Extended warranties: Government consults again

Electrical retailers frequently sell extended warranties as an add-on when a customer buys electrical goods. Typically these can add around 50% to the cost of the product, while customers are offered only one supplier's extended warranty and terms and are given no information about other suppliers' warranties or about the likely costs of repairs in the future.

Following complaints by consumers and consumer groups, in 2002 the Director General of Fair Trading formally asked the Competition Commission to investigate the market. The Competition Commission did so, finding that the extended warranty market was not working as well as it should, with consumers often being put under pressure to sign up to an extended warranty at point of sale.

In July this year the Department of Trade and Industry launched a consultation on its proposals to solve the problem. It recommended that, by Christmas, retailers should:

• show the price of the extended warranty alongside electrical goods, in store and in adverts;
• give consumers information about statutory rights, cancellation rights and details of the warranty;
• give consumers 45 days to cancel their extended warranty, including a written reminder of this right and the right to cancel at any time and receive a pro-rata refund;
• offer the extended warranty on the same terms for 30 days if the consumer chooses not to buy it there and then. Any discounts tied to the purchase of the extended warranty would also be available for 30 days; and
• inform customers about whether or not their warranty provides financial protection in the event of insolvency.

Most of these proposals were, according to the DTI, welcomed by consumer groups, and many of the changes have already been put in place by some major retail chains. But other businesses have expressed concern about the speed of change and asked for the necessary legislation to be delayed until after Christmas.

Implementation has therefore been delayed, giving the DTI time to consult further on technical changes to the proposed rules. These include:

• Removal of the requirement for the price of the extended warranty to be given "similar prominence" to the price of the electrical product (businesses felt that it could confuse consumers if the two prices used the same font size; "clearly legible" is sufficient).
• Allowing a refund to be given in the form tendered (businesses argued that, where payment for an extended warranty was made in vouchers, they should be allowed to give a refund in vouchers).
• Removal of the requirement to provide a leaflet to customers before an in-store purchase.

The consultation will remain open until 20th December.