Major UK electrical retailers are poised to avoid a major competition inquiry by overhauling their £1 billion-a-year sales of extended warranties.

Dixons, Comet and Argos, the largest providers of such warranties, will set up a price comparison website and carry out regular independent mystery shopping exercises as part of a drive to prevent consumers being ripped off.

Key Points

  • Electrical retailers to overhaul extended warranties sales
  • Undertakings agreed with OFT
  • Only a quarter of consumers search for best deal

The undertakings agreed with the Office of Fair Trading (OFT) will be the subject of consultation before the watchdog decides whether to refer the market to the Competition Commission for detailed investigation.

It is concerned that only a quarter of consumers shop around for warranties, mainly because retailers have a point-of-sale advantage in being able to sell warranties at the same time as they sell the goods.

There is also a lack of relevant information for shoppers to make an informed decision about whether the warranty is value for money, it adds.

Pay As You Go (PAYG) warranties, where shoppers pay for a rolling monthly contract, can also be very expensive if held for lengthy periods.

Retailers' initiative

Ann Pope, director in the OFT's goods and consumer group, says: "Millions of extended warranties are sold in the UK each year and we remain concerned that, despite recent improvements, this market does not work as well as it could for consumers.

"We welcome the retailers' initiative in offering undertakings and we now want to hear from consumers and others whether they think these will lead to improvements."

The firms will have to establish, maintain and publicise the price comparison website, as well as provide more accessible information through in-store leaflets, including on the availability of alternative providers.

They will also conduct mystery shopping exercises to ensure shoppers get accurate information from sales staff, before reporting the findings back to the OFT.

The watchdog has also recommended clear on-shelf information about the annual equivalent prices of PAYG warranties.