Regulatory Issues in Layaway Ticket Sales


The economic downturn and great recession decreased consumers’ disposable income, made consumer borrowing more difficult and soured public opinion against borrowing and amassing credit card debt. Combating this downward trend in purchasing power and desire, innovative retailers have revived an American retail tradition, the layaway sale. Layaway sales allow buyers to “reserve” certain items or services in exchange for a down payment and the promise to make subsequent, regular installment payments. When the client pays the full purchase amount agreed to by the merchant, the merchant delivers the reserved item to the client and the transaction is complete.
While traditional layaway programs were a staple of big box and department stores, the modern layaway programs tout a variety of products and services. Modern entrepreneurs, seeking to sidestep the credit crisis, are using this once obsolete finance tool for everything from plastic surgery to concert tickets. As more ticket purchasers find layaway sales appealing, more recognized festivals are adopting this payment plan, including one of the largest music festivals in the world and Indio Valley staple, Coachella.

Festival Promoters and Event Organizers Beware
Festival promoters and organizers make their living by being attuned to their savvy audiences, but some may be less attuned to the regulatory schemes surrounding ticket sales. To those unknowing, take heed. Both federal and state laws heavily regulate layaway sales.  This is partly due to layaway sales’ classification as credit and lending transactions, which are governed by similar federal regulations that control banks and credit card companies. (Id.) On the state level, legislatures, worried about predatory lending and sale practices, have added specific regulatory restrictions specifically targeting layaway sales. (Id.)

Event organizers who have venues in these states, operate out of these states, or solicit business in these states, must comply with both state and federal regulations. (See 15 U.S.C.A. § 57b (West); 15 U.S.C.A. § 1610 (West)) Failure to comply with these regulations has numerous costly repercussions. If a court finds the underlying layaway contract violated the law it will deem the contract unenforceable. (See Cal. Civ. Code § 1749.2 (West)) This will lead to the merchant forfeiting any proceeds back to the customers. Since ticket sellers handle a large volume of customers, they may find themselves susceptible to a class action suit in these matters. Moreover, some regulations provide for statutory damages or attorneys’ fees, further compounding the potential loss. (See 15 U.S.C.A. § 45 (West); 15 U.S.C.A. § 1640 (West))

Avoid Litigation at All Costs

Inattentive ticket sellers and venue organizers might be headed into a perfect legal storm. The combination of high volume sales, statutory damages and attorneys’ fees are sure to attract creative attorneys seeking to initiate a class action. This kind of litigation can be burdensome, often leading to settlement out of necessity. Outlined below are select parts of the pertinent law that could help the layaway ticket seller to avoid regulatory violations and costly litigation.
Federal Law Regulations

Layaway transactions are not expressly mentioned in the U.S. Code. However, two major acts include general language that applies to layaway sales. These two acts are: the Federal Trade Commission Act (FTCA), and the Truth in Lending Act (TILA).

The FTCA prohibits unfair or deceptive acts or practices in or affecting commerce. (15 U.S.C.A. § 45 (West)) This general language has given rise to a variety of lawsuits, both by private plaintiffs, and by the federal government seeking statutory penalties. (See F.T.C. v. Ellsworth, CV 08-64-M-DWM, 2014 WL 2767534 (D. Mont. June 18, 2014))  In recent cases, the Federal Trade commission clarified “deceptive acts or practices.” The phrase refers to practices that “include false oral or written representations, misleading price claims, sales of hazardous or systematically defective products or services without adequate disclosures, failure to disclose information regarding pyramid sales, use of bait and switch techniques, failure to perform promised services, and failure to meet warranty obligations.” (F.T.C. v. IFC Credit Corp., 543 F.Supp2d 925, 941 (N.D.Ill.2008))

