Originally posted by CFA member Consumer Action Law Centre.
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. So we’ve taken to the internet to discuss the risks of these products
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 offering these warranties or ‘discretionary risk products’ include the National Warranty Company, the Australian Warranty Company and Integrity Extended Warranties. We’ve complained to regulators, including the Australian Securities & Investments Commission, about our concerns with some of these warranties.