New “layaway programs” from major retailers this holiday season could cost consumers the same as “sky-high” interest rates on credit cards, warns New York Senator Charles Schumer, who is calling on stores to prominently display interest rate equivalents to layaway plan fees.
With the prospect of layaway fees that can equal “an 81% credit card APR for a $100 purchase,” Schumer is urging the Retail Industry Leaders Association (RILA) and the National Retail Federation (NRF) to work with member stores to clearly display the interest rate comparisons.
Short-term layaway plans have long been an option for consumers with little or no credit available, especially during the holiday season.
Schumer, a Democrat, said if retailers don’t voluntarily implement such a disclosure program, he would ask the Federal Trade Commission to open an investigation into whether the fee structure is deceptive and misleading. Schumer said the layaway programs often deceive consumers by “referring to the program in terms of fees instead of interest rates, making it difficult to compare to interest rates consumers are familiar with on their credit card.”
There has been no formal response to Schumer’s request from the Retail Industry Leaders Association or the National Retail Federation.
‘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,” Schumer said.
Schumer cited examples of layaway plan fees and their credit card equivalents for products sold by Wal-Mart, Toys “R” Us, and Sears.
Here are three examples provided by Schumer:
- Walmart: The layaway program offered by Walmart requires a $5 service fee for a payment plan, a 10 percent down payment, and requires final payment and pickup by December 16. Walmart also has a layaway cancellation fee of $10. A shopper who purchases a $69 “Let’s Rock Elmo doll” today will pay fees equivalent to interest payments for a credit card with a 105 percent APR.
- The layaway program offered by Sears requires a $5 service fee, 20 percent or $20 down payment (whichever is higher), and requires final payment by Christmas. Sears also has a cancellation fee of $15. A shopper who purchases a $99 Leapfrog Leap Pad today at Sears will pay fees equivalent to interest payments for a credit card with an 81 percent APR.
- The layaway program offered by Toys ‘R’ Us requires a $5 service fee, a 20% percent down payment, and requires final payment/pickup by Christmas. Toys ‘R’ Us also has a cancellation fee of $10. A shopper who purchases a $199 NOOK Color at Toys ‘R’ Us will pay fees equivalent to interest payments for a credit card with a 39 percent APR.
The timeframe for layaway plans are usually 30 to 90 days. There are normally no interest rates charged. However, if you miss a payment or fail to pay the minimum due, you might have to double up on your next scheduled payment. At some stores, the merchandise is returned to the shelf as soon as seven days after a missed payment.
Consumer groups are urging the shoppers to carefully review layaway plan agreements.
The federal government does not specifically regulate layaway plans, but the FTC can go after retailers for “unfair or deceptive” practices.