An Overview of Layaway Agreements
For many years, layaway programs have been a popular way of allowing consumers to purchase costly products over time. During economically difficult times, layaway programs can make expensive items possible for those who cannot afford to pay for them in one large sum. A layaway agreement is between a seller and a buyer for the sale of goods where the buyer pays for the item over time and takes possession of the item only after payment in full has been made.
Layaway agreements typically work as follows: The consumer expresses an interest in purchasing an item but does not have the funds to do so initially. The buyer then pays a small percentage of the price of the item and the seller agrees to hold the item for him or her. This arrangement gives the buyer the ability to budget for the item by paying it off over time. It also eliminates the need to use an immediate payment plan that could be much more costly. A layaway can cost anywhere from a few dollars for a T-shirt to several thousand dollars for an engagement ring.
Layaway plans are proven to benefit consumers for several reasons . First, the consumer is able to make payments towards a desired item over time and the seller agrees not to sell it to anyone else. Since no financing is involved, the buyer does not need to worry about paying any additional financing costs. Finally, a layaway agreement can be offered without involving a credit check. This can help consumers to afford an item or to improve one’s credit rating since no instant credit is involved.
Although less common for many retailers, layaway programs benefit sellers as well. By requiring a deposit initially, a client is more likely to return to the store to complete payment for the item. Sellers of seasonal items also benefit from layaway programs since they have the ability to sell more goods with guaranteed sales.
In addition to the present layaway plan agreements, traditional layaway relationships can also be found in religion. For instance, in biblical times, a person needing funds would approach someone with funds to borrow. The individual would promise to repay the loaner the money by a certain date. He would also provide that he would return an additional amount once he was able to meet the terms of the loan.
Essential Elements of a Layaway Agreement
Not all layaway agreements are the same, but there are some important clauses and terms that are commonly found in these agreements. Generally, they will include the following:
Payment Schedule: The schedule by which a specific amount must be paid along with the total amount to be paid should generally be included in the agreement as well as invoices or statements to memorialize each payment as it is made and which payments are still due.
Cancellation Policy: It is important to include the terms under which either the buyer or seller can cancel the layaway agreement, especially if the items must be returned. The seller will usually want the right to cancel for non-payment after a certain amount of time has elapsed, but the buyer will probably want the right to cancel at any time and receive a full refund. As with any other common contract term, the parties may be able to negotiate a different arrangement, but at least one complete payment should be required for either party to have the right to cancel the contract.
Account Fees: Many businesses charge an account fee for the use of a layaway plan. It is a good idea to include the fee amount in the contract, as well as the terms of any refunds on the fee in the event that the buyer cancels the agreement.
Refunds: It is quite common to include the terms for refunds of money paid to date in the event that the buyer cancels the layaway agreement. Depending on the parties’ wishes and/or applicable law, these terms may also apply to refunds of any account fees that have been paid.
Pros and Cons of Using Layaway Plans
Pros
Layaway plans are not only a great way for consumers to purchase big ticket items over time, many retailers offer discounts to jumpstart their participation. For example, in December 2014, Bed Bath & Beyond announced its first-ever layaway program, and offered customers a five percent discount on online purchases of $125 or more. However, the most obvious advantage of a layaway plan is the ability to budget for a large purchase without having debt hang like a dark cloud over the buyer’s head. Further, because none of the payments are financed, and many retailers do not charge fees for layaway, the consumer is not paying for an expensive loan. Additionally, layaway plans provide a layer of security for the retailer because buyers are often responsible for some sort of penalty if they cancel the transaction (which may include a cancellation fee).
Cons
The most common disadvantage of layaway plans is that if the buyer cancels or the terms change, it is likely that the consumer will be subject to a cancellation and/or restocking fee. For example, Best Buy charges a Restocking Fee of 15 percent of the total value of the layaway item, and a Cancellation Fee of $10 for each item on layaway. Below are examples of other retailers’ cancellation and restocking fees: Additionally, consumers often have difficulty keeping track of the payments and timelines on their layaway items, which can lead to cancellation fees without the consumer ever realizing this was the case. For example, Best Buy states: To make the lives of consumers even harder, certain retailers impose higher restocking fees based on the type of item purchased, and the amount of time that has passed since the initial deposit was paid. For instance, after seven days, a restocking fee of 25 percent of the total amount is due for laptops, car stereo/navigation systems, and fitness equipment. Essentially, these retailers are punishing consumers for their inability to pay off their purchase within a week, which can have a particularly harsh effect on those who are budgeting so closely that this sort of short-term delay runs them afoul of the company’s policy.
Legal Implications of Layaway Plans
For consumers, the most basic legal consideration of a layaway program is that the stored merchandise must remain as stored if the sale does not finalize. A layaway transaction is a contract for the sale of merchandise – individuals cannot lawfully contract for the future sale of stolen merchandise. In addition to storing merchandise already paid for, retailers will sometimes set aside merchandise in anticipation of a potential layaway purchase. The Federal Trade Commission ("FTC") maintains the position that retailers’ practice of putting items on hold for potential layaway purchases is a sale of those items, even before any cash has exchanged hands. Consumers have the right to receive an immediate refund of all layaway payments, in cash, if the store refuses to hold the merchandise under layaway.
