Parry, thrust in warranty war

It's claimed there's been a big push to sell extended warranties.
It's claimed there's been a big push to sell extended warranties.

A WAR of words has broken out with consumer protection agencies slamming extended warranties on electrical goods as worthless, as retailers rally to defend them.

Extended warranties have long been slated as expensive by consumer defenders but the criticism, led by the Ministry of Consumer Affairs, has intensified with extended warranties being decried as in many cases providing no greater protection than is afforded by the Consumer Guarantees Act under which retailers must fix faulty items.

But the defenders of warranties say they do provide more protection, though admit that one aspect of that is that it means people don't have to battle retailers to enforce their rights under the act.

In many cases, the ministry says, the consumer may be no better off by purchasing an extended warranty.

"In such cases, retailers are effectively extracting an economic rent from consumers by relying on consumers being unaware of, or having insufficient confidence in, their rights under the Consumer Guarantees Act."

Some extended warranties are also being falsely sold as, for example, a five-year warranty, when the first year is covered by the manufacturer.

The ministry is also concerned that too many consumers fail to understand that often warranties expire once a claim is made, leaving them with no further cover.

Consumer NZ said there has been a big push by retailers to get staff to sell such warranties.

"Our research has found extended warranties are heavily promoted, frequently with confusing or misleading information about the protection they offer," it said, adding: "In most cases, extended warranties are an expensive form of protection compared with the guarantees consumers have already under the CGA. Consumers are effectively paying for protection they are entitled to under consumer law."

It called for laws modelled on those in the UK, where warranties were regulated after the competition authorities decided there was a "complex monopoly" where retailers were making unusually high profits. The UK passed laws forcing shops to provide more information on the warranties, including printing the prices alongside the price of items they would cover, as well as providing consumers with information about their consumer rights.

A study showed the change resulted in greater shopping around for warranties as well as a drop in consumers buying warranties at the point of sale.

But retailers, insurers and their industry bodies believe the ministry has its facts wrong. The Insurance Council said many warranties provided far more cover than the act, listing instances including:

Transferability of the cover under the extended warranty to a new owner.

Coverage for businesses as retailers generally require business customers to contract out of the protections under the act.

Coverage for consequential losses such as food loss caused by a failed refrigerator.

Cover for repairer call-out fees.

Cover for the failure of electronic products due to power surges or spikes.

Cover for normal wear and tear.

Cover for people using an item more heavily than the CGA would be likely to cover, such as a large family keeping a washing machine in constant use.

The council also said warranties provided certainty of cover.

Electronics retailer and renter DTR said the CGA was "vague and uncertain" on how long a retailer was obliged to fix items. That, the Insurance Council added, left customers dependent on a retailer or manufacturer accepting they should repair a faulty item, or the customer would be forced to head to the Disputes Tribunal where the outcome was uncertain.

Retailer Noel Leeming told the ministry electronics had become more complex which has increased the cost of repairs.

"We believe that the existence of extended warranties has had a positive impact on the overall standard of products and repairs by suppliers to the industry, partly due to the professional claims management services used by the service providers engaged by extended warranty underwriters," Noel Leeming argued.

Auckland University academic Alexandra Sims said a specific right of refund should be written into the act, if an extended warranty is missold.

"If the shopper is sold an extended warranty and is not informed clearly about consumers' rights under the CGA, all consumers sold the product and warranty would be entitled to be refunded for the price of the warranty."

Sunday Star Times