In the ticket sales arena, StubHub Inc. has recently been named as defendant in three lawsuits. These lawsuits allege StubHub violated federal and state unfair practices regulations when it failed to alert its online customers of its pricing and authentication practices. (Hill v. StubHub, Inc., 727 S.E.2d 550 (N.C. Ct. App. 2012) review denied, 366 N.C. 424, 736 S.E.2d 757 (2013); Porras v. StubHub, Inc., C 12-1225 MMC, 2012 WL 3835073 (N.D. Cal. Sept. 4, 2012); Fabozzi v. StubHub, Inc., C-11-4385 EMC, 2012 WL 506330 (N.D. Cal. Feb. 15, 2012)) Although StubHub Inc. was able to avoid trial by alleging it was only a “marketplace” for resellers of tickets, a festival or event ticket seller would not avail themselves of such a defense. (Hill v. StubHub, Inc., 727 S.E.2d 550, 564 (N.C. Ct. App. 2012) review denied, 366 N.C. 424, 736 S.E.2d 757 (2013))

Another act that regulates layaway sales is TILA. (15 U.S.C.A. § 1601 (West)) Unlike FTCA, TILA only regulates those layaway plans that have four or more payments, or that charge a servicing fee. (15 U.S.C.A. § 1602 (West)) However, TILA is more likely to give rise to litigation given the fact that it provides for attorneys’ fees for the prevailing party. (15 U.S.C.A. § 1640 (West)) TILA requires those layaway merchants that meet the specified conditions to disclose: (a) any interest or finance charges, (b) the method of determining the finance charge and the balance upon which a finance charge will be imposed, (c) the total number of payments and amount of each payment, and (d) the due dates or periods of scheduled payments. (15 U.S.C.A. § 1602 (West))
State Law Regulation
In addition to federal law, ticket sellers are also subject to state regulations.  These are not limited to the state in which the seller operates, but can also include state law in states from which the seller solicits business, or where the event is set to take place. (Cal. Civ. Code § 1802.19 (West)) Nearly all states have a state version of the general provisions that appear in TILA and FTCA, and some states go even further and expressly regulate layaway sales. As long as the state regulations do not contradict the federal ones, a ticket seller must comport with both. (15 U.S.C.A. § 1610 (West))
Of the states that expressly regulate layaway sales, the largest is California. California law requires sellers to disclose:
(1) the amount of the deposit received;
(2) the length of time the goods will be held on layaway;
(3) a specific description of the goods;
(4) the total purchase price of the goods, including a separate listing of any handling or processing charges;
(5) any other terms and conditions of the layaway agreement; and
(6) that the seller will refund any layaway deposit and subsequent payments, if any, when, before the end of the stated layaway period, the goods have for any reason become no longer available in the same condition as at the time. (Cal. Civ. Code § 1749 (West))

Another major state that expressly regulates layaway sales is New York State. New York’s general business law §396-t has similar requirements to the California law, but adds that the layaway seller must disclose to the buyer any cancellation fees, consequences of missing payments, refund policy, and the location, if other than the place of purchase, where the merchandise will be stored. (N.Y. Gen. Bus. Law § 396-t (McKinney)) However, New York limits these requirements to layaway sales comprising of four or more payments and for merchandise valued at $50 or more. (Id. ) A savvy ticket seller can therefore avoid New York regulation by offering tickets at $49, or by limiting the installment plan to three payments or less.

An even more stringent regulatory structure exists under Illinois Compiled Statutes chapter 815 §360/2, known as the “Layaway Plan Act.” (815 ILCS 360/2 (West)) In Illinois, like New York and California, the seller is charged with making special disclosures to the buyer. (815 ILCS 360/2 (West)) However, Illinois adds many more prohibitions on the seller, including a prohibition on raising prices, on substituting the goods for cheaper ones, and on misrepresenting the store's refund policy. (Id.) Sellers that do not refund received payments in case of buyer default must also disclose this fact to the buyer in writing. (Id.) Moreover, the seller must identify any interest charges on the bill, and the seller bears the burden to show that any unidentified charges are not in fact undisclosed, and unlawful, interest charges. (Id.)


Enterprising festival organizers and ticket sellers seek to accommodate their audiences by offering them a variety of payment plans, including layaway plans. But an interlocking web of state and federal regulations governs layaway plans. These sellers, full of good intentions, might unknowingly step right into a class action suit with actual damages, statutory damages and attorneys’ fees on the line. A cautious plan and careful overview of the state and federal law governing the situation might be a prudent way to avoid costly litigation, and to “keep on rocking in the free world.” (Young, Neil. "Rockin' in the Free World." Freedom. Reprise, 1989.)

Uri Niv also contributed to this article.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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