Layaway Laws and Creating Policies

Creating a Layaway Policy

Shopper filling out layaway tag at checkout counter
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There is no federal law in the United States that specifically governs layaway transactions. However, you should be aware of two federal laws—the Federal Trade Commission Act and the Truth in Lending Act— that could affect your layaway plan. In addition, you should be aware that layaway practices could be affected by state or local laws.

Federal Laws

The Federal Trade Commission Act prohibits unfair or deceptive acts or practices in or affecting commerce.

Failure to disclose important terms of your layaway plan under certain circumstances may violate the Act. The information contained in this booklet should enable you to avoid such potential violations.

Your layaway plan may be covered by the Truth in Lending Act if you require your customers to agree in writing to make all payments until an item is paid in full. If you do not bind your customer in writing to complete the layaway purchase, then the Truth in Lending Act does not apply.

State and Local Laws

Some state and local laws specifically apply to layaway purchases. These laws vary widely in what they require. In addition, most states have general consumer protection laws that may apply to layaways.

Read on to learn more on writing a layaway policy.

Disclosing Layaway Terms

There are good business reasons to give your layaway customers written disclosures:

  • they help assure that customers understand their payment obligations;
  • they give notice to customers of your layaway policies;
  • they help ensure that all customers receive the same information; and
  • they help prevent misunderstandings and disputes.

Important Matters to Disclose

There are some particularly important aspects of layaway plans to consider disclosing.

These include: cancellation and refund policies; payment plans; service or layaway charges; and the location, availability, and identification of layaway merchandise.

Cancellation and Refund Policies

It is always a good business practice to inform customers about your cancellation and refund policies because the absence of cancellation and refund information can be a great source of customer dissatisfaction. By disclosing these policies in writing, you may significantly reduce customer complaints and the possibility of dissatisfied customers taking their business elsewhere.

Retailers use a number of different refund policies for layaway transactions. Some give full or partial cash refunds if layaways are not completed. Others give credit toward future purchases. State law may dictate what refund policy you must follow.

When you describe your cancellation and refund policy, use clear, simple, and direct language.

If you do not give full refunds, clearly state how much, if anything, you will charge for the incomplete layaway transaction. However, you should check the laws in your state. Some states limit the amount retailers may charge. By disclosing refund information, your customers will know what to expect if they do not complete the layaway purchase.

Read on to learn more on layaway payments and charges.

Payment Plans

If you require a specific amount of money to be paid at set intervals (for example, every two weeks), or require payments to be completed within a set period of time (for example, within 60 days of the start of the layaway), it will help your layaway customers to know your exact requirements. This disclosure might include:

  • the required payment amounts;
  • the dates when payments are due; and
  • the date when the final payment must be made, if applicable.

While the dollar amount, the number, and sometimes the frequency of payments may vary with the cost of the purchase, you may want to develop a standard payment disclosure format. For example, your layaway sales receipt might say:

Your payments of at least $______ are due on the day of each month, for months, beginning . Final payment is due by ______.

Vague descriptions of payment terms will not help your customers understand your policy. Three such vague but commonly used phrases are given below, along with reasons why they are inadequate:

  1. Payments are due every 15 days. Inadequate because: This does not tell your customers when their payments start, when the next payments are due, nor when the final payment must be made.
  2. Payments must be made in three equal installments. Inadequate because: This does not tell your customers the beginning or ending dates of their layaway plan, nor give the exact dollar amount they must pay each time.
  3. Final Payment is due in three months. Inadequate because: This does not tell your customers the required payment amounts, the dates when payments are due, nor the date when final payment must be made.

Some retailers have a policy of canceling the layaway if the customer does not make a payment by a certain date or does not complete the transaction within a specified period. If you have such a policy, consider informing your customers in writing to avoid misunderstandings.

Some other retailers will let a layaway completion date go by, particularly if the payments are almost complete.

As a reminder, such retailers send notices to their customers giving them a new date when all payments must be completed. If you have such a policy, you may want to use a notice that says:

We have extended the due date for your final payment on your layaway purchase to _____________. If we have not received your payment by this date, we will consider the purchase cancelled.

Service or Layaway Charges

If you add a service or layaway charge to the purchase price, your customers will probably want to know this before they begin the layaway. Your sign or layaway sales receipt might say:

There will be a layaway charge of $_______.

If any other charges, like shipping, are imposed, informing your customers with a similar statement is helpful.

Location of Layaway Merchandise

Customers who buy merchandise on layaway may expect that the item will actually be "laid away"—physically separated from stock available for sale. Many retailers remove layaway articles from the sales floor; others keep large items, such as furniture or major appliances, on the sales floor but mark them "sold." If you do not separate the layaway purchase from merchandise to be sold, telling your customers about your practice may avoid future complaints.

You might post that information or include it on the layaway sales receipt. For example, a sign might say:

Large layaway purchases will remain on the sales floor but will he marked "sold."

Availability of Merchandise

If the merchandise must be ordered, your customers will probably want to know when and under what circumstances it will be ordered. A notice explaining your policy might say:

Merchandise must be ordered. If you are buying merchandise on layaway, we will order your layaway item when you have paid half of the purchase price.

Identification of Merchandise

Because several months may elapse between the time a layaway purchase is started and the time the merchandise is picked-up, your customers may not always remember all the details about the merchandise they purchased.

To help avoid potential confusion about the particular merchandise selected, you may want to identify the layaway item on the layaway sales slip.

Clearly describing the items identifying characteristics, such as color, size, stock number, model number and trade name or manufacturer, may prevent misunderstandings when the customer makes the final payment and is ready to claim the layaway merchandise. For example, you might identify a dress purchased on layaways as:

One red dress, size 10, Dresswell Company, Style #130 A

Common Ways To Disclose Terms

Businesses communicate their layaway terms in different ways. Some post their layaway terms on a sign in their stores. Others have their layaway disclosures on layaway sales receipts and provide customers with a copy when a purchase is made. Some retailers use both sales receipts and signs.

To avoid misunderstandings. always try to say who will do what on your sales receipt. This will let your customers know specifically what they must do to fulfill their part of the layaway transaction. Clear examples, short sentences, and easy-to-read type will help to convey your message.

If you post your layaway terms on a sign in your store, the sign (or signs) should be placed in an appropriate and conspicuous location (or locations), and the message should be clear and large enough to be read from a distance.