Extended warranties mystery shop

“I never used to get extended warranties,” the Smiths City sales rep told our mystery shopper. Now, he said, he wouldn’t buy an appliance without one. For an extra $150, Smiths City’s Gold Care five-year warranty was “highly” recommended, he enthused.

What if we didn’t buy the warranty and something went wrong with our new appliance?

“It comes down to you fighting Panasonic or LG or Samsung to get them to do anything,” the sales rep said. “They are reasonable to deal with… but when you’re talking about a multi-billion-dollar conglomerate which spends more every second on lawyers than what we earn in a lifetime um, quite honestly, it’s a downhill battle.”

The extended warranty sales pitch hasn’t changed much since we last sent mystery shoppers into big box retail stores in 2012. Back then, our shoppers were also told they’d have to battle it out with the manufacturer’s hotshot lawyers if they didn’t buy an extended warranty.

Then as now, sales assistants failed to mention the rights shoppers already have under the Consumer Guarantees Act (CGA).

When you buy goods or services, the CGA gives you powerful after-sales protection. The Act requires goods to be of acceptable quality. If they’re not, you’re entitled to ask the retailer to put things right. Retailers who claim otherwise are misleading you about your legal rights.

Making the pitch

Smiths City wasn’t the only store where sales reps pushed extended warranties.

At Noel Leeming, the sales rep told us the store’s “Supercover” warranty would provide extra protection after the manufacturer’s standard 12-month warranty ended. “If something went wrong and you weren’t covered under [Supercover], it would be a repair charge at your cost,” she said.

She added that we might be able to make a claim under the CGA if “there was a known fault that [the manufacturer] tried to mislead people about”.

But her advice was wrong on both counts. Your right to make a claim under the CGA doesn’t require you to prove the manufacturer had been misleading people about known faults. If a product isn’t of acceptable quality, the retailer is responsible for fixing the problem. They can’t shift the onus on to the manufacturer.

At Harvey Norman, the sales rep told us the store’s “Product Care” warranty provided better protection than the CGA. If we bought the warranty and the appliance failed then Harvey Norman “just replace it or if they can’t they just give you your money back,” he said.

A rep at another Harvey Norman outlet told us the store’s warranty meant “if anything goes wrong it’s up to you what you want to choose”. Our shopper could pick a new appliance or get their money back, he said. But that’s not what the warranty agreement states.

Under the warranty terms, any replacement is selected by Harvey Norman. While the store will take into account the specs of the original, the replacement may be a cheaper model and a different brand. If the store decides it can’t offer a suitable replacement, it retains the discretion to provide a refund or store credit.

Compare that with the protection you have under the CGA. When a retailer opts to replace a product due to a minor fault, the replacement has to be an identical item. If a good has a major fault, it’s up to you whether you choose a full refund or replacement. You don’t have to settle for store credit.

Sales pressure

Extended warranties can add $100 or more to your purchase. Retailers argue it’s worth paying the extra because it gives you “peace of mind”. They’ll sort things out if a product is faulty. But in most cases, you’re paying for protection you’re already entitled to by law.

There’s another reason sales reps can be keen on promoting extended warranties. They may have sales targets to meet.

Noel Leeming’s induction workbook for new employees has a list of key performance indicators. Employees are expected to know “how to recommend our extended warranty” and how to “overcome any objection against the warranty”. Employee performance is measured against their “warranty strike rate”.

The store’s “Competency Checklist” requires sales reps to show they can sell a Supercover warranty to a customer. It’s all part of the store’s “CARE” policy. Noel Leeming describes CARE as the “science behind our selling process”: the acronym stands for connect, ask questions, recommend a product and execute a sale.

The competency checklist doesn’t require sales reps to demonstrate any particular knowledge of the Consumer Guarantees Act.

Noel Leeming said the document was no longer used for training but declined our request for its current training materials. It said the materials were "confidential".

Law changes

New consumer protection rules were introduced last year to clamp down on extended warranties being sold with misleading claims. Officials’ advice to the Commerce Select Committee stated many consumers were likely to be purchasing warranties without realising they had protection under the CGA.

The new rules mean retailers are required to provide a written warranty agreement that contains a summary of consumers’ CGA rights. The agreement also has to compare these rights with the benefits the extended warranty provides. However, it’s been left up to retailers to decide how they present this information.

Smiths City’s Gold Care warranty contains information that we think is misleading.

The warranty states it provides several benefits consumers won’t get under the CGA. It singles out travel costs for sending faulty products to a repairer and claims these aren’t covered at all by the CGA. That’s not the case. If a product isn’t of acceptable quality, you can claim back the costs of sending it away for repair from the retailer.

Smiths City also points to its cover for food loss in the event your freezer malfunctions and claims this isn’t covered by the CGA. Again, the store is wrong. Under the Act, you can claim for consequential losses, which includes food loss caused by a faulty fridge or freezer.

The store also highlights the warranty’s “Lemon Guarantee” as an additional benefit. The lemon guarantee kicks in if the store has repaired a product three times and it fails again. Under the warranty, Smiths City will then give you a replacement item or store credit.

In our view, you’ve got better protection under the CGA.

If a product can’t be repaired, you have the right to reject it and request a full refund or a replacement. A series of small faults may also amount to a substantial failure, which gives you the right to reject the product and get your money back. You don’t have to settle for store credit.

Smiths City general manager Noel MacDonald said the store didn’t agree Gold Care contained dubious claims and believed many customers had received benefits “that wouldn’t be available under the CGA”. However, the store accepted it could amend the warranty to highlight the consequential loss cover provided by the CGA and would do this.

We say

• Selling extended warranties is a lucrative sideline for retailers. But if you're buying goods for personal use, you won’t usually need one. You're paying for protection you already have by law.
• It's an offence under the Fair Trading Act for retailers to try to sell an extended warranty by claiming that a consumer would otherwise have no protection. We want the Commerce Commission to take action against traders which continue to flout the law.