Making Price Drops Conditional On Extended Warranty Purchase Could Be Illegal

A few days ago we wrote about haggling at retail stores and how some sales people will cut you a deal if you get the extended warranty, since they earn commission off selling those. Well, reader Stephen writes:

In Michigan at least, it is illegal for a rep to base a price reduction on the purchase of an extended warranty. A few years ago, I was buying a returned Tivo from Best Buy, and the SA tried to tell me he’d give me a better price if I bought the plan. I stopped him right there, told him I knew that this was illegal and that he knew it too. Suddenly the lower prices was no longer conditional on the purchase of the extended service plan.

Something to remember next time you’re wrangling over that HDTV. Michigan’s statute, inside…

Here’s the relevant Michigan statute:

MICHIGAN CONSUMER PROTECTION ACT
Act 331 of 1976, Section 445.903

Sec. 3. (1) Unfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce are unlawful and are defined as follows:

(w) Representing that a consumer will receive a rebate, discount, or other benefit as an inducement for entering into a transaction, if the benefit is contingent on an event to occur subsequent to the consummation of the transaction.

Comments

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  1. Pylon83 says:

    How can the site post something like this without even the least bit of research. There is no link to a statute that can back up the tipsters allegations. This post is entirely baseless and is, in my opinion, irresponsible journalism.

  2. eskimo81 says:

    I’ve never heard of it being illegal, but I don’t live in Michigan either.

    It’s generally a bad idea, but really, it’s nothing more than giving a bundle discount. You’re buying two products, so they’ve given you a discount.

    Nothing illegal about that.

  3. Krossbones says:

    @Pylon83: I completely agree.

  4. Mollyg says:

    I believe the law is MICHIGAN CONSUMER PROTECTION ACT
    Act 331 of 1976, Section 445.903

    Sec. 3. (1) Unfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce are unlawful and are defined as follows:

    (w) Representing that a consumer will receive a rebate, discount, or other benefit as an inducement for entering into a transaction, if the benefit is contingent on an event to occur subsequent to the consummation of the transaction.

  5. wallspray says:

    @Mollyg: thank you for doing research someone else was unwilling to do

  6. xamarshahx says:

    It is illegal and Best Buy fires store managers when they find out, but its hard to crack down when all the managers in the store are involved since their bonuses are tied to the warranty sales.

  7. Skeptic says:

    cf “by Mollyg at 11:50 PM on 03/19/08″
    [www.michigan.gov]

    Pylon83 at 11:37 PM on 03/19/08 Reply
    How can the site post something like this without even the least bit of research. There is no link to a statute that can back up the tipsters allegations. This post is entirely baseless and is, in my opinion, irresponsible journalism.

    How can a commenter post something like this without even the least bit of research. There is no link to a statute that can back up the commenter’s allegations. The post is entirely baseless and is, in my opinion, irresponsible commenting.

    …not to mention apparently “factually wrong” and “hypocritical…”

  8. EricaKane says:

    This can’t be right…anytime Best Buy has a sale like buy a HDTV get a TIVO half off (like they do now) it would technically violate the supposed reading of the Michigan Consumer Protection Act.

    The operative point is the word “transaction” If the insurance + sale are on one receipt, thats one transaction.

    Moreover, car dealers do the same kind of stuff all the time. Its not illegal.

    There might be a different law related to the sale of insurance, but I doubt it.

  9. Paranoid2000 says:

    This can be used in your favor. When buying a big-ticket item, negotiate as much of a discount as possible, then try for a larger discount with purchase of a warranty. They will always discount the price of the item, and show the warranty on the receipt at its normal price. If you don’t want the warranty, come back to the store in a few days with the warranty paperwork and receipt, and get a refund. The extended warranty is subject to the same return policy as other merchandise.

