OFT Improves Competition in Extended Warranties

June 27, 2012 /

The Office of Fair Trading (OFT) has accepted legally enforceable undertakings offered by the three largest UK electrical retailers to improve the way the extended warranties market works, following consultation with business and consumers.

The OFT’s market study of the £1 billion per year extended warranties market, published in February, highlighted a number of competition concerns that could mean customers are not getting the best value for money.

The OFT’s market study found that, despite some improvements in the market, several competition concerns remain. Competition is limited by the retailers’ ‘point of sale’ advantage in being able to sell extended warranties at the same time as they sell the electrical goods. Only around a quarter of consumers shop around for extended warranties.

When buying an extended warranty at the same time as an electrical good, shoppers do not have enough relevant information to make an informed decision about whether the extended warranty is value for money. PAYG warranties can be very expensive if held for lengthy periods and can be considerably more expensive than comparable fixed term warranties.

To address these concerns, the OFT worked with Dixons, Comet and Argos to agree undertakings, which take into account points raised during the consultation, rather than referring the market to the Competition Commission (CC).

Dixons, Comet and Argos have agreed to: maintain and publicise an independently operated extended warranties price comparison website, to make shopping around easier; provide more easily available information via in-store leaflets and retailer websites, including on the availability of alternative warranty providers; conduct regular independent mystery shopping exercises to help ensure shoppers get accurate information from sales staff – and report the results to the OFT; and provide clear on-shelf information about the annual equivalent prices of ‘Pay As You Go’ (PAYG) warranties, to help shoppers understand the longer term costs when they enter these rolling monthly contracts. This currently affects Dixons as the only one of the three retailers to sell PAYG warranties.

Ann Pope, Director in the OFT’s Goods and Consumer Group, said: “We think the undertakings we have secured are important for shoppers who will now have better access to the information they need to make an informed decision when choosing an extended warranty.

“We welcome the constructive approach taken by Dixons, Comet and Argos to agree this practical solution, which will bring more immediate benefits for consumers, and avoid the burden on business of further investigation.”

 

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