Comments on Extended Warranties

[BankFodder]

1. Extended warranties seem almost to be as normal a part of the product line of most electrical retailers as are the electrical products which intended to be their principal subject of business.
2. Extended warranties are intended to supplement or extend the existing one year warranty which is provided free of charge by all electrical suppliers.
3. Consumers are already protected in their purchases by the provisions of the Sale of Goods Act 1979 (as amended). S.14 particularly seeks to provide consumers with protection against product breakdown for a reasonable period of time. This statutory protection cannot be contracted out of by the supplier of the goods.
4. By and large it is possible to say that the cover provided by extended warranties and the protection provided by statute overlap and are extremely similar. The only discernible difference is that where a product breaks down because of misuse rather than because it is not of "satisfactory quality", then statutory protection will not afford any comfort for the consumer. This probably occurs only in a minority of cases.
5. The conclusion is that extended warranties have become a device by which consumers are persuaded to pay for cover which they already have under statute. By this means, manufacturers and suppliers have been able to shed their responsibilities under the Sale of Goods Act.
6. Extended warranties are now such an established part of electrical (and other) retailing that they have produced a culture which has replaced reliance upon statutory rights to the extent that consumers no longer understand that they have such rights at all. Indeed the extended warranty phenomenon is so insidious that even retail staff at all levels believe that a consumer who has not purchased an extended warranty has no right to make a claim for repair or replacement of expensive electrical equipment even only 1 day after the expiry of the standard one-year warranty. Even when selling extended warranty cover, staff do not explain statutory rights to the consumer and indeed are incapable of doing so. If asked about them, they are insistent that consumers are only covered by a standard one-year warranty: this is misinformation.

Summary
It seems quite unfair that in principle the public are being asked to pay quite large sums for breakdown cover which they already have under the Sale of Goods Act. Reciprocally it seems quite unfair that retailers and suppliers are able to escape their statutory responsibilities under cover of the extended warranty system.


The fact that extended warranties are so commonplace among electrical retailers has helped consumers to lose sight of their statutory rights. This is assisted by a lack of understanding and misinformation on the part of the retailers who in their turn seem to have lost sight of their statutory obligations - on the shop floor, at any rate..

From an economic point of view it seems likely that manufacturers will have a greater incentive to produce or retailers to stock quality goods where they are obliged by statute to bear the cost of repairs and replacements themselves. The extended warranty system allows the cost of such repairs or replacements to be shifted to the shoulders of the consumer in addition to providing a profit for the seller of the warranty - the retailer.

This can not be an equitable situation.
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Evidence Supplied to the Investigation on Extended Warranties conducted by Competition Commission in 2003