Extended warranties face study from OFT

Shops have too much advantage when selling the warranties, critics complain

The sale of extended warranties for electrical goods is going to be scrutinised by the Office of Fair Trading (OFT).

The regulator is carrying out a "short market study" to see if customers are getting enough value for money.

The warranties are typically sold by retailers when someone buys goods in their shops.

Rules on warranty sales were introduced in 2005 after an investigation by the Competition Commission.

It had found that their sale was often "unfair and uncompetitive."

Consumer groups had long complained that customers were being pressurised into buying the extra insurance cover and that the policies were far too expensive.

British Retail Consortium spokeswoman Sarah Cordey said: "Following an inquiry by the Competition Commission, detailed rules about the sale of warranties were introduced that are far more restrictive than the rules for selling the actual products.

"Members of the BRC will co-operate fully with the OFT but it's hard to see what another costly investigation will achieve."

Big market

The warranties are worth more than £750m a year to those who sell them.

Currently, retailers have to make it clear that buying an extended warranty is optional and not compulsory; that customers can have up to 30 days to buy the extra insurance cover; and that there is a 45-day cooling off period so they can change their mind after buying the warranty.

Despite the new rules, the OFT found in 2008 consumers were still paying too much or buying policies they did not really need.

"Consumers buy millions of extended warranties on domestic electrical goods each year and we want to make sure they are getting value for money," said Claudia Berg of the OFT.

"We plan a short and focused market study to find out quickly what, if any, action is needed to make this market more competitive, to the benefit of consumers and the wider UK economy."

Complaints

The OFT explained that it had started looking last autumn at the aftermarket for domestic electrical goods, including the sale of spares and the provision of repairs.

The regulator had received some complaints that the sale of extended warranties was still unfairly skewed in favour of retailers, who have the advantage of being able to sell them at the point when they sell goods such as TVs, washing machines and computers.

A quarter of all electrical goods are sold with an extended warranty.

The new market study could end in enforcement action, another Competition Commission enquiry, recommendations to the government, or the OFT could decide that no action is necessary.

The Financial Ombudsman Service said it had received 895 complaints about warranties in the past financial year, slightly more than in 2009-10.

Although 69% were upheld, many were in fact about furniture rather than electrical goods.