OFT pulls punches on extended warranties

 

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By Barry Collins

Posted on 7 Feb 2012 at 08:54

The Office of Fair Trading (OFT) has found that consumers are still getting a rough deal on extended warranties - but has declined to refer leading retailers to the Competition Commission.

The 10-month OFT investigation found that competition in the extended warranties market remains "limited", with retailers such as Dixons, Currys and Argos placed at a considerable advantage by being able to sell warranties alongside electronic goods.

Millions of extended warranties are sold in the UK each year and we remain concerned that, despite recent improvements, this market does not work as well as it could for consumers

The study also found that consumers weren't presented with sufficient information to make an informed decision when purchasing warranties, and that pay-as-you-go warranties can be "very expensive".

The OFT report found that customers buying a £399 TV were sometimes paying almost £140 for a three-year warranty on the set - even though the customer's statutory rights would arguably provide sufficient cover if the television failed during that period.

Repeat offenders?

It's not the first time officials have probed the sale of extended warranties. In 2001, the Competition Commission found that "there was a lack of competition between providers which resulted in high prices for consumers", which resulted in fresh legislation some four years later.

The OFT claims there has been some improvement in competition and prices since then, and has decided not to refer the retailers to the Competition Commission once more.

Instead, Dixons, Argos and Comet - the three biggest sellers of extended warranties - have agreed to establish a price comparison website for extended warranties. They will also provide in-store information on alternative warranty providers, and clearer information on the long-term costs of pay-as-you-go cover.

The OFT claims the voluntary measures will be more effective than another protracted investigation by the Competition Commission. "Millions of extended warranties are sold in the UK each year and we remain concerned that, despite recent improvements, this market does not work as well as it could for consumers," said Ann Pope, director of the OFT's goods and consumer group.

"We welcome the retailers' initiative in offering undertakings and we now want to hear from consumers and others whether they think these will lead to improvements," she added.

"If these undertakings are accepted by the OFT it would allow us to address the competition concerns more quickly and also reduce the burdens of further, detailed investigation."