A large company was fined $169,000 by the Court for breaches of the Fair Trading Act.

A consumer purchased an item on sale and after looking at the receipt found the price included an extended warranty valued at $149.00. The consumer had not been told about the additional extended warranty and had not agreed to purchase it. Further, the warranty did not provide the details that a customer would need to rely on it.

As a result, the company was held liable for false and/or misleading representations about the price of the item and for not displaying its extended warranties correctly.

An additional factor in the decision was that the company had also sold 76,306 warranties in the 12 months prior with total sales of $8.8 million. The judge stated most consumers were likely to be “guiled into paying for the warranty without knowing they were doing so or being given the choice”.

False or Misleading Representations

The Fair Trading Act prohibits false and/or misleading representations about goods or services and this includes the price.

If there are hidden or additional costs that are not disclosed to the consumer, then it is likely the consumer was misled into the purchase.

The company was liable in this case because the staff member failed to disclose that the price included the extended warranty. Therefore, the consumer had been misled as to the value of the item and had no opportunity to decide whether the extended warranty was needed.

Extended Warranty Agreements

Extended warranty agreements should only be offered to consumers when the warranty goes beyond the Consumer Guarantee Act. For example, an extended warranty may provide a guarantee that the consumer will receive a replacement instead of having to first wait to see whether it can be repaired.

If a company or an individual decides to offer an extended warranty, it needs to comply with the Fair Trading Act and disclose on the front page of the warranty:

  • a comparison between the Consumer Guarantees Act and the extra protections offered by the warranty;
  • a summary of the consumer’s rights and remedies under the Consumer Guarantees Act; and
  • all the terms and conditions of the warrantor and the consumer; including the duration, the expiry date and the price payable.

Once an extended warranty agreement has been entered into, a consumer then has up to 5 working days to “cool off” and reconsider the agreement, and then cancel it if desired.

Where a company fails to comply with the Fair Trading Act, the Commerce Commission can prosecute and/or fine for each breach. Each breach can amount to $10,000 for an individual and $30,000 for a company.

These levels of fines could significantly impact a company, so if your company offers extended warranties and/or is unsure whether it is following its obligations under the Act, it is best to seek advice from a professional experienced in this area. 

Alan Knowsley
Wellington, New Zealand

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