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Extended warranties mystery shop

Our mystery shop finds retailers are still pushing extended warranties with misleading claims.

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“I never used to get extended warranties,” the Smiths City sales rep told our mystery shopper. Now, he said, he wouldn’t buy an appliance without one. For an extra $150, Smiths City’s Gold Care five-year warranty was “highly” recommended, he enthused.

What if we didn’t buy the warranty and something went wrong with our new appliance?

“It comes down to you fighting Panasonic or LG or Samsung to get them to do anything,” the sales rep said. “They are reasonable to deal with… but when you’re talking about a multi-billion-dollar conglomerate which spends more every second on lawyers than what we earn in a lifetime um, quite honestly, it’s a downhill battle.”

The extended warranty sales pitch hasn’t changed much since we last sent mystery shoppers into big box retail stores in 2012. Back then, our shoppers were also told they’d have to battle it out with the manufacturer’s hotshot lawyers if they didn’t buy an extended warranty.

Then as now, sales assistants failed to mention the rights shoppers already have under the Consumer Guarantees Act (CGA).

When you buy goods or services, the CGA gives you powerful after-sales protection. The Act requires goods to be of acceptable quality. If they’re not, you’re entitled to ask the retailer to put things right. Retailers who claim otherwise are misleading you about your legal rights.

Making the pitch

Smiths City wasn’t the only store where sales reps pushed extended warranties.

At Noel Leeming, the sales rep told us the store’s “Supercover” warranty would provide extra protection after the manufacturer’s standard 12-month warranty ended. “If something went wrong and you weren’t covered under [Supercover], it would be a repair charge at your cost,” she said.

She added that we might be able to make a claim under the CGA if “there was a known fault that [the manufacturer] tried to mislead people about”.

But her advice was wrong on both counts. Your right to make a claim under the CGA doesn’t require you to prove the manufacturer had been misleading people about known faults. If a product isn’t of acceptable quality, the retailer is responsible for fixing the problem. They can’t shift the onus on to the manufacturer.

At Harvey Norman, the sales rep told us the store’s “Product Care” warranty provided better protection than the CGA. If we bought the warranty and the appliance failed then Harvey Norman “just replace it or if they can’t they just give you your money back,” he said.

A rep at another Harvey Norman outlet told us the store’s warranty meant “if anything goes wrong it’s up to you what you want to choose”. Our shopper could pick a new appliance or get their money back, he said. But that’s not what the warranty agreement states.

Under the warranty terms, any replacement is selected by Harvey Norman. While the store will take into account the specs of the original, the replacement may be a cheaper model and a different brand. If the store decides it can’t offer a suitable replacement, it retains the discretion to provide a refund or store credit.

Compare that with the protection you have under the CGA. When a retailer opts to replace a product due to a minor fault, the replacement has to be an identical item. If a good has a major fault, it’s up to you whether you choose a full refund or replacement. You don’t have to settle for store credit.

Sales pressure

Extended warranties can add $100 or more to your purchase. Retailers argue it’s worth paying the extra because it gives you “peace of mind”. They’ll sort things out if a product is faulty. But in most cases, you’re paying for protection you’re already entitled to by law.

There’s another reason sales reps can be keen on promoting extended warranties. They may have sales targets to meet.

Noel Leeming’s induction workbook for new employees has a list of key performance indicators. Employees are expected to know “how to recommend our extended warranty” and how to “overcome any objection against the warranty”. Employee performance is measured against their “warranty strike rate”.

The store’s “Competency Checklist” requires sales reps to show they can sell a Supercover warranty to a customer. It’s all part of the store’s “CARE” policy. Noel Leeming describes CARE as the “science behind our selling process”: the acronym stands for connect, ask questions, recommend a product and execute a sale.

The competency checklist doesn’t require sales reps to demonstrate any particular knowledge of the Consumer Guarantees Act.

Noel Leeming said the document was no longer used for training but declined our request for its current training materials. It said the materials were "confidential".

Law changes

New consumer protection rules were introduced last year to clamp down on extended warranties being sold with misleading claims. Officials’ advice to the Commerce Select Committee stated many consumers were likely to be purchasing warranties without realising they had protection under the CGA.

The new rules mean retailers are required to provide a written warranty agreement that contains a summary of consumers’ CGA rights. The agreement also has to compare these rights with the benefits the extended warranty provides. However, it’s been left up to retailers to decide how they present this information.

Smiths City’s Gold Care warranty contains information that we think is misleading.

The warranty states it provides several benefits consumers won’t get under the CGA. It singles out travel costs for sending faulty products to a repairer and claims these aren’t covered at all by the CGA. That’s not the case. If a product isn’t of acceptable quality, you can claim back the costs of sending it away for repair from the retailer.

Smiths City also points to its cover for food loss in the event your freezer malfunctions and claims this isn’t covered by the CGA. Again, the store is wrong. Under the Act, you can claim for consequential losses, which includes food loss caused by a faulty fridge or freezer.

The store also highlights the warranty’s “Lemon Guarantee” as an additional benefit. The lemon guarantee kicks in if the store has repaired a product three times and it fails again. Under the warranty, Smiths City will then give you a replacement item or store credit.

In our view, you’ve got better protection under the CGA.

If a product can’t be repaired, you have the right to reject it and request a full refund or a replacement. A series of small faults may also amount to a substantial failure, which gives you the right to reject the product and get your money back. You don’t have to settle for store credit.

Smiths City general manager Noel MacDonald said the store didn’t agree Gold Care contained dubious claims and believed many customers had received benefits “that wouldn’t be available under the CGA”. However, the store accepted it could amend the warranty to highlight the consequential loss cover provided by the CGA and would do this.

