A lay-by agreement exists when a consumer:

• pays for the goods in at least three instalments (when the agreement is not called a 'lay-by' agreement) or in at least two instalments (when it is called a 'lay-by' agreement; and,
• the consumer does not receive the goods until the full price has been paid.

Any deposit paid is also considered an instalment.

For example - Ordering a Christmas hamper and agreeing to pay for it in weekly instalments is a lay-by agreement.

Lay-by agreements must be in writing and must specify all the terms and conditions, including any termination charge.  The trader must give a copy of the lay-by agreement to the consumer.

The trader may charge a termination fee if the consumer decides to cancel a lay-by agreement, unless the trader has breached the lay-by agreement.  The amount of the fee must not be more than the trader's 'reasonable costs' relating to the agreement.

For example - If a consumer lay-bys a winter coat in June but decides to cancel the agreement in August, it may be more difficult for the trader to sell the coat at the end of winter.  The termination charge could take into account any need to discount the coat.

If the consumer cancels the lay-by agreement the trader must refund all amounts the consumer has paid, except for the termination charge.  If the lay-by payments do not cover the termination charge the trader can recover the outstanding amount as a debt.

A trader must not cancel a lay-by agreement unless:

• the consumer has breached a term of the agreement, such as missing a scheduled payment;
• the trader is no longer trading; or,
• the goods are no longer available due to circumstances outside the trader's control.