A Kmart store layaway associate retrieves a package from a layaway storage area on November 17, 2008 in the Bronx borough of New York City. (Photo by Yvonne Hemsey/Getty Images)
Remember layaway? If you don’t, you will. With the credit crunch now in full swing, it’s making a comeback. Ben Popken over at The Consumerist summarizes its return:
Layaway is back this year. What’s that? It’s where you buy an item at a store, but don’t pay for it completely right away. The store puts the purchase item aside for you. You then make regular payments and once they add up to the full price tag, you get your item. Imagine that, saving up and only buying something once you can afford to pay for it in cash. Layaway plans used to be more popular but were overtaken by the ease and instant gratification of credit cards. Unlike credit cards, you don’t pay any interest, although sometimes there is a base fee. Now that credit lines are being cut and thrift is the new black, layaway is making a comeback. Kmart is featuring it in their Christmas ads, and Oprah talked about it on her show recently.
The decline of the credit card - which is to say, the decline of instant gratification - may sound like a silver lining - the comments to Popken’s article are full of people praising layaway for giving you time to really think about the purchase, - but in practice it can be yet another mechanism for penalizing the poor.
Though you may not have to pay interest on a layaway plan, the base fee can amount to the same or more. And since a lot of companies don’t offer layaway plans directly, a market has emerged for companies that do, often through partnerships with large retailers. A couple years back, Brendan Koerner of Wired described, on Gizmodo, how one of these rackets works:
Perhaps the most well-known—or infamous—of these ventures is Financing Alternatives Inc. of Chesapeake, Virginia.
On the surface, at least, the FAI business plan is really straight out of Merchants of Misery: Target customers with horrendous credit, then charge ‘em up the ying-yang with a weekly payment plan. Take this “small business desktop,” which is advertised as running a Celeron D processor and housing an 80-gig hard drive. The lowest advertised total price on this, at $35.99 per week for a year, comes out to $1,871.48. Meanwhile, Dell’s closest parallel, the decidedly low-end Dimension B110, now runs $299 (albeit sans printer). So, just because you have ghastly credit, you’re being forced to pay a minimum of $1,500 or so extra. Ouch.
With a time lag between payment and purchase, opportunities for consumer manipulation multiply. The product you eventually receive might not be the product you thought you were purchasing:
Though they depict cheap Dells on their website, FAI often builds their own systems. According to one RipOffReport.com correspondent, who identifies himself as a current employee of FAI, the company uses the cheapest components available on their homebrew models, often stuffing archaic EDO RAM or non-AGP video cards into the PCs. Obviously, this stuff ain’t so simpatico with today’s software; pity the kid who tries playing the new Half-Life title on his FAI box.
From product quality to price to customer service, layaway programs introduce new problems for the consumer - and to the extent that these payment plans are by definition designed for the poor, their effects can be all the more egregious. Though layway plans will no doubt be a convenience to many, for others they will be one more tax on an already over-stretched income.
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