In recent years when consumers go shopping at electrical appliance chain stores, they may be persuaded by the salesperson to purchase extended warranty offered by retailers emphasising that it spares them from substantial maintenance costs or purchasing a new appliance in the event of damage, when the original warranty of the manufacturer expires. Some even claim the extended warranty coverages they offer excel those of the manufacturers. A Consumer Council survey, however, has found a lack of transparency of such plans, consumers can only rely on the salesperson's verbal presentation to make decision before purchasing. It is undesirable. Even after purchasing the plan, there exist a number of uncertainties in relation to matters such as whether an appliance failure is covered; or even if covered, whether full compensation can be obtained in the end. Moreover, the procedures are cumbersome. Consumers are advised to think thrice before purchasing such plans and consider whether the plans are well-suited for their needs.
The current study was divided into two stages. The Council staff initially made telephone enquiries, posing as customers, to 15 chain stores of audio-visual, electrical and electronic goods. Among them, 4 retailers indicated that they did offer extended warranty but the relevant information would only be explained verbally to customers who had made purchases. Therefore, the Council resorted to collecting relevant information on extended warranty plans after purchasing products from these 4 retailers. Afterwards, the Council sent questionnaires to them to enquire further details of the extended warranty plans, 3 of them responded in part and the remainder did not respond. Moreover, 2 of them indicated that leaflets stipulating the terms of extended warranty would not be available to consumers before they purchased the plans.
Lack of transparency in sales
Consumers can only rely on the verbal presentation made by salesperson for details of the contract terms and conditions of extended warranty plans, and the retailers' websites also gave no such details. In other words, consumers have no opportunity, before purchase, of comparing the plans offered by different retailers. Should consumers find the plan unsuitable, only 1 of the retailers surveyed claimed that consumers could cancel the contract within 5 days of purchase of the plan with full refund. 1 replied that it would allow no cancellation; 2 others made no response nor was there any information found in their promotional leaflets in this regard. In terms of charges, consumers could only make verbal enquiry to the staff, increasing the difficulty to make price comparisons.
The Council stressed that this kind of sales practice is both unreasonable and transparency lacking, detrimental to the fundamental right of consumers to accurate information and informed choice. A cooling-off period offered by retailers would protect consumers' interest.
Cumbersome procedure for claims
An overview of the claim procedures under the plans of the 4 retailers shows that, in the event of appliance damage, consumers are required to first report the failure to the retailer and follow their instructions to deliver the product to the agent for inspection, and the fee for which would be paid by consumers first. After obtaining an inspection report and price quotation, consumers then revert the same to the retailer. If the appliance turns out to be beyond repairs, or the maintenance cost exceeds the warranty limit, the retailer can opt to replace the product with an identical model or product of similar functions and quality.
Should authorisation be given to have the product repaired, the consumer will be required to arrange repair of the product by the agent, and fully settle the charges first. Whether or not the consumers will eventually secure compensation in full will depend on the retailers after scrutiny of the agent maintenance invoice and related information. Application for compensation may be rejected on the grounds that the repair item is beyond the scope of warranty or exempted pursuant to the exclusion clauses.
Wide scope of exclusions
The plans offered by 2 of the retailers claim that their extended warranty fared better than the original warranty of the manufacturers; 1 described its warranty plan an extension of the product warranty of the original manufacturer. The Council's study, however, revealed that the exclusion clauses of their extended warranty plans may be far more restrictive than those of the original or extended warranty plans of the manufacturers. The number of exclusions by 1 of the retailers reached as many as 32 items while the other 2 retailers contained 28 exclusion items. For instance, in the case of large household electrical appliance like washing machine, it may require the removal of the machine for transport to the maintenance centre, and return to the home for re-installation after repair. 2 of the retailers would not cover fees for disconnection, transportation and installation; the consumers could end up bearing the costs themselves.
Some exclusion clauses of other plans are baffling to the consumers. For example, some plans specifically excluded inspection fees for problems that "are not caused by mechanical or electrical failure of the appliance." Generally speaking, consumers or even repairman may not be able to identify exactly what the problem is during the preliminary check. It is possible that consumers are not compensated in this regard after the maintenance.
Further, some clauses in extended warranty stipulated that no claims will be considered if the failure "does not affect the basic function" of the device. For instance, many of the new models of refrigerators come with ice-making feature, and if a problem arises it may not be considered as a basic function of the appliance and will not be eligible for compensation. The Council has received complaints that some shops regarded failure of the "stylus pen" function of a mobile phone does not affect the basic function of a handset and therefore is not covered. In the view of the Council, the exclusions are vaguely defined and full of uncertainties, placing the consumers at a clearly disadvantaged position in disputes over claims.
In addition, there is also liability ceiling in these extended warranty plans. 2 of the retailers, for instance, set their maintenance limit at 100% of the selling price of the appliance. Should the maintenance charges be very high or the product in need of repeated repairs, consumers may not be able to get full reimbursement.
Understandably, in opting to buy extended warranty service, consumers have intended to reduce their future maintenance costs, and to extend the life of an electrical appliance. This will help save expenditures and is well in consistent with the principle of sustainable consumption. The Council also called upon retailers to introduce improvement in the related services to consumers to ensure they are given adequate and clear information of the plans to make comparison and decision before making a purchase, enhancing the transparency and bringing in cooling-off period. This will enable consumers to make an informed purchase decision.
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