Watchdog warns of warranty abuses

The £500M market in extended warranties on household electrical products was referred to the Competition Commission yesterday after a nine-month investigation.

The Office of Fair Trading (OFT) investigators raised "serious questions" over the sale of policies.

The investigation follows concern that consumers are pressured into taking out warranties, which some claim are overpriced and unclear.

According to the OFT, one in five electrical appliances is bought with an extended warranty, which can add about 50 per cent to the cost.

Investigators found that only half of customers who eventually bought a warranty intended to do so before going into the shop.

Policies typically promise to pay for the repair or replacement of goods if they break down within a specified time. Some also provide cover against accidental damage and theft.

The OFT found evidence of retailers breaching the industry's code of practice on extended warranties. Researchers posing as shoppers discovered that more than three quarters of outlets did not display signs giving the price of policies, and more than half failed to display clearly leaflets that fully explained the warranties.

John Vickers, director general of Fair Trading, said: "Our study concludes that there are serious questions about how effectively competition in this market is working for consumers."

Helen Parker, editor of the consumer magazine Which?, welcomed the move. She said: "We hope the commission will closely examine the pressure customers can be put under to buy a warranty at the point of sale, the barriers this creates to third parties providing a similar service, and the effect this has on the cost of policies."

The Dixons group, which includes the chain stores Dixons, Currys, The Link and PC World, said it "regretted" the move.

The Competition Commission has 12 months to report its findings.