OFT launches further investigation into extended warranties

The OFT is continuing its investigation into the extended warranties for electrical domestic goods market.

Following concerns raised by participants in a review of the market it carried out in November 2010, the Government consumer body has begun a short study to see if it needs to take action.

Claudia Berg, director in the OFT's Consumer and Goods Group, said, "Consumers buy millions of extended warranties on domestic electrical goods each year and we want to make sure they are getting value for money.

"We plan a short and focused market study to find out quickly what, if any, action is needed to make this market more competitive, to the benefit of consumers and the wider UK economy."

According to the OFT, the extended warranty market for domestic electrical goods such as televisions, washing machines and computers is worth well over £750 million annually.

These warranties are often sold at the point of purchase although new regulations introduced in 2005, under the Supply of Extended Warranties on Domestic Electrical Goods Order, oblige retailers to follow certain rules.

These include showing the price of the extended warranty alongside electrical goods in store, in catalogues, on websites and in print adverts. Consumers have up to 45 days to cancel their extended warranty and receive a pro-rata refund.

They do not have to buy the warranty at the point of sale. They can go back and buy an extended warranty on the same terms for 30 days after purchase of the goods. Any discounts tied to the purchase of the extended warranty must also be available for 30 days.

The OFT said the findings of its review last autumn were consistent with an evaluation it ran in 2008. It will be contacting key parties directly during the course of the market study.

Other interested parties can submit views by email to degs@oft.gov.uk or by writing to the DEGs Team at the OFT's headquarters in London.

The OFT said it aims to publish the findings of this study during the summer.