“Almost completely worthless” – used car warranties catching out countless Australians

Bought a second hand car? There’s a good chance you’ve been offered an extended warranty. A Consumer Action investigation has found that warranty providers can avoid paying many if not most claims pursuant to the fine print.

The ‘Donating Your Money To A Warranty Company’ report argues that some motor vehicle warranties, particularly Motor Vehicle Discretionary Risk Products (MVDRPs) are almost completely worthless to Australians.

The report is informed by the experience the Centre has gained in recent years giving advice to Victorians who have bought these products, analysis of the product disclosure statements issued by the warranty providers, and advice from an expert motor vehicle consultant, Mr Erich Kannen.

“I have worked in the automotive industry for almost 40 years, as a mechanic, a salesman and as a dealer. Once I realised how little value these warranties offer I stopped selling them” says Kannen.

When Australians buy these warranties they think they’re purchasing peace of mind—an insurance of sorts if their car breaks down. However the warranties include complicated and confusing exclusions and/or a “discretionary risk” clause which allows them to choose whether to pay, even if covered by the warranty otherwise.

“We don’t know how often these warranties pay out, but our complaints experience and analysis of the products suggests many Australians may have paid substantial sums for a product with very little value” says David Leermakers, Senior Policy Officer at Consumer Action.

“Salespeople and car-dealers commonly receive commissions for selling these warranties, in some cases up to 80 per cent of the premium. Commission-based selling increases the risk that products are miss-sold.

“We’re asking the Federal Government to ban these products from being sold as an add-on when you buy a car. If you’re being sold peace of mind, you should have the time to consider what it is you are actually buying and if the product will do the job.”

The report names three companies who are providing warranties: National Warranty Company (NWC), Australian Warranty Network (AWN*) and Integrity Car Care (Integrity).

The full report is available for download here.


Editor’s notes:

We want to hear from people who have bought one of these products and have had their claim rejected. They can email us in confidence at media@consumeraction.org.au

*AWN has recently changed its contracts and removed the term quoted above giving them ‘absolute discretion’ to accept or deny a claim. However, this term was still in warranties sold in late 2014 which will still be held by many consumers. The current AWN contract (which does not contain a clause giving them complete discretion over whether or not to pay a claim) still has many exclusions which we think allows AWN to avoid paying many if not most claims.

Consumer Action has clients available for comment about their experiences with these products.

Senior Policy Officer David Leermakers and consultant Erich Kannen are also available for comment.

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