    I bought an open-box set of surround speakers at GoodGuys many years ago, and without asking me, the sales person discounted the price of the speakers and added the stores 5-year extended warranty plan. So, instead of a discount for an open box item, I got a free 5-year extended warranty on a speaker set that came with a 5-year manufacturer warranty. I let them do this, cause I knew I could get a bigger discount this way when I came back in a few days to return the warranty. The salesperson that sold it to me wasn’t there, but the person that handled the return could see what he was trying to do, and did not want to refund the warranty. I just stood there, making it obvious I won’t be leaving without my refund, or returning the speakers for a full refund. He rather reluctantly refunded the warranty cost, gave me the new receipt and I was on my way.

    GoodGuys is long gone, but I still have and use the speakers.

  10. shammer says:

    How can negotiating for a customer to take the warranty be deceptive? Be realistic here, if customers are allowed to negotiate a lower price for an item, why can’t a retailer attempt to counteroffer with something where both entering into the agreement would benefit? In any case, why would any company give someone a price at a lower margin with less profit when they can sell it full pin to everybody else? Obviously in cases such as price matching a competitor, retailers have no choice, but what would be the benefit to discounting just because for the company? A discount on an item for the purchase of a warranty should be seen as incentive, not illegality.

  11. grungyparadigm says:

    Being a former Best Buy employee/supervisor, this practice is commonplace. The attachment rate of Performance Service Plans (PSPs) is higher, but at a loss of profit. In the eyes of almighty corporate, this is called “inboarding” and is not tolerated. That being said, I have never heard of anyone getting fired for inboarding.

  12. renegadebarista says:

    @Skeptic:
    Doesn’t it bother you at all that Ben didn’t take the time to check the validity of the Stephen’s submission before posting it? Obviously it wasn’t that hard to verify, because Ben posted the story at 11:32 and Mollyg was able to post the code not 20 minutes later. Wouldn’t it be the goal of an editor of a consumer protection website to provide consumers with the actual code in question, and not just post a story without verifying that the code exists?

  13. chiieddy says:

    @renegadebarista: It bothers me. Blogs, such as this one, proclaim to be journalistic enterprises. They are demanding press passes. They demand access to special events and circumstances, once reserved for traditional journalists. Fine, but you must display journalistic integrity. This includes some basic vetting of your sources. I’m not talking hard-hitting journalism (although wouldn’t it have been a true display of journalism for the Consumerist to research the relevant statute in ALL 50 states?), but just a simple Google search to corroborate a story.

  14. aikoto says:

    I hate that it’s illegal. One time I was buying a display item which I know they have leeway on and I wanted the warranty. I was hoping for a price break, but they told me that it was illegal to do so. Dammit.

  15. JessiesMind says:

    Ah, c’mon guys, do ya really need to be spoon-fed your facts? Even with a link, I’d do my own research.

    But, but, but… We read it on the net so it MUST be true, right?

  16. techman01 says:

    That has to be the dumbest consumer protection law I’ve ever heard.

    Since no one said it already, I’ll say it; you shouldn’t be buying at Best Buy in the first place but
    If you buy an open box item, chances are you want a guarantee. If the the retailer wants to give you the guarantee for “$50″ instead of “$200″ the normal price; why should that not be allowed? If you don’t want the guarantee then save your 50buxx. Isn’t sales based on negotiating?

  17. bilge says:

    It’s the age of participatory journalism. Do your own damn research.

  18. jwarner132 says:

    Best Buy calls this practice “inboarding”, and it’s definitely against company policy. Illegal or not, it’s great for the customer because you can just return the extended warranty a couple of days later for the net result of a nicely discounted item.

    Managers do it because the amount of service plans they need to sell is based on revenue. If they discount an item to attach the service plan, they are reducing revenue while increasing service sales, a double whammy.

    If you want a manager to inboard an item, here’s how to do it. Don’t ever say “inboard”. Just tell the salesperson that you’re interested in the most expensive service plan on the open-box item you want, and let the salesperson put a bunch of expensive accessories in your cart. When it’s almost time to ring up the order, look like you have second thoughts and ask the salesperson to ask a manager if he can lower the price of the open-box item. Be willing to walk away (think car dealer). If you play it right, the manager will drop the price significantly so as not to lose the service plan and accessory sales. Then, at some point within the return period, return the service plan and accessories to the same or a different Best Buy and keep your sweet discount.

