Bad timing: Big business’ image tarnished by Harvey Norman class action

It may not rise to the level of Qantas selling tickets on ghost flights, but allegations that Harvey Norman customers have handed the retailer hundreds of millions of dollars for worthless warranties do have the same “taking advantage of the schmuck consumer” feel.

The customer class action lawsuit against Harvey Norman that ignited on Wednesday is a timing disaster, splashing just hours after the big business lobby group used its annual gala dinner to harpoon the prime minister for unjustified and politically motivated business bashing.

Harvey Norman chairman Gerry Harvey.

The Business Council of Australia wants business and the community to work together for the good of the nation, and not presume that companies are a consumer’s natural enemy.

All it took was class action firm Echo Law’s attack on Harvey Norman to put a kink in that nation-unifying call.

The law firm alleges the white goods and furniture retailer breached the law and engaged in misleading or deceptive conduct as well as unconscionable conduct by leading customers to believe that the extended warranty they bought would give them additional protection they would not have otherwise had.

“In reality, Harvey Norman is packaging up the obligations it already has to repair, replace or refund faulty products sold in its stores and is selling this to its customers at a premium,” said Echo’s senior associate Lauren Meath.

Harvey Norman dismissed the claims in a statement to the ASX on Wednesday afternoon, saying it “complied with all relevant laws at all times” and intends “to defend the proceedings vigorously”.

Regardless of whether the legal action finds success, it plays poorly to the notion of companies and their good corporate citizenship, and will cement a view of many that profit trumps customers.

It dredges up tales of insurers rejecting claims after disasters, or financial institutions charging dead customers, or travellers fighting with airlines to use COVID vouchers.

Only this week, the New Zealand Commerce Commission filed a legal action against Jetstar for misleading customers over flight credits.

It now looks like a case of retailers allegedly behaving badly. Worse still, these claims are being made against a large, established, trusted and profitable retailer, not some dodgy bloke selling TVs at the pub or some online outfit that no one has heard of.

The selling of extended customer warranties of allegedly dubious value isn’t a new issue.

Late last year, an almost identical affair became the subject of a class action by JB Hi-Fi customers.

In both cases, the claims relate to customers being sold additional or extended warranties for issues like faulty products, against which buyers are already protected under Australian Consumer Law. The claim is that unsuspecting customers were essentially hoodwinked into paying for something they already had.

Maurice Blackburn Lawyers described its lawsuit as a landmark legal action against JB Hi-Fi, seeking refunds for customers who took out extended warranties when buying consumer electronics, home appliances and home entertainment products from the electronics retailer. The company is defending these allegations.

Echo Law, meanwhile, says that tens of thousands of Harvey Norman, Domayne, and Joyce Mayne customers who were sold extended warranties from September 2018 to now will be covered by its class action. Hundreds of millions of dollars are estimated to have been paid by those unwitting customers for warranties they didn’t need.

Echo Law claims that Harvey Norman, which primarily operates a franchise model, has pocketed amounts between 10 and 40 per cent of a product’s sales price in “customer care” warranties.

Consumer advocate Choice raised the alarm on the worth of warranties in 2022 when it conducted a mystery shop of 80 Harvey Norman, JB Hi-Fi and The Good Guys stores. Choice found seven in 10 stores actively misrepresented consumers’ rights to some extent, showing that “the Australian Consumer Law (ACL) is still being ignored or misunderstood”.

So where is our competition cop? The last public sighting was in 2017, when the ACCC accepted court-enforceable undertakings from two Harvey Norman group companies after an industry-wide review of extended warranty selling practices.

The undertaking required these Harvey Norman companies to amend their warranty brochures with additional information to assist consumers in comparing the features of the extended warranties on offer with the existing remedies available under consumer law.

Now it’s class action lawyers who are applying a blowtorch to the belly of big business.

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