Is your lay-by CPA-compliant?

To assist cash-strapped customers, more retailers are offering a lay-by option.

Although this payment method is interest-free, consumers still need to protect themselves by ensuring the lay-by agreement reflects the protective measures set out in the Customer Protection Act (CPA).

How should a lay-by work?

This method allows you to pay off goods over an agreed period, with the retailer keeping the goods until you’ve paid the full price. Usually you pay a deposit upfront, then make regular payments.

But if you can no longer afford the payments, the retailer must give you your money back, charging no more than 1% of the purchase price as a cancellation penalty. The CPA, which came into effect six years ago, limits the penalties that retailers can charge. It also prohibits retailers from charging a penalty if they didn’t tell you about it before the agreement.

Therefore ensure you’re informed by understanding the CPA and your rights. This will prevent you from paying more than you need to. By doing so you’ll be able to ask the right questions before you enter into any agreement. Also ensure you understand the escalation channels if you experience any problems with your lay-by purchase. If you feel a retailer isn’t living up to the CPA standards and you’re unable to resolve the matter directly, you can lodge a complaint with your regional consumer offices or with the National Consumer Commission.

Take the time to understand the terms and conditions of any agreement you enter into – even something as seemingly simple as a lay-by agreement. Better still, try to avoid unnecessary purchases by factoring ‘wants’ (luxury items that aren’t necessities) into your formal financial plan and make adjustments to accommodate the short-term purchase you want to make. Working with a professional financial adviser can assist you.

Naidoo is legal advisor at Old Mutual Personal Finance.