Buying a car? Beware of being sold discretionary risk products

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Extended warranty products are often sold with used cars. However, some of these warranty products, known collectively as “discretionary risk products”, give the provider an absolute discretion over paying claims.

Even if you satisfy all the contract terms, the provider can choose whether it pays you at all, despite there usually being obligations on them to consider the merits of your claim in a fair and reasonable way.  This means that you may not be paid, even if your claim falls within the terms and conditions of the warranty.

If this isn’t bad enough, the contracts we’ve seen contain other contract terms which make a successful claim difficult.  In some cases, damages caused by wear and tear and pre-existing faults are excluded.  And often there are limits on how much the provider will contribute for repairing particular components meaning that even if they agree to pay, the contract might only cover a fraction of the total repair costs.

Another risk is that some contracts will not pay a claim if you haven’t had the vehicle serviced often enough, or if you haven’t sent proof of each service to the provider within seven days of the work being done.

Companies that offer these warranties or ‘discretionary risk products’ include the National Warranty Company and Integrity Extended Warranties. Another company, Australian Warranty Network offered discretionary risk products until recently, but seems to have changed their contracts to take out the discretionary element. However, other contract terms remain which make a successful claim difficult, like the ones we’ve mentioned above. Consumer Action has complained to regulators, including the Australian Securities & Investments Commission, about the sale of some of these warranties.

Australians should remember that the consumer guarantee provisions of the Australian Consumer Law gives car buyers protections which in some circumstances may actually be stronger than discretionary risk products (note though that the consumer guarantees may not apply to cars bought at auction). Consumer Action urges Australians to think long and hard before purchasing a discretionary risk product—you may be better off negotiating a lower price for the vehicle rather than accepting an extended warranty as a ‘sweetener’.

If you’ve recently been sold a “discretionary risk product” or other add-on products such as an extended warranty, gap insurance or tyre & rim insurance, we’d like to hear from you – please email campaigns@consumeraction.org.au.  All communication will be held in strict confidence.

Further reading: ASIC concerns prompt national warranty company to remove a potentially misleading representation.

Image from Kamyar Adl.

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