  19. t-r0y says:

    @chiieddy: I second that. I love this site and all the comments, but clearly it should be the author of the article (Ben!) that should be checking the facts.

    @Mollyg: Well done! Maybe Ben could hire you as a fact checker.

  20. ConsumerAdvocacy1010 says:

    My interpretation of the law is that it is illegal to offer a discount ONLY if a warranty is bought as well.

    But how is this different from bundle pricing from big Telcos? I don’t know. Maybe a warranty is not necessary (but then again, so is most of the service and products we buy anyway…).

    And YES, I agree with many posters above me…. If the Consumerist wants to be taken as a credible source with real integrity, you must be willing to do some research and fact check. I understand that newspapers and television news may have several days lead time before printing/airing the news and they have people who do nothing but fact check as well….right???

    But then again, delaying a story by several days might cause it to be less effective, since timing of a story can be very important.

    How bout a happy medium…say a couple hours of fact searching before posting?

    Maybe a new intern spot or two at the Consumerist where you are supposed to fact check? [cough cough…I’d take a crack at it….cough cough]

    A little red tape is needed…or corporate shills may turn this site into viral marketing with false stories of competitors and/or people will just view this site as nothing but another website where you got the single guy/gal bitching about how Verizon/Sprint/Target/Comcast/Walmart sucks and why they should go out of business.

  21. Gorky says:

    It is definitely illegal to do that and it isnt just Best Buy that calls it inboarding. The only reason I an think of that the law is set up this way is because the same offer isnt offered to every customer. When there is a bundle offer in an ad, it is offered to everyone. Also the warranty backer (usually an insurance company) wont pay for repairs under the warranty if the product was discounted so the customer is screwed if he buys the warranty because they cant use it.

  22. Hambriq says:

    I’m sort of confused. How does this law not apply to something as simple as a “Buy Two Get One Free” deal?

    Representing that a consumer will receive a rebate, discount, or other benefit as an inducement for entering into a transaction…

    Get one free. Check.

    …[I]f the benefit is contingent on an event to occur subsequent to the consummation of the transaction.

    Buy two. Check.

    I suppose we could start to get into semantics and quibble over the definition of “subsequent to the consummation of the transaction.” In the case of “Buy Two Get One Free”, the transactions are all consummated at the same time, so you could argue that it would not be illegal.

    However, that being said, the same exemption applies towards purchasing an extended warranty, so long as it is purchased at the same time as the big-ticket item receiving the price drop.

    Can someone who is more experienced in legal-ese explain to me how this law applies to this situation?

  23. fernando26 says:

    I don’t know about you guys, but I encourage the sales people at Best Buy to lower the price on items by telling them that I’d be more willing to purchase a service plan if the item were X dollars cheaper.

    The cool thing about Best Buy warranties is that you can return them by MAIL and get a full credit back within the first 30 days. If you haggle for a price drop and then try to return it in the store they may make up some BS about reversing the rebate that you got on the item, but all of this is easily avoided by simply mailing in a copy of your receipt + service plan info to the address listed in the service plan brochure. It works wonders, especially when buying OPEN BOX stuff. (I’ve gotten $100 off an open item laptop and $150 off an open item HDTV in the past this way, then just returned the warranties in the mail and gotten the warranty money straight back to my credit card).

  24. fernando26 says:

    Best Buy warranties can be refunded BY MAIL within 30 days of purchase and you will get 100% of the cost back.

    Here’s how I do it:

    1) Wait for salesperson to offer service plan and tout its benefits, blah blah
    2) Tell them I’d only be willing to buy it if the item was X dollars cheaper
    3) Employee will usually offer an instant price drop on item contingent on buying a service plan
    4) Later that week, mail copy of the receipt to the address listed in the service plan brochure for refunds, with a letter saying “I changed my mind, please refund this service plan”
    5) Service plan cost + tax is auto-refunded to your credit card, but you keep the instant rebate on the item!

