Can I do layby sales on Trade Me?

Layby sales under the Fair Trading Act - a guest post by the Commerce Commission

The consumer law reforms of 2014 bought in changes to layby sales. There is a small amount of layby activity on the site, so we asked the Commerce Commission to give us the word on the street about how they work.

As the advice notes, this is the law so Trade Me expects all members who offer layby sales to make sure their practices comply.

Here’s what they said:

“Some Trade Me sellers may decide to offer “layby” terms to buyers. A layby is where the buyer purchases goods and makes payment by instalments, but does not take possession of the goods until all (or a specified portion) of the total price of the goods has been paid.

The goods must cost less than $15,000 and a seller cannot charge interest or any fees (apart from a cancellation fee) as part of a layby.

Example: Raewyn buys a pair of boots costing $300. Over the next few weeks she makes payments of $40, $30, $50, $50, $40, $60 and $30. After making the final payment, the seller sends her the boots. This is a layby sale because the goods cost less than $15,000 and Raewyn has paid by instalments.

The law relating to laybys is now included in the Fair Trading Act (FTA), and this Act is enforced by the Commerce Commission. The law applies to all sales where the consumer buys the goods for personal or domestic use. It applies even if the seller is not “in trade”.

The law isn’t difficult to comply with, but sellers should be aware of it because there can be penalties if it is breached. Buyers should also be aware of the law as it provides them with protection when they buy goods on layby.

Sellers are required to provide written disclosure to the buyer setting out specific details about the layby agreement. This includes:

a description of the goods
the seller’s name, street address, telephone number and email address
information about cancellation, including that the buyer has a right to cancel the layby at any time prior to taking possession of the goods, and details of any cancellation fee payable.

The right to cancel is regarded as a very important consumer protection, and it is a statutory right that goes beyond Trade Me’s standard terms and conditions. If a buyer cancels the layby, the seller can charge a cancellation fee, but this fee must be disclosed in the layby agreement.

Cancellation fees must be reasonable and must only reflect reasonable costs that the seller has incurred in relation to the layby.

Sellers should take care not to have a standard policy stating that a deposit of (say) 25% of the purchase price is required and that this is non-refundable if a buyer cancels the trade.

A percentage based fee is unlikely to be reasonable, and if a seller who is “in trade” makes a statement like that they could misrepresent a buyer’s rights, and breach the Fair Trading Act.

A cancellation fee is limited to recovering costs such as a loss in value of the goods, the costs of storing or insuring the goods and reasonable administration costs relating to the layby sale.

Sellers may need to be able to justify the fee, in case it is challenged.

A seller can cancel the layby agreement if the buyer has breached an important term of the layby agreement, and can charge a reasonable cancellation fee if the layby agreement states that a cancellation fee may be charged.

A seller can also cancel the layby if the goods are no longer available, but in that case, it can’t charge a fee.

You can read more details about the law on the Commerce Commission’s website here and here.

Many thanks to the Commission for putting this together for us.