While the festive season is generally the time to pick up a lay by, this past festive season has seen retailers focussing on lay by agreements for a wholly different reason. The commencement of the Competition and Consumer Act 2011 (Cth) (the Act) on 1 January saw (among other changes) the introduction of a number of new laws focussed solely on lay-by agreements. All retailers that have lay-bys policies must be aware of these laws and ensure compliance with them.

 Until 1 January 2011 lay-by agreements were dealt with on a state by state basis pursuant to the relevant fair trading laws. With the introduction of the Act lay-by agreements are now dealt with under the one Federal Act. This is likely to be advantageous to most franchisors that have national networks as it will allow them to prepare one standard form lay-by agreement for use in all states and territories in Australia.

A “lay-by agreement” is defined, for the purpose of the Act, as an agreement between a supplier and a consumer for the supply of consumer goods on terms which provide that:

  1. the goods will not delivered until the consumer has paid the total price of the goods, and
  2. the price of the goods is to be paid by either 3 or more instalments or, if the agreement specifies that it is a lay-by agreement, 2 or more instalments.

The Act now requires that all lay-by agreements be in writing, be given to a consumer upon the consumer entering into the agreement and that the agreement be “transparent”. The Act also specifies the circumstances in which a lay-by agreement can be terminated. Specifically, a lay-by agreement may be terminated by a consumer at any time before the goods the subject of the agreement are delivered. If the agreement is terminated in these circumstances the supplier must return all monies paid. The supplier may, in such circumstances, be entitled to charge a termination charge (provided that it is not in breach of the lay-by agreement) however the termination charge must not be more than the supplier’s reasonable costs in relation to the agreement.

Suppliers also have rights to terminate: however they are limited. A supplier may only terminate a lay-by agreement if the consumer who is a party to the agreement has breached the agreement, the supplier is no longer involved in trade or commerce, or the goods to which the lay-by agreement relates are no longer available. If a lay-by agreement is terminated, the supplier must refund all amounts paid under the agreement other than any termination charges.

Failure to comply with the provisions of the Act may result in pecuniary penalties. Accordingly, franchisors that use lay-by policies in their networks should familiarise themselves with the relevant provisions of the Act and revisit their lay-by policies to ensure that they comply with the new legislation.