Is Yo Mama really ‘fiscally responsible’ by choosing Kmart layaway?

Kmart is running a new ad campaign, touting what they are calling ‘free’ layaway.  The commercial (which is hilarious) shows a group of elementary school kids trash talking about each others’ Mamas and how great they are, because they managed to buy cool items at Kmart. “Did your mama get that hoodie at Kmart?….Well your mama must have calories because that hoodie is sweet!” and the other kids all respond with “Whoa!”  The ad’s best line probably earned somebody a bonus. “Yo mama is so fiscally responsible she got all that on free layaway”……“Nooo!” It’s funny and has charm. It’s also not true. 

As we will see, Kmart’s layaway can be described in many terms.  But, ‘fiscally responsible’ and ‘free’ are not two of them.      

Maybe ‘Disclaimer’ is a better word to use

First of all, the offer is not open to everybody.  You have to join the ‘Shop Your Way’ program to qualify.  (Click here for the story of someone who tried ‘Shop Your Way,’ only to be given the old slippety-slip, when he tried to cash in his points.)  In fact, there are so many disclaimers connected to Kmart’s ‘Free layaway,’ that the press release announcing the start of the campaign actually came with footnotes! (SIX separate ones!)

The disclaimer that they actually put into the commercial flashes on the screen after 44 seconds.  It says:

Cancellation fees and exclusions apply. Valid on Layaway purchases ….. [until] 8/20. Requires down & biweekly payments. Service fee waived. All fees nonrefundable.  Not available in all stores. See store for details.

If you want to learn more about the terms for their layaway, you have to visit a website that is linked to the youtube video, where you will find details. 

Once there, you will find out that when you’re at Kmart, the word ‘FREE’ doesn’t mean what you think it means: 

    • It only applies if you enter into the layaway contract, between certain dates (in this case, only until August 20); 
    • You have to be a member of the ‘Shop Your Way’ club;
    • The FREE part only applies to the ‘service fee.’  It does NOT apply to the ‘cancellation fee,’ or other fees that Kmart is allowed to charge for regular layaway plans;
    • The offer is good except where it’s ‘prohibited by law;’

Consumer Courage is bothered by this commercial because – although they announce several times that the Layaway plan is FREE – it is more aptly described by the legal phrase: “NOT free.” (And, Consumer Courage wonders whether you should be allowed to call a 12 week layaway plan for a back-to-school item ‘responsible’, when school starts in about 5 weeks)

Layaway in a nutshell

Most people know that a ‘Layaway’ is when you agree to buy an item from a retailer, but let them hold onto it, while you make payments. When you finish paying, the item is yours…Simple, right? But what happens if you don’t pay the entire amount, will they refund your money? Here’s where myth and reality collide, as there are some quirky aspects to Ohio law which applies to Layaway plans that most people don’t know.

Is Layaway really a good idea?

Layaway sounds like a great idea.  If you can’t afford that Moss-covered-three-handled-family-gredunza  you’ve had your eyes on, you can still have it!  Just make partial payments to the seller, until you’ve paid the entire purchase price.  You’ll be saving the money, while the seller will pull that Gredunza from the shelves and agree not to sell it to anyone else, while you are paying.  The big question is: What are the risks that you’ll lose the money, if you aren’t able to pay the entire price?

In Ohio, there are two kinds of layaway contracts, depending on whether the item you are trying to buy costs more than or less than $500.  If it’s less than $500, there’s not much of a risk.  If you stop paying, you get a 10-day window to make up the missed payments.  If you can’t pay what you owe, you have the right to get back (almost) everything that you paid. The only money that the seller is allowed to keep for a small-ticket item is 10% of the value of the item or $25 – whichever is LESS. 

If the item costs more than $500 (a so-called ‘big ticket’ item), and you put it on Layaway, you’re risking a lot more than just twenty-five bucks. 

The good news?

