Shaking up the extended warranties market

On 28 July 2004 the Department of Trade and Industry (DTI) announced a public consultation on a major shake up of the market for extended warranties on domestic electrical goods. It has published draft legislation aimed at promoting competition in the sector. The deadline for comments is 22 October 2004 and the government aims to bring the changes into effect by the end of November, just in time for the busy Christmas shopping period.

The consultation will be of particular interest to those selling or providing extended warranties on domestic electrical goods, as well as manufacturers selling domestic electrical goods direct to consumers. Insurers underwriting insurance backed extended warranties and extended warranty service companies contracted with retailers, manufacturers or insurers may also be affected. The proposals will require those already involved in this sector to adapt their practices. New entrants should in future find it easier to start up in the sector and existing players may be able to expand their extended warranties activities.

The consultation was prompted by the Competition Commission (CC) finding in December 2003 that the market for extended warranties on domestic electrical goods was operating against the public interest.

The CC found that customers were often pressurised into purchasing extended warranties at the time and place where they bought a domestic electrical appliance. The CC also found that retailers' prices for extended warranties were generally higher than necessary to cover costs and generate an adequate return, so consumers were paying too much. The aim of the draft legislation is to create the conditions for more competition in the market for extended warranties on domestic electrical appliances.

Proposed changes include:

• a requirement on retailers to display the price of the extended warranty alongside domestic electrical goods in store and in written materials;
• strengthened cancellation and termination rights for consumers, including the right to cancel an extended warranty at any time within 45 days of purchase and obtain a full refund;
• a requirement to provide consumers with information on the availability of extended warranties from other providers, to explain that household insurance may be relevant and to provide information on statutory rights

Click here for the DTI consultation document and draft legislation.