Stores may be forced to detail cost of warranties

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The Independent Online
NIC CICUTTI

The Office of Fair Trading yesterday warned retailers that they may be forced to display the costs of warranties for their electrical goods in all their stores unless they do so voluntarily.

The OFT's threat came after it found that, despite an agreement by retailers last year to support a code of conduct proposed by their trade body, only one-third of outlets had done so.

Only 40 per cent of retail outlets provided their customers with take- away leaflets detailing the cost of their warranties.

John Bridgman, director general at the OFT, said yesterday: "Response to the code has been very patchy and adherence [to it] has been patchy. Too many customers are still not able to get the price information they need to shop around and competition in extended warranties is still too low."

Unless retailers sign up to the code devised by the British Retail Consortium last May, the OFT will ask the Department of Trade and Industry to use its powers force them to do. Extended warranties on electrical goods, such as fridges and washing machines, are regularly sold by retailers to customers who buy their goods.

"In many cases, returns from warranties are high and represent a major contribution to overall company profits, partly through offshore subsidiaries. If substantial improvements are not apparent ... in May, I would have to recommend effective action," Mr Bridgman said.

But many consumers have complained that the cost of warranties varies wildly between different stores. Often, the price is not publicised until a purchase is almost completed. In recent years, a number of electrical chains are known to have made a substantial proportion of their profits from warranty sales rather than their main business.

After a hard-hitting report in 1994, the industry vowed to clean up its act by setting up a code of practice. However, research by the OFT last year found the cost of a five-year warranty on the same model television set varied from nothing to pounds 201. A guarantee for the same washing machine cost between pounds 95 to pounds 240. The OFT also wants customers to be given details of separate manufacturers' warranties, which are often much cheaper than the ones sold by stores.

Keith Richards, senior lawyer at Consumers' Association, said: "The lack of commitment to the code of practice is very worrying. Retailers clearly have an economic interest in keeping information from consumers. Sadly it seems the voluntary code is toothless and is never going to be effective.

"This is a final chance for retailers to get their house in order - if they don't we will fully back any moves towards compulsory reform."

A spokeswoman for the British Retail Consortium said: "We are disappointed that more of our members have not signed up. But the code was only published in May 1995 so it is early days yet. We will be reminding our members that they should apply the code in their stores and expect the figures to improve significantly."

Customers visiting stores are usually wooed by the headline discount on the particular appliance they want to buy. They are then offered extended guarantees on their goods, ranging between three and five years, for an additional sum. The prices of extended warranties can be between two and four times the estimated average repair cost of the equipment over the period of the guarantee.

In most instances, buyers are not told that they could obtain cheaper warranties from the manufacturers. By the time they are contacted by the manufacturer, they have already committed themselves to the store's more expensive product.

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