Warranty rules are 'ineffective'

"If anything they are making more money on warranties than they did before"
Tony Shiret, retail analyst, Credit Suisse

The government's attempts to regulate extended warranties on household appliances and electrical goods are not working, according to a retail analyst.

Tony Shiret of Credit Suisse told BBC Breakfast he believed there was "clear evidence" that warranty regulation was "definitely ineffective".

He said that since the measures were introduced in 2005, "nothing much has really changed".

The regulations were supposed to make the products more transparent.

'Reliant on warranties'

"Companies have not reduced prices for warranties and, if anything, they are making more money on warranties than they did before," said Mr Shiret.

REGULATIONS FROM 2005

• The price of the extended warranty must be clearly displayed alongside electrical goods
• Consumers will have 30 days after buying an electrical good to purchase cover
• Consumers will have 45 days to change their mind and receive a full pro-rata refund
• Any discounts tied to the purchase of the extended warranty must be available for 30 days

In a note to his clients, he added that DSG, which owns Currys, and Kesa, which operates Comet, remain too reliant on what they can earn from selling extended warranties.

He suggested that the two companies might no longer make profits at all if the government brought in tougher rules.

Recently, there has been a rise in the number of complaints to the Office of Fair Trading both about the way extended warranties are sold and about them not paying out if the item develops a fault.

The big chains say they have taken steps to improve the way the warranties are sold, in particular, individual staff are no longer paid incentives to sell warranties.

Both Currys and Comet told the BBC that they are confident their selling procedures are fully in line with consumer rulings on extended warranties.

Question the benefits

Susan Marks from Citizens Advice said consumers should ask themselves whether a warranty provides them with benefits beyond their statutory rights.

"They should also find out if the warranty were to still apply if the retailer they bought it from was to go bust," she added.

Ms Marks also said there is a strong case for extending the warranty-selling regulations to the sale of other goods such as mobile phones, furniture and pushchairs.

Judith Gubbay, director of the Good Housekeeping Institute suggested that if consumers are worried about their washing machine breaking down, for example, they should put a small sum of money aside every month to help defray the cost of any repairs.

"The fact is that 85% of washing machines are not going to break down in the first five years, which is often the life of the warranty. And if yours doesn't go wrong - well that's fantastic because you have still got your money," she said.

The government's Department for Business, Enterprise and Regulatory Reform admitted to BBC Breakfast that its long-promised review of the workings of the extended warranty rules has not yet got underway.

RELATED INTERNET LINKS
Credit Suisse
Office of Fair Trading
Citizens Advice
Department for Business, Enterprise and Regulatory Reform
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