The Office of Fair Trading (OFT) has announced measures to improve the way extended warranties are marketed by the three largest UK electrical retailers.
Following consultation with business and consumers, the OFT’s market study of the £1 billion a year extended warranties market, published in February, highlighted concerns where consumers were getting a bad deal.
Extended warranties can offer poor value
The OFT found that when buying an extended warranty at the same time as an electrical good, shoppers do not have enough relevant information to make an informed decision about whether the extended warranty is value for money.
Competition is limited by the retailers’ point-of-sale advantage in being able to sell extended warranties at the same time as they sell the electrical goods.
The OFT findings followed Which? research published earlier this year which highlighted that extended warranties on certain electrical items is probably a waste of money. Five year warranties on some washing machines, for example, can cost over 60% of the appliance price.
New legal measures
The OFT has worked with Dixons, Comet and Argos to agree four legally enforceable measures to address such concerns.
• Maintain and publicise an independently operated extended warranties price comparison website, to make shopping around easier.
• Provide more easily available information via in-store leaflets and retailer websites, including on the availability of alternative warranty providers.
• Conduct regular independent mystery shopping exercises to help ensure shoppers get accurate information from sales staff – and report the results to the OFT.
• Provide clear on-shelf information about the annual equivalent prices of ‘Pay As You Go’ (PAYG) warranties, to help shoppers understand the longer term costs when they enter these rolling monthly contracts. This currently affects Dixons as the only one of the three retailers to sell PAYG warranties.
Consumers need to make an informed choice
Ann Pope, Director in the OFT’s Goods and Consumer Group, explained that consumers need balanced information in order to make an informed choice:
‘We think the undertakings we have secured are important for shoppers who will now have better access to the information they need to make an informed decision when choosing an extended warranty.
‘This practical solution will bring more immediate benefits for consumers.’