Why some Sears customers are still paying for defunct warranties

A Nova Scotia couple is upset they were told they must continue to make payments for an extended warranty they purchased from Sears or have their credit rating negatively impacted.

"I just didn't feel it was right for us to pay for something that Sears had absolutely no intention of providing," Alan Benninger told CBC News.

Sears announced Oct. 16 that it would no longer honour warranties as of Oct. 18. It said anyone who had purchased a warranty in the previous 30 days would be eligible for a full refund. 

Benninger and his wife, Holly MacIntosh, live in Dundee, Cape Breton, and purchased a Kenmore Elite induction range and a five-year extended warranty from Sears through the Port Hawkesbury store in April of this year.

Offer was enticing

The couple say the extended warranty was hard to resist since it was interest-free and they were told if they did not use the warranty, they could apply the full $400 they paid for it toward a future purchase. The deal also included an extra six-month free warranty.

"We thought really there wasn't anything to lose," Benninger said. "If the unit breaks down, we get it repaired. If it doesn't, we'll put that money towards a future purchase."

Once they learned that Sears would no longer be honouring its warranties, the couple informed Sears Financing they would be reducing their monthly payments by the amount charged for the warranty.

"We don't think it's either fair or legal to expect payment for a service that Sears has no intention of fulfilling. And an honest business would not expect to be paid for something they couldn't or wouldn't deliver," Benninger said.

'To us, it's a form of robbery'

Sears Financing saw it differently and responded to their email saying while it understood their frustration, "we strongly advise you to continue making your monthly payments towards your Sears loan."

The email from someone identified only as "Phil" went on to say, "Since we report to your credit bureau on a monthly basis, we do not recommend stopping or making reduced payments. This will cause for the account to fall delinquent for the outstanding amount of the warranty and affect your credit in the long run."

Benninger said that's unacceptable. He views it "as a threat toward our credit rating," adding, "to us, it's a form of robbery."

Benninger no longer plans to pay for the warranty and has contacted Canada's credit bureaus to make them aware of the situation in the hope they will not allow it to impact his credit rating. If it does, he says he will deal it at the time.

After CBC asked Sears about Benninger's situation, a spokesperson for the company said the couple would no longer need to make the contested payments. 

Vincent Power said such payments will be waived for the "vast majority" of customers. He said that decision was not related to CBC inquiries. 

"Monthly payments will remain the same, but the amount equivalent to future payments for protection agreements will be reduced at the end of the obligation," he said in an email late Thursday. 

He said the company will give more information on Monday. 

Consumer protection needed

Benninger feels there should be some kind of consumer protection for situations like this.

Service Nova Scotia Minister Geoff MacLellan told CBC News the Sears situation is a concern, and its impact on Nova Scotians has started a discussion about extended warranties.

He said the province recently completed a survey from the Consumers Council of Canada on the topic.

"[It's] looking at some options and some of the realities around warranties and I truly think that when they do a jurisdiction scan they could provide some recommendations that may help determine what the province does about extended warranties," he said.

Feds funding study

Council spokesperson Ken Whitehurst said Innovation, Science and Economic Development Canada requested and funded the study.

"One of the things we're trying to do is to document the many kinds of contract structures for these warranties because there seems to be a diversity of them and that makes it difficult for consumers to understand what they're buying and to compare service offerings," Whitehurst said.

He said the report will contain recommendations for levels of government, business and consumers.

The report is expected to be issued next summer.