The New Layaway
As the holiday season begins, many Connecticut families will be shopping for gifts at retailers like Wal-Mart and Sears. This year, to spur spending, some retailers have re-instituted layaway programs to enable consumers to break purchases into what seem like a series of smaller, regular payments. Although layaway payment plans may offer consumers flexibility to purchase items, consumers must be wary of the fees associated with layaway. In many cases, the fees to use layaway far exceed the costs consumers would incur if they bought the product with a loan or even a very high interest credit card. On some purchases, the layaway fee is effectively the same as a 105 percent annual percentage rate (APR). To put this in perspective, the national average APR for a credit card is 14.99 percent for individuals with good credit and 24.06 percent for people with bad credit, and Connecticut's usury statute prohibits loans above 12 percent but does not apply to most credit cards.
Today in Hartford, I called on large retailers like Toys "R" Us, Kmart, and Best Buy to be more forthcoming about the costs associated with their layaway programs by displaying fees as an APR equivalent. Layaway plans are a gift that keeps on taking. Consumers deserve to know the outrageous sky-high interest rates concealed by retailers who call them fees. Better options may exist – including credit cards – and consumers should make informed choices. In tough economic times, retailers are exploiting hard-hit consumers who may be desperate or deceived or both. These layaway plans, disguised in Santa suits, should show the real life Scrooge inside. If the retailers fail to come clean with complete information, I will ask the Federal Trade Commission to investigate.
In the meantime, consumers can use this online calculator to see for themselves how much layaway fees would cost for a particular item and whether it makes more sense to save up for that item or purchase it with a loan or credit card.