WASHINGTON — For cash-strapped parents determined to snag that trendy Furby robot or iPad Mini this Christmas, holiday layaways seem like a godsend: Reserve the toy now and pay later.
But critics warn that fees for the increasingly popular layaway programs could wind up costing people much more than if they’d paid by credit card. “These things can come back to bite you,” said Tod Marks, senior projects editor of Consumer Reports magazine. “Most of the time (layaway programs) are relatively harmless, but the only way to know for sure is to understand the complete terms and conditions. … The devil is always in the details.”
As retailers launch their layaway programs this month for the upcoming holiday season, some big-box stores are revising their policies and slashing fees.
Layaways were commonplace in the 1930s and 40s, but they faded in popularity as credit became easier to obtain. They re-emerged in recent years after the recession hit and banks tightened credit.
Stores tout layaway as a consumer-friendly alternative for shoppers who can’t afford to pay up front and don’t want to go into debt. Customers pay small service fees to open layaway accounts with stores, and they make initial down payments, usually 10 to 25 percent of the total. Once they pay off the full amount, they can take home their purchases.
If customers don’t make payments in time – or back out of purchases – stores often charge cancellation fees, as well.
“People want the feeling like they are able to buy what they want today, but they’re not actually buying it. They’re putting it aside and paying a higher price for it,” said Louis Hyman, an assistant professor at Cornell University’s School of Industrial and Labor Relations who is the author of the book “Debtor Nation: The History of America in Red Ink.”
A layaway purchase is like a very expensive loan that doesn’t allow the borrower to use the goods until he or she pays off the loan, Hyman said. “It’s like you had to pay your mortgage in advance for 30 years and you don’t even get to live in your home.”
Some of the negative buzz could be quieted by news that major retailers are slashing layaway fees as they roll out 2012 holiday plans.
Toys R Us last week waived the service fee for layaway orders created through the end of October. After that, there will be a $5 service fee.
“Plans to offer free layaway this holiday season have been in place for some time,” Toys R Us spokeswoman Katie Reczek said in response to written questions.
Wal-Mart willeliminate last year’s $10 cancellation fee and lower the fee it charges for opening a layaway account, from $15 to $5. Wal-Mart customers will receive that $5 back as a gift card after making their final layaway payments. Last year, Wal-Mart didn’t refund the account-opening fee.
Wal-Mart also will offer more time to make their payments. They now have 90 days to complete their purchases, up from 60 days in 2011.
Kmart stores this year will waive service fees for layaways through Nov. 17.
Marks, of Consumer Reports, cautioned shoppers to get everything in writing, read the fine print and keep accurate records of payments.
“You ask the right questions. You make sure than you know the risks and rewards. And then you decide if it’s worth it,” he said.