The Government's Order - The Supply of Extended Warranties on Domestic Electrical Goods Order 2005 - which implement the remedies recommended in the 2003 Competition Commission Report on the supply of extended warranties (EW) on domestic electrical goods came into force on 6 April 2005.

The Government has also published Guidance to Business on implementing the Order.

Background and consultations.

The Competition Commission's report was published on 18 December 2003.

The Commission concluded that there is a complex monopoly situation within the EW market which operates against the public interest. The Commission identified four overlapping characteristics of market behaviour which might distort or restrict competition:

·         almost all EWs are bought at point of sale. Few consumers consider EWs prior to their purchase and have little opportunity to consider alternatives in the shop;

·         EWs on offer at point of sale are nearly always from one provider, usually the retailer;

·         there is generally no information available on reliability of electrical goods or likely repair costs;

·         there is generally no information available at point of sale on prices, terms or conditions about EWs from alternative providers.

As a result, profits earned by retailers on Extended Warranties are shown to be consistently and substantially above the cost of capital.

The Government reviewed and endorsed the Commission's findings, and accepted the approach proposed by the majority of the Commission's members for remedying the situation.

The Government issued a consultation document on 28 July 2004, and draft guidance for business in September.  Following the closing of the consultation, the government issued a supplementary consultation on 18 November 2004.

The Government responded to the consultations, setting out where it has made changes in response to comments received, and specific areas where comments have been received but changes not made.

The key elements of the proposal for reforming the extended warranty market remain unchanged from the previous consultation. Retailers will have to:

·         show the price of the extended warranty alongside electrical goods, in store and in their printed advertising material;

·         provide consumers with information about their statutory rights, cancellation rights and details of the warranty, including whether or not their warranty provides financial protection in the event of insolvency and terminates if a claim is made;

·         give consumers 45 days to cancel their extended warranty, including issuing a written reminder of this right and the right to cancel at any time and receive a pro-rata refund; and

·         offer consumers who do not wish to purchase a warranty quotations stating that the extended warranty on the same terms for 30 days if the consumer chooses not to buy it at that time. Any discounts tied to the purchase of the extended warranty would also be available for 30 days.

Link to HMSO: The Supply of Extended Warranties on Domestic Electrical Goods Order 2005
Regulatory Impact Assessment (9 pages)
Guidance for businesses (28 pages)
Government Response to Consultation (12 pages)
Press Notice

 Background

Contacts