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If the extended motor vehicle warranties you issue or distribute constitute ‘financial products’ under the Corporations Act 2001 (the Act), you will need to hold an Australian financial services (AFS) licence or be an authorised representative of an AFS licensee to provide financial services in relation to them.
Note that simple product warranties provided by a manufacturer, distributor or dealer are generally not extended warranties (and so are not considered in this FAQ). Extended warranties differ from simple product warranties because extended warranties typically:
When is an extended motor vehicle warranty a ‘financial product’? An extended motor vehicle warranty is an arrangement under which the customer pays a fee in return for you, as the warranty provider, agreeing to repair or replace (or cover the cost of repairing or replacing) parts or components of a vehicle in the event of defects in, or failure of, those parts or components. Depending on the circumstances, extended warranties may amount to a contract of insurance between you and the customer. Even if the warranty is not a contract of insurance, it is likely to be a facility for managing financial risk because customers typically acquire extended motor vehicle warranties to minimise the cost to them of replacing or repairing motor vehicle parts in the event that they are faulty, wear out or are damaged. You should obtain your own legal advice about whether a particular extended motor vehicle warranty amounts to a contract of insurance and/or a facility to manage a financial risk. Are there any exemptions? In some limited circumstances extended motor vehicle warranties will not be financial products because of the ‘incidental product’ exemption in s763E of the Act, and therefore the issuer of the extended warranty will not need to be licensed under the Act. Note that where the extended warranty constitutes a general insurance product, this exemption cannot apply: see s763E(1). We consider that the incidental product exemption will generally not apply to extended warranties provided in circumstances where you, as the warranty provider, do not have any other interest in, or control over the quality of, the vehicle that is the subject of the extended warranty (i.e. it will generally not apply to third party warranty providers). The incidental product exemption is more likely to apply to some extended warranties issued by the car dealership that sells the motor vehicle or the manufacturer, importer or distributor of the motor vehicle. Of course, this will depend on the particular circumstances, including the terms, of the extended warranty and the circumstances and manner in which it is offered to customers. You should obtain your own legal advice about whether a particular extended warranty is covered by this exemption. The following examples of how the ‘incidental product’ exemption does and does not apply are illustrative only. They are not exhaustive and are not intended to imply particular rules about how the exemption operates. Example 1: Manufacturers’ extended warranties You are the manufacturer of a motor vehicle and you issue an extended warranty to a purchaser of the vehicle at the time of sale, and it only covers the repair or replacement of the vehicle or its parts (and not loss unrelated to the quality of the vehicle or its parts). In this case the extended warranty is likely to be covered by the ‘incidental product’ exemption. However, this exemption is less likely to apply where one or more of the following features are present:
Example 2: Third party warranty providers You are a third party warranty provider and you issue an extended warranty to a customer who purchases a vehicle from a car dealership. The extended warranty is distributed by the car dealership on your behalf. In these circumstances, the extended warranty will generally not be covered by the ‘incidental product’ exemption, even if it is distributed by the dealer at the same time that the vehicle is sold and only covers loss related to the quality of the vehicle or its parts. As you do not have any interest in the vehicle other than as a result of the extended warranty, an extended warranty issued by you will generally not be merely incidental to another facility such as a sale contract. The customer is more likely to make a separate and deliberate decision about purchasing the extended warranty from you, and to purchase it in order to manage financial risks. If I issue or distribute extended warranties that are financial products, what AFS licence authorisations apply? If you issue an extended warranty, you will generally be providing the financial service of issuing financial products. If you distribute an extended warranty that is issued by another person (e.g. a third party warranty provider, such as an insurance company), you are likely to be providing the financial services of arranging for other persons (i.e. the customers) to deal in financial products and providing financial product advice. In most cases, you will either need an AFS licence with appropriate authorisations to provide these financial services, or you will need to be an authorised representative of an AFS licensee with appropriate authorisations. You will need to consider which AFS licence authorisations are appropriate for your particular circumstances and, where necessary, obtain your own legal advice. Note that an AFS licence authorisation for general insurance products will not also cover financial services you provide in relation to non-insurance warranty products. For non-insurance warranty products, you should select the product authorisation ‘miscellaneous financial risk products’: see Part 2 of the AFS Licensing Kit for more information. If you provide financial services in relation to warranties that constitute general insurance products as well as warranties that do not constitute general insurance products, your AFS licence authorisation should cover both product types. Do I ‘issue’ an extended warranty? You issue an extended warranty to a customer if you are the person who is responsible for obligations owed to the customer under the terms of the warranty. Extended warranties are usually issued by either:
Distribution of extended warranties through car dealers This is where a warranty provider uses car dealers to distribute extended warranties to customers. In these circumstances, it is the warranty provider, and not the car dealer, that issues the warranty. The car dealer is only an intermediary that distributes extended warranties for the warranty provider. In general, the warranty provider will therefore need to hold an AFS licence because it is issuing financial products, and the car dealer will need to be an authorised representative of the warranty provider. Administration of certain extended warranty programs This is where a third party warranty provider provides an extended warranty ‘package’ to car dealerships, under which the dealer will issue extended warranties to its customers and the third party warranty provider will indemnify, or otherwise cover, the dealer for any losses or liabilities under the extended warranties. The third party provider sometimes also provides claims handling and administrative services. In these circumstances, two products are being issued, i.e. the car dealer issues an extended warranty to the customer, and the third party warranty provider issues a separate financial product to the car dealer through which the car dealer manages financial risk. The third party warranty provider will therefore need to hold an AFS licence to provide financial services in relation to the product (i.e. a facility for managing financial risk) it is issuing to the car dealer. Does the ASIC Act apply? Yes, the consumer protection provisions in Division 2 of Part 2 of the ASIC Act 2001 generally apply to the conduct of warranty providers in relation any extended warranty products. Among other things, these provisions prohibit misleading or deceptive conduct and making false or misleading representations in relation to the supply or promotion of financial services. These provisions apply regardless of whether the particular extended warranty is covered by the ‘incidental product’ exemption or whether the Corporations Act regulates services provided by the warranty provider in relation to the extended warranty. Published 21/7/2003 Revised 25/11/2003 Revised 14/03/2005 |
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| These FAQs provide general information about how we are implementing the Financial Services Reform legislation. We are unable to provide legal advice or interpretations of the legislation. These FAQs should not be treated as legal advice, nor as statements of our policy. We are not able to comment or provide guidance on specific commercial situations. We recommend that you get your own professional advice before making any decisions about your particular situation. |