The government has published its final measures for reform of the extended warranties sector. The new rules will apply from 6 April 2005. Businesses therefore have almost twelve weeks to implement the new rules.
The Department of Trade and Industry (DTI) has confirmed that new rules will require retailers to:
- show the price of extended warranties alongside electrical goods – in store; in catalogues; on web-sites and in print adverts;
- give consumers information about statutory rights, cancellation rights, and details of the warranty (e.g. whether the warranty terminates if a claim is made, whether the warranty provides financial protection on an insolvency);
- give consumers 45 days to cancel their extended warranty (and give a written reminder of this right plus the right to cancel at any time and receive a pro-rata refund); and
- offer the extended warranty on the same terms for 30 days if the consumer decides not to buy it there and then (any discounts tied to the purchase of the extended warranty would also be available for 30 days).
To see the text of the new rules please click here.
The DTI has published detailed implementation guidance for businesses which is available by clicking here. This will open a PDF in a new window.
These new rules are relevant to those selling or providing extended warranties on domestic electrical goods, as well as manufacturers selling domestic electrical goods direct to consumers. Insurers underwriting insurance backed extended warranties and extended warranty service companies contracted with retailers, manufacturers or insurers may also be affected. Those already involved in this sector must adapt their practices in time for 6 April 2005.
The announcement of the new rules comes just as the Financial Services Authority regime for selling general insurance was introduced on 14 January 2005. The new rules make very little reference to the overlap other than on the question of cancellation rights, where the new rules' requirements will not apply in certain circumstances.
The new rules were prompted by the Competition Commission (CC) finding in December 2003 that the market for extended warranties on domestic electrical goods was operating against the public interest.
The CC found that customers were often pressurised into purchasing extended warranties at the time and place where they bought a domestic electrical appliance. The CC also found that retailers' prices for extended warranties were generally higher than necessary to cover costs and generate an adequate return, so consumers were paying too much. Public consultations were carried out on how to implement remedies to these issues. The aim of the new rules is to create the conditions for more competition in the market for extended warranties on domestic electrical appliances.
Competition Minister Gerry Sutcliffe has also asked the Office of Fair Trading to review the market and the impact of these new rules in 2007.
