickup by December 16th. Walmart also has a layaway cancellation fee of $10.00.

  •  A shopper who purchases a $69.00 Let’s Rock Elmo doll today will pay fees equivalent to interest payments for a credit card with a 105% APR
  • A shopper who purchases a $99.00 Leapfrog Leap Pad today will pay fees equivalent to interest payments for a credit card with a 71% APR
  • A shopper who purchases a $199.00 NOOK Color today will pay fees equivalent to interest payments for a credit card with a 34% APR

Sears

Sears The layaway program offered by Sears requires a $5.00 service fee, 20% or $20.00 down payment (whichever is higher), and requires final payment by Christmas. Sears also has a cancellation fee of $15.00.

  • A shopper who purchases a $69.00 Let’s Rock Elmo doll today at Sears will pay fees equivalent to interest payments for a credit card with a 136% APR
  • A shopper who purchases a $99.00 Leapfrog Leap Pad today at Sears will pay fees equivalent to interest payments for a credit card with a 81% APR
  • A shopper who purchases a $199.00 NOOK Color today at Sears will pay fees equivalent to interest payments for a credit card with a 39% APR

Toys ‘R’ Us

Toys"R"Us, IncThe layaway program offered by Toys ‘R’ Us requires a $5.00 service fee, a 20% down payment, and requires final payment/pickup by Christmas. Toys ‘R’ Us also has a cancellation fee of $10.00.

  • A shopper who purchases a $69.00 Let’s Rock Elmo doll today at Toys ‘R’ Us will pay fees equivalent to interest payments for a credit card with a 120% APR
  • A shopper who purchases a $99.00 Leapfrog Leap Pad today at Toys ‘R’ Us will pay fees equivalent to interest payments for a credit card with a 81% APR
  • A shopper who purchases a $199.00 NOOK Color at Toys ‘R’ Us will pay fees equivalent to interest payments for a credit card with a 39% APR

Layaway Tips

The Federal Trade Commission (FTC), the nation’s consumer protection agency, says it’s important to ask questions about how particular layaway plans work. Doing a little research on the front end can help you avoid problems later.

Get the merchant’s layaway policy in writing. Look for details on:

  • The terms of the layaway plan: how much time you have to pay for the merchandise or service; when your payments are due; the minimum payment required; and possible charges for using the plan, like a service fee. Find out if there is a fee or a penalty for missed or late payments: Will your contract be cancelled? Will the merchandise be returned to inventory?
  • The refund policy: If you decide you don’t want the merchandise after you’ve made some or all the payments, can you get a refund? Retailers’ policies may differ: some give you all your money back; others may charge a non-refundable service fee; still others may offer a merchant credit for the amount you paid.

Check out the business. Contact your state Attorney General’s Office (www.naag.org), local consumer protection agency (www.consumeraction.gov), and your local Better Business Bureau (www.bbb.org). They can tell you if consumers have filed complaints against the retailer or online service.

Online Layaway

Layaway purchase plans are not limited to brick-and-mortar retail outlets; some online merchants use them, as well. Some layaway sites operate like a combination shopping search engine and online shopping mart: The companies have hundreds of merchants and online retailers selling name brand items. First, you select a product. Then, you pay: some sites require electronic debiting from your checking account; others require that you pay by check or money order through postal mail. Still others allow you to pay with credit or debit cards, or use online payment services. Once you’ve paid the balance, the online layaway service pays the merchant, and the merchant sends you the product.

Some sites offer layaway plans for non-retail items like travel, tickets to sporting events — even surgery. For example, if you’re planning a vacation to the Bahamas in six months, or scheduling a certain medical procedure like plastic surgery in nine months, there are websites to handle your payment plan.

What Laws Protect You?

If a store fails to disclose important terms of its layaway plan, it may be breaking the law.  If a retailer hasn’t explained its layaway terms, or has otherwise misled you about them, file a complaint with the FTC.

The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or get free information on consumer issues, visit ftc.gov or call toll-free, 1.877.FTC.HELP (1.877.382.4357); TTY: 1.866.653.4261. Watch a video, How to File a Complaint, at ftc.gov/video to learn more. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

Layaway plans are not specifically governed by federal law, but unfair or deceptive sales practices are illegal under the FTC Act. Check with your state attorney general (www.naag.org), local consumer protection agency (www.consumeraction.gov), and your local Better Business Bureau (www.bbb.org) to find out if state or local laws cover layaway purchases.

About U.S. Senator Charles E. Schumer

U.S. Senator Charles E. Schumer
U.S. Senator Charles E. Schumer

Over the past three decades in public service, U.S. Senator Charles “Chuck” Ellis Schumer has built a reputation as a leader in finding common-sense solutions to national issues and a tireless fighter for New York. He resides in Brooklyn with his wife, Iris Weinshall, and their daughters Jessica and Alison.

Senator Schumer sits on the Committee on Banking, Housing, and Urban Affairs; the Judiciary Committee, where he is Chairman of the Subcommittee on Immigration, Refugees, and Border Security; and the Joint Committee on the Library.

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