Warning Over Warranty Watershed

"Is the warranty insurance backed or self-funded by the dealer?" That’s the question anyone looking to buy a used car this weekend should be asking, when new regulations governing the sale of aftersales warranties come into force.

From Friday (January 14th), only car dealers who have registered with the Financial Services Authority, or those acting as an agent of an approved insurer, will be able to sell insurance related products like mechanical breakdown warranties.

The scheme is intended to provide added protection to the consumer through increased policing. However, figures suggest that as few as 60 per cent of main dealers* have registered with the FSA. Of those who have not signed up, many cited the significant administrative costs associated with compliance.

As a result, independent automotive warranty provider, Warranty Direct (www.warrantydirect.co.uk ), is concerned that many traders will opt to offer self-funded cover rather than seek approved status.

Self-funded cover is a contract between the dealer and the customer whereby the former agrees to repair any faults at their own expense rather than rely on an insurance payout.

There is a three-fold risk with such policies according to Warranty Direct.

"Firstly, the whole point of the new regulation is that the consumer is protected. Any self-funded scheme is outside the control of the FSA and therefore leaves the public vulnerable," explains Duncan McClure Fisher of Warranty Direct.

"Secondly, a contractual warranty might only cover a small number of parts, have a large excess and a low limit, making the protection almost worthless.

"And lastly, as demonstrated by the collapse of electrical retailer, Powerhouse, in 2003, if the trader goes out of business, the cover offered disappears too."

The most important advice of all is not to be afraid to ask for clarification from the dealer.

Anyone having difficulty resolving a dispute post-14th January with the selling dealer should seek advice from either their local Citizen’s Advice Bureau (www.citizensadvice.org.uk ) or local Trading Standards office (www.tradingstandards.gov.uk ) in the first instance.

* RMI quoted figure in November 2004

16 January 2005 Staff

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