Blumenthal warns of hidden charges in layaways
Published 6:41 pm, Sunday, November 27, 2011
HARTFORD -- U.S. Sen. Richard Blumenthal warned national retailers Friday that hidden costs for layaway purchases are gouging consumers and unless the industry agrees on better disclosure, he will ask for a federal investigation.
The first-term senator and former longtime Connecticut attorney general said news reports and complaints to his office prompted him to look at the burgeoning layaway-purchase trend, which may take advantage of consumers who do not have credit cards.
In reaction, an industry spokesman on Friday defended layaway plans as cost-conscious ways for people with bad credit or no credit to complete purchases over time.
During a news conference in the Legislative Office Building, Blumenthal, using an "Elmo" toy purchased for $69 at Wal-Mart as a prop, said with hidden fees and charges the cost of the toy could balloon to $105 over the course of a year.
"That kind of excessive interest rate, which by the way would violate state usury laws in Connecticut and other states, is really a disservice to consumers," Blumenthal said.
"Consumers are paying, in a sense, excessive interest rates under the guise of fees or other charges, believing that they are adopting a more frugal alternative. And the retailers can do the right thing and disclose fully what the charges are."
In letters to retailer organizations, as well as Sears, Wal-Mart and Best Buy, Blumenthal said the resurgence of layaway plans have turned into opportunities for companies to overcharge consumers.
"Typically these layaway plans involve a down payment of $10, a fee of $5, which means an effective annual percentage rate of interest sometimes between 44 and more than 100 percent," Blumenthal said. "These interest rates are unconscionably high and they are imposed under the guise of fees and other charges that take advantage of consumers hard-hit by tough economic times who are desperate or deceived or both."
Ethan Senack, a spokesman for the Connecticut Public Interest Research Group, said during the news conference the advocacy group supports Blumenthal's effort as layaway plans come back into style.
"Layaway plans have benefits, but they also carry a lot of risks," Senack said. "Credit cards are actually cheaper and give consumers more rights. If you use layaway because you don't have a credit card, you should be aware that the equivalent interest rates can be as high as 80 percent (annual percentage rate) or more. You should be aware that there are cancellation fees and reinstatement fees if you miss a payment. And you should be aware that the product could be sold off the shelf depending on the fine print of your layaway agreement. So if consumers aren't careful this season they could be cheated."
"Layaway programs are neither credit nor a loan, they are simply a responsible, low-cost alternative to credit cards that allow customers to pay for an item over time without accumulating debt," Dodge said. "These programs are highly regarded and sought after by consumers who are either unable or unwilling to access credit."