OFT advises shoppers to think before taking out extended warranties

PN 68/02 22 October 2002

As consumers get ready to spend for Christmas, the Office of Fair Trading is advising them to think first whether extended warranties give good value for money.

Also known as service agreements, extended warranties usually pay for repairs, and accidental damage. They can cost up to half of the purchase price of some appliances, for example computers, stereo systems, washing machines or fridge freezers.

Consumers should think carefully before buying an extended warranty. Leaflets are being distributed in shopping centres posing the questions:

do I need more time to make my decision?
do I need this – or am I already covered?
what are my alternatives? For example, using a local repairer if an item breaks down.

Download leaflet Extended warranties (pdf file 72 kb)

Last year the extended warranty market on 'brown and white goods' was worth around £800 million. This figure is expected to reach £1billion by 2006.

Research conducted by the OFT indicates that customers can feel pressurised to rush to a decision to buy an extended warranty when they buy their new appliance. A high percentage of consumers had not thought about buying an extended warranty before they arrive at the store.

Buyers should think whether extended warranties offer them value for money. OFT research found that the average washing machine repair costs between £45 to £65. So if a five year extended warranty costs £150 on a £300 washing machine, it would need to break down four times for a consumer to benefit.

A recent 'Which?' report highlights that modern domestic appliances are generally reliable. It found that 81 per cent of washing machines didn't break down at all in the first six years.

The OFT also reminds customers that they may already be covered by law, or by their home contents insurance.

Some sales staff are paid commission on each extended warranty they sell, so may be keen for a customer to sign on the dotted line.

John Vickers, Director General of Fair Trading, said: 'Many people buy extended warranties as an afterthought. Our message is: think before you buy. Don't feel under pressure. Think whether an extended warranty is good value for you, and if it is, think where best to buy one.'

The Office of Fair Trading has referred the question as to whether competition is working in the extended warranty market to the Competition Commission, which is investigating and due to report to Government next July.

NOTES

1. The OFT has published a leaflet 'Extended warranties' which will be available at trading standards offices and some shopping centres and libraries. It is available, free of charge, from the Office of Fair Trading, PO Box 366, Hayes UB3 1XB or telephone 0870 60 60 321.

2. The OFT referred the market for the supply of extended warranties on domestic electrical goods to the Competition Commission following a study by the markets and policy initiatives division of the OFT. The study, published on 2 July 2002, found that competition in the market did not appear to be working effectively and that consumers were not adequately informed or protected - see PN 40/02

3. In this press release the functions of the Director General of Fair Trading (DGFT) are for simplicity described as the functions of 'the OFT'. The Enterprise Bill proposes to replace the office of the DGFT with the OFT, to which would be transferred the DGFT's functions.

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