Avoid this sneaky rip-off

The Office of Fair Trading has launched an investigation into extended warranties - are they really worth the paper they're written on?

Many of you will have had the frustrating experience of trying to claim on a warranty or guarantee and finding that your particular problem is not covered, or the warranty has just expired.

High pressure sales tactics lead many of us to pay for extended warranties only to later regret the decision after taking a proper look at the paperwork.

Sufficient complaints have been received about this problem to pique the interest of the Office of Fair Trading, and it has launched an investigation.

So, are warranties and guarantees worth paying for, or are customers better off saving their cash and taking their chances?

How do guarantees and warranties work?

There is no legal difference between a guarantee and a warranty. They are defined as agreements that give you the right to return faulty goods within a set period of time. 

Many products come with a free guarantee or warranty from the manufacturer, and these generally promise to give a free repair or replacement if the product goes wrong within the specified time, usually one year.

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 A warranty provides the same cover as a guarantee, but you may be asked if you want to ‘extend your peace of mind’ by paying extra to cover a longer period of time.

Be aware of conditions attached to extended warranties, like requirements to have the machine serviced at specified intervals, or you will risk invalidating them.

As with all contracts, read the small print, no matter how boring it might be! There is often a term in there that excludes problems caused by ‘wear and tear’ – and that could be applied to many machine faults.

Do you really need one?

If you buy something that is faulty you have statutory rights against the retailer under the Sale of Goods Act 1979. These state that if something goes wrong with the goods, within a reasonable time frame, then you are entitled to request a repair, replacement or refund. In fact, if the goods go wrong within six months, the onus is on the retailer to prove that they were not faulty when you bought them.

A guarantee or warranty can only serve to give you benefits on top of these rights, and cannot replace them or take them away. This is why you will often see the phrase ‘this does not affect your statutory rights’ with a guarantee or on a receipt.

When the warranty or guarantee has run out, you will still be able to rely on your Sale of Goods Act rights if the product develops a fault within a reasonable timeframe.

The problem of reasonableness

‘Reasonable’ is a dreaded word in the world of consumer law. If something you buy breaks down within a week, it is reasonable to presume that the product should have had a longer life-span, and the retailer should refund you. What if it breaks down within a year? Or two years? Is it still reasonable to get a full refund?

Take a washing machine. It would be reasonable to expect a washing machine to last for a good few years, so if it breaks down your statutory rights would kick in and the retailer would have to sort out the problem.

In theory, you can decide whether you want a repair, replacement or refund, but again the spectre of ‘reasonableness’ raises its head. If the machine has broken down after a week and barely been used then a refund is a reasonable course of action.

If you have been using it three times a day for a year to wash the clothes of a family of six, then a full refund might not be appropriate and you might be better off opting for a repair.

The OFT investigation

In 2005 the Competition Commission conducted its own investigation that resulted in strict rules around the sale of extended warranties being introduced.

These rules included giving customers up to 30 days to decide whether they want the cover, and giving them a 45 day cooling-off period (under The Supply of Extended Warranties on Domestic Electrical Goods Order 2005) so that they can change their mind after purchase.

The Office of Fair Trading is not satisfied with this and is conducting its own market study. Its main concerns are that the policies are still too expensive (sometimes adding 50% to the cost of the goods!) and high pressure sales tactics are still common place. 

If its market study finds that consumers are still suffering then the Office of Fair Trading could take enforcement action, make recommendations to the government or demand another Competition Commission enquiry into the area.

Whatever the outcome, it can only be a good thing for consumers to have some light shed on the murky world of extended warranties.

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