Service contracts may be another holiday hassle

December 23, 2002|by JULIE E. GREENE

There are three shopping days left to Christmas and you're madly dashing around trying to finish getting gifts for your loved ones.

Don't let the rush push you into making a hurried decision on a service contract that could cost you an unnecessary chunk of money, a consumer official said.

Service contracts, also known as extended warranties, are often offered to consumers when they go to the cashier to buy electronics, appliances and cars.


At a minimum, consumers should find out how long they have to decide whether to buy the service contract, take home a copy and read it carefully, decide if this is a wise purchase and find out if they can negotiate the contract's price, said Larry Munson with the Consumer Protection Division of the Maryland Attorney General's office.

Consumers buy lots of these items around Christmas, but they don't see the problems until later, said Munson, coordinator for the division's Western Maryland office.

They find out the company went out of business or they hadn't read the fine print, Munson said.

People shop to get the best price and quality, "but then they'll pay tremendous amounts for a service contract that very potentially might not be in their best interest," Munson said. "Or it has so many exemptions that when they do need it, it doesn't cover what you need it for."

Munson said some people buy service contracts every time they are offered, whereas other shoppers are more selective.

Hagerstown resident Richard Schuller is cautious when it comes to paying extra for a service contract.

Schuller, 61, said he paid at least $35 for an extended warranty for the first year he owned a big-screen television that cost $4,000 to $5,000.

But, when he got an offer in the mail to extend his warranty for $150 for two years, Schuller passed.

"I would take an extended warranty on certain items, depending on what it cost and what it covered," Schuller said.

With so many electronics becoming more affordable, Schuller said he may pass on an extended warranty because buying a new product may be fairly inexpensive.

That's why Circuit City offers a replacement program for small electronics, said spokesman Bill Cimino with the Richmond, Va.-based electronics retailer. Under the replacement program, consumers can get the purchase price refunded if something goes wrong with the product and can use that check to buy a product at Circuit City, Cimino said.

For some consumers, a replacement program, or what Circuit City calls a "performance plan," offers consumers "peace of mind," Cimino said.

"There's probably a little bit of anxiety in making the purchase. If something went wrong, it's one way to protect the purchase for a period of time," Cimino said.

The performance plan offers protection beyond what the manufacturer's warranty offers, including power surge protection, and can include preventative maintenance, Cimino said.

"The goal of the performance plans is to keep the product operating at top condition, operating as it did the first day you got the product," Cimino said.

Circuit City employees are told to inform customers about performance plans and replacement programs, but it's up to the individual consumer to decide whether to buy one, Cimino said.

Consumers should thoroughly review service contracts even if a salesperson recommends it, Munson said.

Selling service contracts can earn employees commissions and they are big moneymakers for the company, Munson said.

According to the Maryland Attorney General's Web site, 80 percent of people who purchase a service contract never use it.

Retailers can get as much as 50 percent or more of the contract price as a commission according to Consumer Reports magazine, the Web site states.

"If they can get $10 from 150,000 people they've got a lot of money. Maybe one person actually uses it," Schuller said.

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