Consumer law and extended warranties

Salespeople at Australia’s major electronics retailers have a lot to learn about consumer law.
 
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01 .ACL shadow shop

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A CHOICE shadow shop reveals sales staff at Australia’s biggest electronics retailers seem to have a limited or no understanding of their obligations under the Australian Consumer Law (ACL).

Either that, or the many salespeople we spoke to are wilfully flouting the consumer protections that came into effect in 2011. 

In this article, you'll find:

Our shadow shop

Over the course of three weeks in September and October this year, CHOICE shadow shopped at 80 Harvey Norman, The Good Guys and JB Hi-Fi stores across every state and territory. We encountered widespread violation of the ACL when we asked about returning big-ticket items. 

The set-up 

Posing as a customer looking for a big-screen TV priced at around $2500, we asked salespeople if the store had any responsibility should the TV cease to function after the manufacturer’s one-year warranty period. Under the ACL, the correct answer would be yes. However, 85% of the salespeople we talked to got it wrong, saying any repairs or returns would be out of the store’s hands. Every salesperson we spoke with also tried to sell us an extended warranty. 

What’s the problem?

Such sales tactics fly in the face of the 2011 legislation, which says consumers have a right to refund, repair or replacement through the store for a "reasonable" time after purchase. The definition of reasonableness depends on the quality and cost of the item, but a follow-up ACL guideline released in 2013 is crystal clear on the retailer’s responsibility when it comes to expensive electronics. 

"A consumer buys a top-of-the-range plasma television for $1800. It stops working two years later. The supplier tells the consumer they have no rights to repairs or another remedy as the television was only under the manufacturer’s warranty for 12 months. The supplier says the consumer should have bought an extended warranty, which would have given five years’ cover." 

"A reasonable consumer would expect to get more than two years’ use from an $1800 TV. Under the consumer guarantees, the consumer therefore has a statutory right to a remedy on the basis that the television is not of acceptable quality. The supplier must provide a remedy free of charge." (The law also stipulates that retailers must arrange transportation for unwieldy products like big-screen TVs, and that you don’t have to save the packaging.) 

The ACCC weighs in

We also talked to the ACCC, which confirmed that leading customers to believe they wouldn’t be able to take a pricey TV that’s out of warranty back to the store is a breach of consumer law.

Ongoing issue 

It’s hardly the first time retailers have ignored important parts of the ACL. In July 2013, Hewlett-Packard Australia paid a penalty of $3m after the ACCC took the company to the Federal Court. The charge was making false or misleading representations, including telling customers they would have to pay extra for any warranty protection outside of the manufacturer’s warranty. Similar cases are ongoing against 10 Harvey Norman stores across Australia at the time of publication, but that legal action didn’t stop the salespeople we talked to from engaging in similar conduct.

Retailers respond 

In contrast to what we heard from most of the salespeople, the corporate headquarters of two of the retailers we shadow shopped, Harvey Norman and JB Hi-Fi, seemed to understand the principles behind the ACL statutes:

  • Harvey Norman corporate compliance officer Michael Mecham said stores would be required to consider refunds or repairs outside of the manufacturer’s warranty depending on the product. “We would take a look at the product to determine if it’s a major or a minor fault and, depending on what that examination found, make a determination.” He agreed that a customer should expect a Harvey Norman store to replace, refund or repair a $2699 LG TV if it stopped working after the one-year manufacturer’s warranty expired, regardless of whether the customer had purchased a “product care” program.  

  • JB Hi-Fi marketing director Scott Browning took a similar line, saying the store would still be responsible for an expensive TV after the manufacturer’s warranty had expired without an extended warranty, “assuming the failure was due to material defects or an acceptable quality issue at the time of sale and not through accidental damage or customer misuse”.  

  • The Good Guys head office was less forthcoming. Citing the company’s status as a private company, manager for public relations Suzanne Tonks declined to answer our questions about customer rights outside the manufacturer’s warranty, the exact details of The Good Guys’ extended warranties, or whether its salespeople are incentivised to sell extended warranties.  

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The ACCC has repeatedly raised concerns that consumers are paying for extended warranties that don’t give them any extra protection. At best, they may offer a more convenient alternative to exercising your ACL rights, and cover wear and tear, which is not included under the ACL. We heard a variety of explanations from salespeople about how their extended warranties work, so we asked their corporate HQs for clarification. 

Harvey Norman

Australia's biggest electronics retailer is making a big deal of the fact that it’s no longer in the business of offering extended warranties. Instead, the retailer has moved to a three-year or five-year “product care” plan, which entitles customers to a replacement with the latest model available. However, the product care plan only covers minor faults (also covered by the ACL for “a reasonable period”) and normal wear and tear. 

Harvey Norman’s offer of automatic replacement for these faults outdoes the ACL requirements, which give the retailer the option of repairing minor fault, as long as it's done within a reasonable time frame. However, should your $2500 TV stop working altogether – a major fault – Harvey Norman's product care plan won’t do anything for you. According to the company's compliance officer, Michael Mecham, the solution would then be to exercise your ACL rights to a replacement or a refund. Yet of the 27 salespeople we talked to, 24 spruiked the product care plan on the basis that we wouldn’t otherwise be able to bring the TV back to the store (a key ACL right). 

The cost of the plan depends on the type of product and its cost but is not a percentage of the purchase price, Mecham said, adding that salespeople “are not offered incentives to sell product care over and above the standard incentives they receive within their remuneration”. During our shadow shop, however, many salespeople pushed the five-year plan without mentioning the three-year option. 

JB Hi-Fi

JB’s “extended care agreement” adds two, three or four years to the manufacturer’s warranty – so a TV that came with a one-year warranty would be “protected” for up to five years. The agreement arguably doesn’t provide much above the ACL rights. It promises access to a loan product if it looks like your repair will take longer than 10 working days; however, the consumer law states that any repair must be done within a reasonable time, otherwise you’re entitled to a new product or refund. Marketing director Scott Browning told us the five-year agreements “usually attract between a 15% and 20% premium to the original purchase price of goods. JB Hi-Fi staff are incentivised on the total value of all sales and as such benefit from the inclusion of an extended care agreement”. 

The Good Guys

During our shadow shop, The Good Guys’ salespeople told us that two-, three- or four-year extensions of a one-year manufacturer’s warranty for a TV are available, but corporate headquarters refused to confirm this or comment on whether salespeople are incentivised to sell extended warranties.

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Seven things you should know about your ACL rights

  • If there’s a sign that says “no refunds”, “no refunds on sale items”, or “exchange or credit note only for return of sale items”, it contravenes the ACL. You can return something if it doesn’t do what you’d reasonably expect it to or isn’t of acceptable quality. But stores aren’t obliged to take it back if you change your mind or find a better deal somewhere else. 

  • If a product is not of acceptable quality, the retailer can’t charge you for fixing it. 

  • Retailers can’t just refer you to the manufacturer – they’re obliged to resolve your issue. 

  • If the problem is “major”, you can ask for a refund or a replacement rather than a repair. 

  • You should be informed if a replacement is second-hand or if they’ve used refurbished parts to repair it. 

  • Repairs must be made within a reasonable time. Mobile phones and fridges, for instance, must be given high priority, or you can demand a replacement. 

  • You don’t have to return a product in its original packaging, and if you’ve lost your receipt you can use the following as proof of purchase: a credit card statement that itemises the goods; a confirmation or receipt number from a phone or internet transaction; a warranty card showing the date, price and place of purchase; or the serial or production number if it’s stored on the retailer’s computer.

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