Should customers purchase an extended warranty? Or does the new Australian Consumer Law (ACL) essentially make them redundant, forcing manufacturers and retailers to protect end users regardless of any warranty purchase?
After a recent media blitz by consumer advocacy groups, including the ACCC and Choice magazine, one warranty provider has hit back, claiming that the general public is being lied to, and that third party extended warranties do provide a valuable benefit to purchasers of appliances and consumer electronics.
Don Card, general manager of the Queensland-based National Warranty Services (NWS), contacted Appliance Retailer to have his say about extended warranties, hitting out detractors in spectacular fashion.
“It is unfortunate that Choice, the ACCC — who should be better informed — the various state Fair Trading departments and the media regularly misstate the protection that the ACL gives consumers, at the same time as omitting any mention of what the ACL does not give consumers; to the point that they are actually misleading consumers in a significant way,” Card said.
The issue came to prominence before Christmas 2014 when Fisher & Paykel and its warranty provider Domestic & General were attacked by the ACCC for mailing letters to existing customers promoting the purchase of an extended warranty. The ACCC successfully showed that these letters were misleading customers, resulting in both Fisher & Paykel and Domestic & General being hit with $200,000 fines.
These penalties were finalised by the Federal Court on 27 January 2015, at which time the ACCC marked this victory by issuing a media release saying the outcome was “a strong warning to businesses that they must not misrepresent or understate consumers’ rights under the ACL when marketing extended warranties”.
This was followed up by Choice posting a media release on its website, cautioning against the purchase of an extended warranty. Tom Godfrey, head of media at Choice, said, “Consumers have a right to refund, repair or replacement through the store for a ‘reasonable’ time after purchase and these rights work alongside a manufacturer’s basic warranty, which might last for 12 or 24 months.”
These media releases were picked up by the mainstream media and there was prominent coverage on the ABC, business websites and the Sydney Morning Herald. In an interview with Frank Chung at News.com.au, Godfrey went so far as to say that, “when it comes to extended warranties…in very few cases are they worth the money”, and that “spending money on extended warranties is just throwing cash away”.
Don Card from National Warranty Services couldn’t take any more of this pejorative language, hitting back at Godfrey personally.
The statements made by Choice’s Godfrey are particularly sweeping and misleading with claims that all third party warranties are “just throwing cash away” with the article stating that Choice likened them to “throwing money down the drain”, with no thought of the reputation damage to longstanding and reputable warranty companies, such as NWS, that is caused by such inaccurate statements.
Card also vaguely threatened legal action against Choice, saying, “This is a matter, by the way, we will have to consider. We ask him to immediately retract and apologise”.
When contacted by Appliance Retailer to respond, Godfrey said he stood by his earlier comments and offered neither a retraction nor an apology, only adding:
“If you are tempted to purchase an extended warranty, always take the time to read the terms and conditions to ensure it offers you something over and above the rights you have under Australian Consumer Law.”
The media organisations carrying Godfrey’s comments and those of ACCC’s chair Rod Sims were not spared Card’s opprobrium. The loquacious warranty chief targeted the myriad journalists covering the case with one of the most offensive verbs to describe journalistic practice:
“Statements by various news organisations simply parrot these without any due diligence as to the reality of the ACL, or what additional protection and service warranties offered by companies such as NWS provide consumers,” he said. “And the ACCC’s Sims chooses his words very carefully, but similarly omits to point out the limitations of the ACL and what it does not cover or provide and what third party warranties can and do provide.”
Frank Chung from News.com.au rejected Card’s assertion that his article was not well-researched. “My article was based on conversations with the ACCC, Choice, and with reference to the ACCC’s Australian Consumer Law electrical and whitegoods industry guide,” he said in a considered response, which is published in full below.
The ACCC and Choice have long been a thorn in the side of suppliers and retailers in the appliance and consumer electronics industries, with senior management from both sides of aisle constantly lamenting how much media attention is given, often without any rebuttal, to these consumer advocates. Since the introduction of the Australian Consumer Law, high profile companies like Fisher & Paykel, Hewlett-Packard, Harvey Norman and Telstra, among others, have been reprimanded for contrary practices, while Choice has been vocal in its criticism of Foxtel, Thermomix and the many retailers that would like the GST applied to all imported goods.
While stopping short of openly accusing the media of a conspiracy theory, Card did hint at nefarious activity in the coverage of extended warranties in the media. His anger is focused on the lack of any mention of the benefits of purchasing an extended warranty, which he attributed to “a vested interest to push and spin their version of the ACL”. What are these so-called benefits? Card outlined the following six points:
In almost all cases, the ACL will only provide a Return To Base warranty. The consumer has toreturn to their reseller at their cost and time, and would rarely, if ever, provide any local on-site service.
The Consumer Guarantee really only envisages replacement of faulty parts or products by the usuallyslow Return Authorisation process; returning faulty parts or products to the distributor or manufacturer for testing and subsequent replacement if found faulty.
The consumer guarantee period is totally unspecified for any product. This is a major problem: no-one among the reseller, distributor, consumer, or the ACCC know what the period would be for any product.
In most cases, an extended warranty will provide a longer warranty period than might be possible by the undefined consumer guarantee period
An extended warranty would in most cases provide a far better level of service, response, and replacement.
Extended warranties can start immediately after retail sale and therefore provide this enhanced level of service and response immediately.
Appliance Retailer forwarded Card’s list of warranty advantages to the ACCC and we are awaiting an official response.
Under the Australian Consumer Law, there are nine consumer protections; the last and most applicable to this feud states: “Manufacturers or importers guarantee they will take reasonable steps to provide spare parts and repair facilities for a reasonable time after purchase”. Because of the unclear wording in this guarantee, that a consumer is always protected regardless of whether they purchased a warranty, as long as it’s within “a reasonable time” — however long that is — it seems the most important benefit to an extended warranty is the certainty over the length of coverage.
“We are not, by any means, claiming that all extended warranties or warranty companies provide a service that is worth purchasing,” Card said. “Certainly some warranty companies are, or were, notorious in the industry for the appalling level of service they provided, or not as the case may be, particularly United, which is now thankfully out of business.”
Are the ACCC and Choice right to criticise extended warranties? Or should providers be given a fair go to sell this coverage? Let us know in the comments below.
Full response by News.com.au journalist Frank Chung:
Choice has investigated the issue of extended warranties in the past, particularly with respect to representations made to consumers by electronics and whitegoods retailers about their rights (or lack thereof) under Australian Consumer Law (ACL). Their overall position on the matter, as stated by Tom, I consider to be legitimate.
My article was based on conversations with the ACCC, Choice, and with reference to the ACCC’s Australian Consumer Law electrical and whitegoods industry guide.
Value for money is subjective. While extended warranties may offer benefits over and above consumers’ rights under ACL, I don’t think it’s controversial to suggest that many consumers aren’t getting value for money when purchasing extended warranties. (Unless, of course, you’re the GM of a warranty provider.)