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Last Updated: Thursday, 29 July, 2004, 11:21 GMT 12:21 UK
Warranties reform on the way
TV set
Warranty prices will have to be displayed in stores
The extended warranty market is to be shaken up in time for the big Christmas spending spree.

There's long been concern that stores were charging too much for warranties, particularly on electrical goods.

Action was always likely after the Competition Commission said last December that retailers had an unfair advantage when it came to selling the policies and were making excess profits.

Now the Department of Trade and Industry has published its draft plans to reform the market.

Benefit of customers

"Our position is clear," says the Consumer Minister, Gerry Sutcliffe.

"The market in extended warranties is not working for the benefit of consumers, and change is necessary."

The DTI is proposing that retailers:

  • Show the price of the warranty alongside electrical goods in the store and in adverts.
  • Give consumers information about statutory rights, cancellation rights and details of the warranty.
  • Give consumers 45 days to cancel their warranty, including a written reminder of this right. Also the right to cancel at any time and to receive a pro rata refund.
  • Allow the customer to buy the warranty on the same terms for 30 days if they decide not to buy it there and then. Any discounts tied to the purchase of the warranty would also be available for 30 days.
  • Tell customers whether their warranty provides financial protection in the event of insolvency.

    The consultation period ends on 22 October and the DTI hopes the reforms will be in place soon afterwards.

    Hard sell

    "Recognising the importance of the Christmas shopping period for warranty sales, we intend to introduce the necessary changes by the end of November," says Mr Sutcliffe.

    Gillian and Sir Derek Morris
    Working Lunch handed a dossier to the Competition Commission
    Working Lunch viewers have often complained about being given the hard sell on warranties.

    Perhaps that's not surprising - the market is worth 800m a year and the big electrical stores get the lion's share of that.

    The Competition Commission found that shopping around could easily knock one-third of the price offered in a shop.

    But before comparing prices, it's worth looking at whether warranties represent good value.


    For instance, there's only a 3% chance your DVD player will go wrong in the first three years.

    Dixons is a big player in the warranties market
    But a washer dryer has a 25% chance of needing repairs within five years.

    Another problem the reforms seek to remedy arose when the Powerhouse chain went into receivership.

    Many people who had taken out warranties found they were now worthless.

    This whole issue has been under examination for the past 10 years, but although a voluntary code was introduced, it has continued to cause concern.

    The BBC's Gillian Lacey-Solymar
    "Yes, it will dent companies' profits and yes, it's good news for consumers"

    Shake-up for warranties market
    18 Dec 03  |  Working Lunch
    Customers hit as stores close
    29 Aug 03  |  Working Lunch
    Concern over extended warranties
    28 Feb 03  |  Working Lunch

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