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Retailers relax layaway rules, start earlier

Monday, October 15, 2012 - 12:01 am

INDIANAPOLIS – The strings attached to layaway programs at some of the nation's largest retailers have loosened a bit – just in time for consumers to snatch up big-ticket items like TVs, jewelry and cartloads of toys for the holidays.

At Toys R Us, there are no upfront fees to start a layaway from now until November. Same goes for Kmart.

Pay off your account on time at Wal-Mart and you'll get a gift card as a reward. If you cancel your order, there's no penalty.

These are just some of the changes retailers have made as they revamp their layaway policies, offering a more consumer-friendly approach to programs that have been criticized by some as taking advantage of people who can afford it the least, The Indianapolis Star reported.

"Still, beware and know what you are getting into, but it appears they are trying to make these layaway programs more shopper friendly," said Bill Thomas, president and CEO of the Better Business Bureau serving central Indiana, which has fielded plenty of consumer complaints on layaway. "That's good for the consumers."

Good, but not void of all the pitfalls of layaway.

There is still plenty of fine print buried in most policies – complicated payment schedules, sometimes hefty down payments and differing refund policies.

Some retail analysts say the small, but positive changes also are a way to entice more consumers to use layaway – and buy at the stores that offer the most convenient terms.

"What is striking is that these changes are happening so soon," said Richard Feinberg, a retail professor at Purdue University. "The desperation of retailers to get the consumer dollar is extremely clear in these early efforts – lower or no fees and penalties."

One of the changes at Wal-Mart this year includes offering layaway 30 days earlier, it started Sept. 16, to give consumers an extra 30 days to pay off their purchase.

Smart move, according to Feinberg.

"There are a number of consumers who could, if given four more weeks, buy what they could not if given (less time)," he said.

That's exactly what Wal-Mart heard from customers last year, said Shawn Nash, store manager at the Marion, Ind. store.

"Customers really wanted it earlier," he said. "We are already seeing people in using layaway, more big TVs, bigger more stocky items. They are putting them in sooner. They want to spread those payments out over time."

Besides the earlier start, Wal-Mart this year did away with its $10 fee for consumers who canceled orders. And instead of pocketing the $5 opening fee, it is giving it back to shoppers who pay off their accounts on time, in the form of a gift card.

Staying the same is the required down payment of 10 percent or $10 (whichever is greater) due at the time of purchase.

Inside stores, it would be hard to miss that the nation's largest retailer is offering layaway. Signs hang on every aisle with eligible items (toys, electronics, appliances and sporting goods). Even individual items are tagged to let shoppers know they can be bought today and paid for later.

Missy Perry perused the toy aisle of the Greenfield Wal-Mart last week, surprised that she could already put items on layaway, but glad. She is a first-time grandma this Christmas and plans to buy plenty.

"To me it's a good way to budget yourself," she said. "It's great as long as you go in knowing the rules. And it's been around forever."

Layaway programs have been around for decades, but faded as credit cards crept onto the retail scene.

But the sluggish economy the past several years has prompted retailers to introduce or heavily market layaway programs, and that has a whole new generation of consumers trying layaway for the first time.

Leroy and LaTrice Hayes shopped recently at the Toys R Us on East Washington Street.

Layaway helps immensely in spreading out the payments on big-ticket items, said Leroy Hayes.

"That way we can factor Christmas in as a monthly bill instead of paying it all at once," he said.

Toys R Us this year lifted its $5 opening fee through Oct. 31.

The reason?

The retailer wanted to encourage customers to layaway early to give them the maximum amount of time to pay. All Christmas orders must be paid off by Dec. 16.

"They have the opportunity to make a series of small payments over time and ensure those items are paid for and ready to be put under the tree Christmas morning," said Katie Reczek, spokeswoman for the retailer.

Waiving just the small opening fee has some impact for consumers

"That's one more toy we can buy for someone," said LaTrice Hayes.

Still, customers still must pay 20 percent down and have 50 percent of the total cost of the order paid within 45 days.

Kmart, too, removed its layaway service fee both online and in stores through Nov. 17.

"We understand the excitement holidays bring and the budget concerns that come with them," said Jai Holtz, vice president of financial services at Sears Holdings, which owns Kmart. "By providing free layaway we want to help make holiday shopping less stressful."

But most layaway plans have rules that must be followed to avoid fees, Feinberg said.

There are the down payments. Most programs require 10 percent to 25 percent down. After that, customers are typically required to make a payment on a biweekly schedule. However, it can be paid off early with no penalties.

But canceling can be costly. For consumers who don't keep up with payments or decide to back out, there is a lot to lose. First, they don't get their merchandise. They also don't get their service fee back and, in most cases, they are charged a cancellation fee of $10 to $20. Wal-Mart is the exception this year.

Customers will get a refund on what payments they've made, but it's almost never cash. Typically, it's in the form of a gift card that must still be used at the retailer.

And one other thing to watch out for, according to Thomas, has nothing to do with the retailer and everything to do with consumers and their personal finances.

"What is the true schedule of payments, and is that something that you are going to be able to make work?" he said.

In some cases, experts say, you might be better off to put merchandise on a credit card, especially if you can pay it off in the same time period.

Or, at the very least, Feinberg says, save up the cash in a coffee can at home and then buy the item later.