Treat “extended warranty” with caution

08/10/2014 15:04

Consumers should tread carefully when deciding to buy extended warranty on electronic goods, furniture and beddings.

The Consumer Council of Fiji is cautioning consumers to fully investigate all aspects of the extended warranty in particular what all is covered under the warranty before making their decision to buy the extended warranty.  

The Council’s advice comes in light of the announcement by one of the country’s leading hardware company offering a Smart Cover Extended Warranty program that they claim would mean that customers do not have to worry about the costly repair bills after the manufacturer's warranty expires. (The Fiji Times dated 8th October 2014)

Consumers must not fall for such offers without fully understanding how extended warranty works.  Will extended warranty bring peace of mind or nightmare to the consumer?

The common consumer understanding is that the extended warranty carries the same privileges of ‘free of charge’ repair or replacement on a product as a normal warranty would provide.

Unfortunately, this common understanding is nowhere near the truth of how the extended warranty really works. Consumers must know that the extended ‘warranty’ is sold by retailers. As such, it is the retailer that imposes the terms and conditions of the extended warranty with exclusionary clauses.  Use of “exclusionary clauses” denies consumers the right to get a fair return for the money used in buying the extended warranty. For example, some parts of products are often expressly excluded but written in fine print which is not easily seen by the consumer.

Breach of warranty is a real problem. The Council, for instance, between 2012 till to date, received 233 complaints on hire purchase where majority of the complaints are over warranties.

It is unfortunate that consumers are not advised that the extended warranty is a dollar value warranty. This means that the maximum liability on the dealer is the purchase price of the item. Thus, though a consumer may have an extended warranty for 2 years and if the product required a number of repairs within the first 10 months of the extended warranty the cost of which totalled the price of the product, the remaining 14 months of the extended warranty would require consumer to pay for the repair.

Consumers are not aware that each occasion the extended warranty facility is invoked, costs build up. These include cost of inspection, transportation, parts and repairs. Consumers are not provided with any breakdown of the costs of attending to the needs under the warranties.

In 2012, the Council conducted a detailed study of the Hire Purchase Industry in Fiji. The report revealed that the ‘Extended Warranty’ is another profit centre for the retailers which generate an estimate of $1.013m revenue annually. This is approximately 4% of the total credit which is extended to consumers.

A potential worrying feature of the extended warranty business revealed in the report is that at least some retailers seem to engage their regular paid employees to sell extended warranties for a commission. The incentives provided to the employees over and above the normal wages compromises the integrity of the employees who then engage in pressure selling.

Consumers must demand for disclosures from the salespersons offering extended warranty to ensure they fully understand the terms/conditions offered under this arrangement.

The Council is, therefore, reiterating its call to consumers to weigh the idea of extended warranty before forking out extra money for it.