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Comments on Extended Warranties

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  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 by Bankfodder to the Investigation on Extended Warranties conducted by Competition Commission in 2003


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Are we paying through the nose for unnecessary warranties? - desensitising the Consumer

 

 

There is an altogether more serious, insidious and completely ignored effect of the trend which has developed in the last 15 years or so of purchasing additional warranties as part of consumer-product packages.

Consumer legislation at least since 1979 has imposed a duty upon retailers that the goods which they sell must be of merchantable quality. This requirement has more recently been mainly re-badged so that goods must now be "satisfactory". This has been taken by the courts to mean that a product must work and must remain working for a reasonable period of time. On the basis that the courts are unlikely to expect consumers to re-invest £500 or so every couple of years or even three or four years in a new television or washing machine or what have you or much larger sums in a motorcar, nor have to spend substantial sums on keeping those products working during those first few years of use, it is reasonable to say that most Consumers are already adequately protected by Consumer legislation and certainly well beyond the perceived norm of the "1 year guarantee".

 

The routine selling of extended warranties has reduced consumer awareness to a point where purchasers now typically resign themselves to their fate when their fridge freezer breaks down a year and a day after purchase and curse themselves for not having availed themselves of an additional warranty at the time they bought the thing. So insidious and complete is the new culture that even shop staff including managers, and even Head Office Customer Service departments have no knowledge of consumer statutory rights and will in all honesty inform their customers that after a year all of their rights will have expired without the purchase of extra insurance. If one attempts to explain to a shop sales attendant that "I expect the shop to remain responsible for at least two or three years, so no thank you", one is viewed aggressively and with disbelief.

 

The extended warranty has produced an unmerited benefit of a £500 million per annum market for insurers. It has reduced pressure on manufacturers to maintain the quality of longevity in their products. It has reduced incentives for retailers to insist on the highest standards of production as both of these two parties are freed from the burden of having to bear the cost and inconvenience of providing replacements and repairs.

 

The victim of course is the consumer who by accident or design has been foisted with a con by a very willing triumvirate of producer, retailer and insurer. The con, of course is not merely an over-priced insurance cover but that the consumer has now been brainwashed into thinking that without such a cover there is no other solution.

It is in this way that the extended warranty is an expensive rip-off yet this aspect is never remarked upon by any commentator including The Times and this further demonstrates how complete the new culture of consumer unawareness has become. There needs to be a re-awakening of the Consumer sense of the Consumer Right and the problem that the OFT and the Competition Commission really need to consider is the problem of the selling of duplicate rights.

 

 

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Submiited by Bankfodder as a letter for publication by The Times in 2003 but never published


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style="text-align:center;"> Please note that this topic has not had any new posts for the last 4840 days.

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