Extended warranties in the firing line from ACCC, ASIC and class actions
Extended warranties have been attracting an increasing amount of regulatory scrutiny in recent years. This activity has now led several law firms and litigation funders to consider launching class actions.
ACCC / ASIC investigations and enforcement actions
Following numerous enforcement actions in recent years, the ACCC has identified the operation of extended warranties and consumer guarantees in the new car retailing industry as a key enforcement priority this year. It is expected to release a market study of this industry in late 2017.
In conjunction with the ACCC, ASIC has also been closely scrutinising retailers in the industry. Its September 2016 report on the sale of “add-on insurance” products (including extended warranties) by car dealers found that the market is failing consumers. The regulator has warned providers of extended warranties that it will take action if the industry does not quickly lift its standards.
Potential class actions
There are several class actions touted on the horizon, including:
- Bannister Law is currently investigating a potential class action against the seven insurers who were the subject of ASIC’s report for unfair and unconscionable conduct.
- The AFR reported earlier in June that Vannin Capital and Quinn Emanuel Urquhart & Sullivan are also planning to initiate a class action against McMillan Shakespeare Limited’s extended car warranty business, Davantage Pty Limited trading as National Warranty Company, for unfair and unconscionable conduct. In an ASX announcement, McMillan Shakespeare confirmed that the potential claims under the class action are asserted to amount to $80 million.
The timeline below canvasses each of these developments, and further details on each are available underneath.
- July 2017 – Draft report in ACCC new car retailing industry due Report to deal with misleading conduct and false and misleading representations regarding interaction between consumer guarantees (statutory), manufacturers’ warranties (commercial) and dealers’ extended warranties (commercial).
- June 2017 – Add-on insurance class action Class action announced against providers of add on insurance including mechanical breakdown insurance alleging unfair and unconscionable conduct.
- June 2017 – MMS class action Class action announced against MMS regarding extended warranties alleging unfair and unconscionable conduct, misleading conduct.
- June 2017 – Thermomix ACCC institutes Federal Court proceedings against Thermomix for allegedly misrepresenting to some consumers that they could only obtain ACL remedies if they signed non-disclosure agreements and also telling other customers that it would not offer repairs or refunds at any time.
- May 2017 – Yoogalu and D&G Yoogalu and Domestic & General give enforceable undertaking to provide ACL compliance training to retailers, engage retailers to revise extended warranty brochures and monitor retailers’ extended warranty selling practices.
- November 2016 – Virginia Surety Underwriter Virginia Surety gives enforceable undertaking to engage retailers to revise extended warranty brochures, train representatives and retailers in ACL compliance, and improve practices.
- September 2016 – ASIC Report 492 on add on insurance ASIC releases its report into the sale of add-on insurance products in September 2016. Key findings include that:
- None of the insurers’ sale scripts for extended warranties discussed whether consumers should assess the scope of their rights under the ACL
- If manufacturers’ warranties and extended warranties both terminated after vehicles travelled a certain distance, the extended warranty was worthless.
- July 2016 – Ozsale Ozsale fined $10,800, ordered to implement compliance program and corrective advertising under infringement notice for stating that refunds were discretionary.
- June 2016 – Sportscraft Sportscraft fined $21,600 under infringement notices for claiming that it would not refund or exchange products after 21 days from purchase.
- May 2016 – Valve Federal Court fines video game company Valve $3 million for stating that customers were not entitled to a refund for digitally downloaded products and restricting consumer guarantees.
- April 2016 – Apple repairs Apple taken to court for allegedly refusing to repair faulty devices that were previously repaired by a third party.
- December 2015 – LG ACCC takes court action against LG for allegedly misleading customers about their rights in relation to faulty TVs. The ACCC claims that LG informed customers that they could only seek remedies under its manufacturer warranty when this was not the case.
- December 2015 – Lumley Underwriter Lumley gives enforceable undertaking in relation to retailers’ extended warranty selling practices following industry review.
- September 2015 – Fiat Chrysler Fiat Chrysler agrees to offer independent review of customer complaints about vehicle defects and offer appropriate remedies following investigation into its handling of consumer guarantee complaints.
By Peta Stevenson and Kate Jackson-Maynes