We say

  • Selling extended warranties is a lucrative sideline for retailers. But if you're buying goods for personal use, you won’t usually need one. You're paying for protection you already have by law.
  • It's an offence under the Fair Trading Act for retailers to try to sell an extended warranty by claiming that a consumer would otherwise have no protection. We want the Commerce Commission to take action against traders which continue to flout the law.
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What we did

We visited or phoned Harvey Norman, Noel Leeming and Smiths City stores. Our shoppers asked about the manufacturer's warranty period for specific products. In the majority of cases, this was 12 months. All eight stores suggested an extended warranty to our shoppers to provide cover for faults after the manufacturer’s warranty ended.

They said it

What the sales reps told our mystery shoppers.

“When they rewrote the Consumer Guarantees Act at the end of last year, they actually used our Gold Care as a template.” Smiths City sales rep.

They didn’t. Smiths City told us it was “surprised and disappointed in some of the comments made by our sales staff”. General manager Noel MacDonald said the store “will always ensure we meet the requirements of the Consumer Guarantees Act … but we also believe that the Gold Care plans are a real benefit to our customers”.

“We don’t do extended warranties anymore. We do a replacement warranty.” Harvey Norman sales reps.

Harvey Norman sales reps may call it something else but it’s still an extended warranty. Harvey Norman said it introduced its Product Care warranty last year and staff receive training on what they should be saying. The store said it spent considerable time with lawyers to ensure the warranty fully complies with the requirements of the Fair Trading Act.

“You pay for safety so in the rare case that things do go wrong, there’s something to back it up.” Noel Leeming sales rep.

This Noel Leeming sales rep’s plug for the store’s extended warranty doesn’t mention the legal rights shoppers have under the Consumer Guarantees Act. Noel Leeming said it believes its Supercover warranty gives consumers “peace of mind and certainty on the period of time an item is covered”. The store also said it provides training to ensure staff are aware of consumers’ rights under the CGA.

Your CGA rights

The Consumer Guarantees Act covers goods (and services) purchased for personal, domestic or household use.

The Act obliges retailers to guarantee that their products are of an acceptable quality, fit for purpose, and that they match their description.

If a product fails to meet one of these guarantees, you have the right to insist that the retailer puts it right.

If the problem is minor and can be fixed, the retailer can choose to repair or replace the item or give you a refund. If the problem can't be fixed, can't be put right within a reasonable time, or is substantial, you can:

  • Reject the product and choose a replacement (of the same type and similar value) or a full refund of the purchase price.

Or

  • Keep the product and claim compensation for any drop in its value caused by the failure.

A "substantial" failure means:

  • A reasonable consumer wouldn't have bought the product if they'd known about the fault.
  • The product is significantly different from its description, the sample or demonstration model.
  • The product is substantially unfit for purpose.
  • The product is unsafe.

If you do buy an extended warranty, you have a “cooling-off” period of 5 working days to cancel and get a refund. Retailers have to tell you about the cooling-off period when you’re in the store. You can give notice to cancel either orally or in writing.

5 common extended warranty claims

Our view: If a product isn't of acceptable quality, the retailer has to put things right. The CGA entitles you to claim back call-out fees.

Our view: The so-called price protection provided by an extended warranty usually comes with numerous conditions. Our advice is to shop around before you buy to make sure you get the best deal.

Our view: In the rare event an appliance is damaged by a power surge, you may be able to make a claim against your electricity retailer. Your contents insurance may also provide cover.

Our view: Products have to be durable. If a relatively new item fails through no fault of your own, the retailer has an obligation to remedy the fault. Products are less likely to fail in the first few years of their life that are usually covered by an extended warranty.

Our view: The CGA already requires retailers to deal with faults within a reasonable time so we don't see much benefit here.

"Worthless add-ons"

Big box appliance retailers have recently been fingered by the Commerce Commission as among the 25 worst traders. A report released by the commission in May singled out this industry as the cause of the most complaints to its office, although it didn’t name names.

Retailers’ attempts to boost profits by selling extended warranties – dubbed “worthless add-ons” by the report – earned them special mention.

Extended warranties have been heavily promoted, often by staff incentivised through sales targets to close the deal. Retailers’ stock defence for these warranties has been they provide “peace of mind” in the event a product is faulty. But the Consumer Guarantees Act (CGA) already delivers this after-sales protection.

Complaints to our advisory service show these warranties continue to be pushed with misleading information about consumers’ rights. A recent complainant told us he was informed by the store not to rely on the CGA because it “only lasts two years”.

Extended warranties aren’t the only add-on appliance retailers try to upsell to customers. Sales reps can also have “accessory strike rates” to meet – a reason why customers may be asked if they want to buy a gold-plated cable to go with their new telly.

Upselling isn’t the only trick of the trade criticised in the commission’s report. It also points out retailers’ tactic of charging a fee to assess products returned for repair, a practice that appears to be used to dissuade consumers from making warranty claims on cheaper goods.

Your best defence against these tactics remains the Consumer Guarantees Act. Despite what a sales rep may allege, if a product isn’t of acceptable quality you’re entitled to ask the retailer to put things right. Any retailer who claims otherwise is misleading you about your legal rights.

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Are extended warranties ever worth it?

There may be some situations where an extended warranty is worth considering – for example, where it provides additional protection to your rights under the CGA.

If you're buying items for business use, extended warranties may be worthwhile because the CGA doesn't normally apply to goods used for business purposes. Retailers may offer a separate "commercial" extended warranty for these products.

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