Extended warranty prices were arbitrarily set as high as possible by car dealerships so that they could be paid as much as $1000 or more in commissions.
The National Warranty Company (NWC) did not have a cap on the price of its extended warranties, an investigation by the Australian
Securities and Investment Commission (ASIC) has revealed. Instead, car dealerships would set
the price at whatever they believed a shopper would pay, and the higher the
price, the more commission they would earn.
Now the company will refund $4.9 million to 6367 customers at the direction of the corporate regulator, after its
warranties were sold at inflated prices for nearly two years until
If a warranty was sold for $1500, car dealerships would be paid $500 in
commission. If it was sold for $2000, the commission paid would be $1000.
Commission payments have come under heavy scrutiny as of late, particularly
in the banking and finance sector. "Product issuers should always design
their incentives in a way that promotes good consumer outcomes," says Peter
Kell, acting chair of ASIC.
ASIC says 221 customers will be paid refunds of $2000 or more where the
"sold with a substantial markup". A further 2858 customers will receive
refunds of $100 or less, while the remaining 3288 customers will receive a
refund payment somewhere in between.
The announcement follows landmark fines issued by the corporate regulator
against insurers selling add-on products through car dealerships. Earlier
this week, ASIC ordered Allianz and Suncorp insurance to refund $60 million
to nearly 110,000 people for selling add-on products that were of "little
to no value".
The enforcement action brings the total value of refunds for add-on
insurance products to nearly $125 million since ASIC conducted its review
of the category in 2016.