When you layaway one of the big-ticket items, you have the right to get a written contract that must contain:

    • A schedule of payments;
    • The fact that you can cancel within 5 days of the start of the contract for a full refund;
    • A guarantee that if you stop paying, you can receive a due-bill for the amount you paid towards the purchase price of something else;
    • If you don’t get a written contract (or if the contract you get doesn’t follow Ohio law), the more friendly rules for a ‘less than $500 item’ apply 

The bad news?  The seller can:

    • Fee you to death on a layaway plan (as long as they put it in the contract). Ohio law allows any ‘reasonable’ charges, which means that they can charge you pretty much anything and get away with it, as long as they name the charge;
    • Really zing you, if you want cash back. If you can’t pay the whole amount and you want cash, instead of a due-bill, Ohio’s layaway law lets them rail you. If you insist on getting cash back, they can charge up to 50% of what you’ve paid to them, as long as they call them ‘fees’!

“Yo mama just broke Ohio’s Exclusions Rule!  Boom!”

Back to our Kmart commercial.  The biggest legal problems with this ad are found somewhere else in Ohio’s Consumer laws.  It appears to Consumer Courage that the ad violates two Consumer Protection rules. 

The first is referred to as the ‘Use of the word FREE’ rule.  Simply put, if a retailer has an ad that says something is FREE, it needs to actually be FREE.  If there are conditions that have to be satisfied for you to get that item for free, they need to say that in the ad.

The second rule is the ‘Exclusions Rule,’  which is supposed to keep us safe from retailers who make outlandish offers, while they have their fingers crossed behind their backs.  Imagine you see an ad that says “120 inch Plasma TV…..only $8.00!” and there’s a sentence that says “offer only good on Tuesdays in July, between 7:59 and 8:00 p.m., when the temperature is less than 45 degrees.” That last sentence has to be at least as big as the print in the rest of the ad. If not, the seller has violated Ohio’s Exclusions Rule.  Footnoted exclusions are not allowed either. If the ad is on TV or Radio, they have to state any exclusions, conditions or limitations right before, or right after the offer. Not at the end (like in our ad) and not in teeny print, close to the end (also in our ad).

Here are the fees that Kmart will stick you with, if you choose to lay something away:

    • Service Fee is $5 for all new layaway contracts.*
    • Cancellation Fee is $10 for all new layaway contracts.*
    • Down Payment is $15 or 10% (whichever is greater) and is collected when merchandise is put on layaway.*
      • * Except where prohibited by law, in which case the down payment would be less than that amount. See stores for state specific fee limitations. Down payment includes a $5 service fee for an 8-week contract. No partial cancellations are permitted. Cancellations can be made only in the store where you opened your contract.

The last two exclusions denoted by the star are interesting, because they both misstate your rights under Ohio law.  While they don’t define what a ‘partial cancellation’ is, Ohio law DOES give you the right to cancel your layaway contract at any time.  In addition, Ohio law does NOT require you to go to the store, where the contract was opened. That’s a retailer’s trick to make it harder on you to cancel.

An even bigger concern is that you have to go onto what Consumer Courage calls the ‘hyperlink merry-go-round’, in order to locate the contract and the various fees that go with it.  This is yet ANOTHER violation of the Exclusions Rule. (The retailer is required to give the consumer ‘obvious terms or instructions’ needed to locate the exclusions online and are supposed to make it easy to go ‘directly to the disclosed information’. )

Maybe we should all try a new kind of layaway.  I call it ‘Mattress Layaway.’  Put the money you want to save, in order to buy that awesome thing-a-ma-jig under your mattress.  Once you have enough, walk down to Kmart (or wherever you want to go) and pay them cash.  That way, you can back out any time you want and still keep all of your money.  The fees are much lower and when you’re strutting around in that new outfit you won’t have to hear:  

“Your mama can only afford to buy all of your clothes two sizes too small, because she spent so much on hidden Layaway fees at Kmart”……. “Boom!”

Posted by: Nadine Ballard and Mark Wiseman (who still gets just a teeny bit worried when he hears somebody utter the phrase ‘back-to-school shopping’)