Brand Developers Limited, trading as The TV Shop, has been fined $123,500 in the North Shore District Court following a Commerce Commission investigation into its sale of extended warranties.
The company pleaded guilty after it failed to comply with the extended warranty disclosure requirements of the Fair Trading Act between 1 May 2020 and 1 March 2021. During this time, it sold 18,190 extended warranties to customers for a total revenue of $1,974,723.
The TV Shop sells a wide range of products through direct response television advertising. It offered extended warranties of varying price and duration for around 30 of its product lines.
The Fair Trading Act requires businesses offering extended warranties to provide specific information to consumers in specific ways – including requiring that the information is provided in writing, is expressed in plain language, is legible and is presented clearly.
The Commission's investigation found The TV Shop failed to meet these requirements in the extended warranties it sold during the charge period.
Judge A M Fitzgibbon agreed with the Commission that a considerable number of The TV Shop's consumers had little to no prospect of understanding their rights and remedies under the Consumer Guarantees Act, how those compared with the protections offered by the extended warranty agreement, or their rights to cancel the agreement.
In considering an appropriate penalty, Judge Fitzgibbon said The TV Shop's history of non-compliance with the Fair Trading Act "provides context to apparent systematic failures within [its] practices. It supports the notion that there is a need for specific denunciation".
Commission Chair Anna Rawlings said the information that retailers must provide to consumers when selling an extended warranty helps consumers to decide if an extended warranty offers them value over and above the rights they already have under the Consumer Guarantees Act, and whether it is worth the price.
"For this reason, it must be clearly disclosed in writing in a way that consumers can easily understand."
After being notified of the Commission's investigation into its failure to disclose warranty information, The TV Shop updated its processes. However, it continued to breach the Act because the information it provided to consumers was set out in multiple documents, with cross-referencing between the documents needed to fully understand the terms of the warranty – meaning the extended warranties did not meet the requirements of being legible and presented clearly.
Ms Rawlings said the case highlights the importance of having the right extended warranty documents and processes in place.
"Businesses need to understand their obligations under the Fair Trading Act and consider the best ways to meet them."
The Commission's website has detailed information on the extended warranty requirements and what businesses need to do to comply, as well as information for consumers.
A copy of the Judge's sentencing notes is available on the case register on the Commission's website.
Background
An extended warranty is sold at additional cost when buying goods, such as appliances, computers and mobile phones. An extended warranty is different to a manufacturer's warranty, which comes free with goods. It is also different from guarantees provided automatically under the Consumer Guarantees Act.
Under amendments to the Fair Trading Act that came into force on 17 August 2021, where a customer buys an extended warranty over the phone, the business must supply a copy of the agreement within five working days.
The Commission has published a fact sheet for businesses on selling extended warranties.
Recent cases
- Commission issues warning to Hong Kong electronics retailer for failing to provide required information on extended warranties
- Jeweller Michael Hill fined after its Professional Care Plan failed to comply with extended warranty disclosure requirements
- PB Tech fined for extensive failings with customers' extended warranties
- Godfreys fined for not disclosing consumer rights in its extended warranties
