Extended warranty concessions offered by retailers

Dan Moore, from the Office of Fair Trading, says warranties should represent good value for consumers.

Dixons, Comet and Argos have pledged to improve the way extended warranties for electrical goods are sold, the Office for Fair Trading (OFT) has said.

Measures include providing more information for shoppers and launching a price comparison website.

But the consumer group Which? said that the proposals did not go far enough.

The actions come after the OFT carried out a study into the sale of extended warranties for electrical goods, which is worth £1bn a year.

The OFT is concerned that customers are not getting full value for money.

Dan Moore, project director at the OFT, told the BBC: "The key issue for us is that when warranties are sold they represent good value for consumers and that consumers get the best value when they purchase those products.

"There have been some important improvements in prices, however still some significant concerns remain. The market is still skewed towards the retailers too much and consumers still do not get full value for money when they purchase warranties."

Optional

The OFT has looked into extended warranties - which insure owners against the cost of repairing products such as televisions, washing machines and laptops - three times in a decade.

Current warranty rules

  • Shops make it clear that buying an extended warranty is optional
  • Customers have 30 days to buy extra insurance cover
  • There is a 45-day cooling-off period if customers change their mind after buying a warranty

Consumer groups have raised concerns that these warranties sometimes almost cost as much as the product itself.

Many electrical goods have a 12-month guarantee anyway, and sometimes repairs are covered by household insurance.

Under current rules, retailers have to make it clear that buying an extended warranty is optional and not compulsory.

They must also explain that customers can have up to 30 days to buy the extra insurance cover and that there is a 45-day cooling off period so they can change their mind after buying the warranty.

Mystery shoppers

Under the new agreement, shoppers will be able to go to a price comparison website to shop around for their warranty, rather than feeling they have to buy it in a shop as they buy the product. Only a quarter of shoppers look around for their extended warranty, the OFT found.

Start Quote

Providing more accessible information in-store will not, in itself, solve the problems with extended warranties”

End Quote Richard Lloyd Which? executive director

The stores have also agreed to carry out mystery shopping exercises to ensure that shoppers are being given accurate information by sales staff.

The OFT raised concerns about a rolling monthly warranty, offered by Dixons. The retailer has agreed to make this pricing in annual terms clear.

"As a result of the OFT's concerns, Dixons, Comet and Argos, the largest retail providers of extended warranties, have offered undertakings which the OFT will now consult on whether to accept instead of referring the market to the Competition Commission for a detailed investigation," the OFT said.

The OFT said that it expected to reach a final decision on whether to accept all the stores' proposals later in the spring.

However, Richard Lloyd, executive director of Which?, said: "Our research highlights that many of the warranties on offer today are worse value than ever before and ignore the fact that appliance reliability has improved significantly.

"We want to see better products at reasonable prices and for people to feel clear about what they are buying.

"Providing more accessible information in-store will not, in itself, solve the problems with extended warranties and we look forward to seeing the results of the consultation period over the next few months."

The Financial Ombudsman Service said that it had received 684 new complaints about warranties between April and December, and was upholding about two-thirds of complaints in consumers' favour.

In the last financial year it received 895 new warranty complaints, up from 863 the previous year, although most were about furniture.

Issues included mis-selling, misleading wording of policies, or exclusions and limitations to policies.

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