Layaway plans are treated as "installment sales contracts" for the purposes of federal law such as the Truth in Lending Act ("TILA"). TILA sets out rules for how retailers should disclose the terms of their layaway plans to customers. Commonly, these terms are communicated to customers through an agreement they are required to sign before entering a layaway plan. Some states also have special laws pertaining to layaway plans, although the nature and extent of these laws varies by state. The retailer should ensure that its coupons, advertisements, and other marketing materials are compliant with TILA and state law.
How to Create a Sample Layaway Agreement
When creating a sample layaway agreement, it is important to follow a series of steps to ensure all necessary terms are included, the layout is clear, and the agreement is tailored to meet the specific needs of the business. Below is a step-by-step guide on how to draft a layaway agreement:
- Title of the Agreement: Clearly state at the top of the document "Layaway Agreement."
- Introduction: Briefly introduce the parties to the agreement, including their full names and contact information. Identify the store or company name, and reference the layaway agreement number for tracking purposes.
- Invoice Description: Provide a detailed description of the item(s) that are being placed on layaway, including any serial numbers, colors, styles, or other distinguishing features.
- Deposit and Payment Terms: Specify the amount of the initial deposit, the total purchase price, the amounts of the installments, the duration of the layaway, and the payment intervals (e.g., weekly, bi-weekly, monthly). Make sure to include the due dates for each installment.
- Cancellation Policy: Clearly state how and under what circumstances a layaway may be cancelled, by whom, and the consequences thereof . This should include any fees or forfeitures related to the cancellation.
- Consequences of Default: Provide detailed information regarding what will happen if the customer misses a payment or fails to complete the layaway agreement. Include information on repossession of the item, any fees or penalties, and the process for returning to the layaway terms.
- Miscellaneous Terms: Include any other particulars or parameters that the business owner deems necessary, such as buyer’s remorse rights, privacy policies, warranty disclaimers, and questions of liability.
8: Signature Verification: Ensure both the customer and the business owner have the opportunity to read the agreement carefully before signing and dating the document to indicate that both parties agree to the terms and conditions laid out in the layaway agreement.
9. Copy Retention: Plan for how the store or company will retain copies of the signed layaway agreement for their records, and advise customers to do likewise.
By the time the owner has followed the above steps, he or she should have a well-written layaway agreement that satisfies the legal requirements set forth by law to protect the company laying away the product as well as the customer in making layaway payments.
Common Pitfalls in Drafting Layaway Agreements
Mistakes and Missteps in Layaway Agreements
There are a few common mistakes that we see both consumers and retailers making with regard to layaway agreements:
Consumers often forget to read the terms of the layaway agreement. Always be sure the terms of the layaway match what you understood them to be. You might want to take a picture of the store’s signage on the condition of layaway or write down the details of the transaction on a piece of paper yourself.
Another mistake consumers often make is waiting too long to complete the layaway. As covered above, layaway is meant to be a short term purchase, not one that is drawn out for an extended period. Be sure that you tin either afford the installments or make a plan to focus extra resources to pay for the item within the specified time frame.
Retailers often forget that layaway is a contractual agreement. When a customer places an item on layaway, a contract is created. The retailer typically assumes that this is an informal agreement between the retailer and the customer. The retailer should be aware that a layaway represents a legal obligation to both the customer and the retailer if the terms are not met. Many retailers have had to deal with lawsuits or consumers who are unhappy with their layaway experience. Make customer service a top priority when customers make a layaway purchase.
Both consumers and retailers should be sure that the layaway agreement is written in plain English and covers each side of the transaction. The layaway agreement should protect both the consumer and the retailer. If either side to the agreement is unsure of how to proceed with an issue, they should call for help from a qualified attorney.
Conclusions and Recommendations for Layaway Contracts
In summary, sample layaway agreements are a valuable resource for consumers and retailers alike. For consumers, they are an essential tool for budgeting and managing their finances. For retailers, they provide a clear and transparent framework for layaway sales, ensuring compliance with relevant regulations and reducing the risk of disputes with customers.
When determining whether to use a layaway plan, it is crucial for both consumers and businesses to consider the potential fees, policies, and regulations that may be involved. In particular, consumers should carefully review the terms of the layaway agreement and make sure they understand their rights and obligations. Businesses , on the other hand, should ensure that they are complying with all relevant state and federal regulations and make sure that their layaway policies are clearly communicated to customers.
Some best practices for layaway agreements include:
When done correctly, layaway plans can be a mutually beneficial payment option for both consumers and businesses. By providing a clear and comprehensive sample layaway agreement, individuals can ensure that they have a solid understanding of the process and that the terms of the plan are in their favor the majority of the time.
