Lay-by Agreements are regulated by the Australian Consumer Law (ACL) as contained in the Competition and Consumer Act 2010 (Cth) Schedule 2,Division 3 ss 96-99.
What is a Lay-by?
A lay-by is an interest free way to pay off goods while they are stored by the seller. Some sellers charge an administrative fee. The lay-by terms and conditions are set by the business. The price of the goods is the price on the day that the goods are first set aside. The buyer does not receive the goods until the full price has been paid.
A lay-by is an agreement between a customer and a seller where:
- they agree on a fixed sale price and payment conditions;
- the seller holds the goods until the customer finalises the payments;
- the seller does not charge interest on the outstanding debt.
The lay-by can be anything from one week to many months. The seller and the customer are free to decide. The seller will then hold the goods for that period of time.
An agreement is a lay-by if:
- the customer pays in three or more instalments;
- the seller calls it a lay-by, even if the customer pays in only two instalments. The deposit is taken to be an instalment.
Lay-by agreements that are standard form contracts may be covered by unfair contract terms provisions in Part 2-3 of the ACL.
Terms and Conditions
When a lay-by agreement is entered into, the customer is entitled to a copy of the agreement and must make sure they understand the terms and conditions. The agreement must be transparent, which means that it must be expressed in plain language, legible and clearly presented. A lay-by agreement may not be transparent if, for example, terms and conditions are hidden in fine print or schedules, phrased in legal jargon, or given in complex or technical language.
Agreements must be in writing and should contain:
- what goods are being sold;
- how much they cost;
- how much deposit the customer paid;
- how long the lay-by will last (maximum);
- what cancellation and refund policies apply.
Cancelled lay-bys
If the customer cancels a lay-by agreement,the seller:
- must refund the customer’s money;
- may charge a termination fee only if it was in the agreement.
A termination fee can only cover the costs of the lay-by.
It is lawful for a business to charge a reasonable termination fee to recover their costs if the consumer terminates or breaches the contract, but not if the seller has breached the agreement. Reasonable costs are for example, storage and administrative costs. What is‘reasonable’ will depend on the circumstances, and suppliers should be prepared to justify claims for reasonable costs.
If the consumer’s lay-by payments do not cover the termination charge,the supplier can recover the outstanding amount as a debt. This should be stated clearly and legibly in the lay-by agreement, along with any other details of termination fees. Failing to do so may breach
the requirement that lay-by agreements be transparent. Apart from the termination charge, a supplier is not entitled to damages or any other remedy for the termination of the lay-by.
The seller cannot choose to remove the goods from sale.
The seller is not allowed to break a lay-by agreement unless:
- the customer breaks one of their terms, so if, for example, they failed to make a scheduled payment on time;
- the business closes down and the supplier is no longer engaged in Trade or Commerce;
- the goods are no longer available for reasons the seller can’t control.
The customer is entitled to a full refund if:
- The business closes down;
- the goods are no longer available for reasons beyond the supplier’s control.
It is an offence for a supplier to:
- enter into a lay-by agreement without putting it in writing;
- not give the consumer a copy of the written agreement;
- refuse to refund all of the consumer’s money (except for the termination charge);
- charge a termination fee that is higher than the reasonable costs associated with the agreement, or when the supplier has breached the lay-by agreement.
Each offence has maximum civil and criminal penalties of $30,000 for a body corporate and $6,000 for an individual.
