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Extended warranties – are you compliant?

A retailer has recently found itself on the wrong side of the Fair Trading Act (FTA) resulting in a fine for its procedure around extended warranties. A 2014 amendment to the FTA and Consumer Guarantees Act (CGA) requires businesses to provide consumers with specific information around their rights before the sale of a warranty takes place.

PB Technologies Ltd (PB Tech) was fined $77,000 in Auckland District Court at the beginning of this month for not providing the legally required information to consumers.

“New Zealand’s largest computing and IT retailer”, made more than 4000 ‘PB Care’ extended warranty noncompliant sales between 11 May and 30 November 2017.

It pleaded guilty on 14 counts.

Businesses can face an infringement notice with a fine of $1000 for each violation or go to court and risk fines of $30,000 apiece.

Individuals can be fined up to $10,000 for each breach.

Under the FTA, the retailer must provide the consumer with a summary of the CGA and a comparison of the CGA to what the extended warranty provides.

The consumer must also receive a written copy of the warranty and cancellation rights.

An extended warranty can be cancelled and refunded if done within five working days.

The customer must be told this verbally at the time of purchase.

This law came into being on 17 June 2014 to reflect the numerous changes that had taken place in the retail space.

Other businesses have also found themselves on the wrong side of the law when it comes to extended warranty disclosure requirements.

New Zealand Vacuum Cleaner Company Ltd (Godfreys) was fined $48,000 in 2016 for FTA breaches.

Godfreys sold over 3000 warranties without providing consumers with the required information from the time the FTA was updated until 22 September 2015.

Smart Shop Ltd (Smart Store), a mobile trader, has also been prosecuted for extended warranty violations.

It was fined $135,000 in for nondisclosure of consumers rights, amongst other FTA infractions.

The Comcom did an investigation into mobile traders from 2014-2015.

The report said that vulnerable communities were targeted and were sold overpriced low-quality goods on credit.

Many were later charged with FTA standard breaches including lack of disclosure and unfair contract terms.

The CGA provides consumers with a basic expectation of what a sale will give them.

This includes a guarantee to repairs or spare parts for a ‘reasonable time’ and to an express manufacturer’s warranty.

The 2014 FTA changes came on the heels of the ComCom warning consumers that some extended warranty benefits may be the same as those provided by the CGA, rendering them useless.

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