The Department of Trade and Industry has finally laid down a series of proposed changes to the extended warranties system after evaluating the findings of the Competition Commission for almost three whole months.

The CC's report brands the EW market "unfair" with those retailers selling extended warranties at point of sale — that is, in-store — having a major advantage over secondary suppliers such as insurance firms and manufacturers.

"Too often customers are not made aware of the rights they are already entitled to and are pressured into taking out an extended warranty that can be almost as expensive as the warranty itself," said trade and industry secretary Patricia Hewitt.

The report proposes a series of remedies designed to provide buyers with more information about aftersales support contracts before they part with their cash, to give them time to compare prices between warranty suppliers and to allow time to cancel should they change their mind.

Retailers will be obliged to provide information about competitors' warranties both in-store and in any advertisements. They will also have to offer customers a full money-back guarantee within 45 days of purchase and agree to terminate a contract at anytime in return for a pro-rata refund.

But John Clare, chief executive of Dixons Stores Group, which accounts for around a quarter of the UK's extended warranties market, disagrees with the CC's findings.

"It is our view that this market is extremely competitive, as demonstrated by the wide range of market entrants and variety of products which meet a clear consumer need," he said.

"We note that several of the proposed remedies are already practised by Dixons Group and we welcome the standardisation of these procedures across the industry. We have some concerns about the practicality of others and look forward to discussing their implementation in more detail."

However, CC chairman Sir Derek Morris is critical of the current high costs of aftersales support contracts.

"We found the price of extended warranties was excessive. We estimate that had this market been fully competitive, extended warranties would have been on average up to a third cheaper," he said.

"We have no problem with healthy profits gained from serving customers well in a fully competitive market but we do take issue with high prices being charged to customers deprived of fortune of choice and the ability to compare terms and conditions."

Around 18.5 million extended warranties were supplied in 2001, amounting to a total value of £900m.

The size of the domestic electrical goods market in the UK is between £15m and £20m; home computing and telecommunications account for around 20 percent of this.

Related links:
Dual proposals
Competition Commission