    This works wonders, I’ve saved a few hundred off two laptops and an open box HDTV. I wouldn’t try to return the service plan in store, because they may make up some BS about having to reverse your instant rebate on the item, and I’d rather avoid annoying situations like that.

  25. boblc123 says:

    i call BS on this topic. At least provide a link consumerist!

  26. NotATool says:

    @jwarner132: Ha! So pile on the Monster cabes and extended warranty! Give me a big discount on my HDTV for doing so, then I return the Monster cables and the warranty the next day!

    Brilliant!!!

  27. saint44 says:

    I just would have said “no soup for you then!” if you came back at me with “you know you can’t offer me a lower price for buying a warranty!”.

    The store doesn’t have to offer you a lower price than what the ad or sticker price is, it’s not in any legal document that they have to. They don’t even have to price match other competitors.

    I’m just surprised this guy wasn’t told, “Oh I’m sorry, I shouldn’t have offered you a contingent price reduction, instead I offer you NO price reduction.”

  28. Michael Belisle says:

    I’m not a lawyer, but I play one on the Consumerist.

  29. saint44 says:

    the comment by Gorky “Also the warranty backer (usually an insurance company) wont pay for repairs under the warranty if the product was discounted so the customer is screwed if he buys the warranty because they cant use it” is incorrect. Repairs and exchanges can be made under Best Buy’s Performance Service Plans, even if the price of the product was lowered as a result of the purchase of a PSP. Actually, lowering the price of the product can sometimes result in a forced lowering of the price of the PSP, as prices for them on TV’s are determined by price of the television. Ultimately though, the price you pay for the TV doesn’t determine validity or quality of the service you get with the PSP. It will determine, however, how much you get back in store credit if the product is ultimately exchange, as you will only get a maximum credit of what you originally paid.

    BTW, Fernando26 is correct, you can get 100% refund on psp, but you can do this in the store too, within 30 days of purchase, after that your refund will be prorated based on the amount of days you have had the PSP. This prorated refund can be done in stores as well. So if your TV gets stolen, BB won’t cover it, but you can cancel the PSP, get a prorated refund back and cut your losses.

  30. SkokieGuy says:

    Two points here:

    I’m baffled by the Michigan law: Representing that a consumer will receive a rebate, discount, or other benefit as an inducement for entering into a transaction, if the benefit is contingent on an event to occur subsequent to the consummation of the transaction.

    Isn’t ANY rebate therefore illegal in Michigan. This is an inducement to enter into a transaction, (buy an item because you’ll get a rebate) and it requires an event to occur after the transaction (submitting receipt documents, etc.)

    Secondly, lay off Ben and this site. Who are we readers to DEMAND journalistic integrity of a free service we have chosen to seek out and read? If you feel information is wrong you are free to post contradictory information to support your point of view, but lay off the accusations and scolding.

  31. BugMeNot2 says:

    @bilge:
    There’s a difference between participatory journalism and just posting random shit. The difference between the New York Times and Weekly World News is that the Times generally does research on stories it runs. WWN just publishes whatever they want. Now, the Times could just post stories and not give cites, leaving it up to the readers to participate by doing their own research, but then why would they need the Times in the first place? And why would they take it as any more trustworthy than the WWN?

    As an example, a blog I read that likes to claim to be a news blog ran a story from a sister site defaming a recently deceased celebrity, because it tangentially touched on one of the blog’s pet topics. Now that blog no longer even has a link to it, let alone no apology for the amateurish behavior, and it has gone down in my estimation of it because of this. All this because the story it linked to had no fact-checking or research done beforehand.

  32. Michael Belisle says:

    @BugMeNot2: Does that blog start with a “C” and end with “unsermist”, while the original was on something like “Gizmodo”? I agree that both the story and the link were in poor taste?

  33. Michael Belisle says:

    (Please mentally change that second question mark to a period.)

  34. BugMeNot2 says:

    @Michael Belisle:

    I do believe you are correct, except the original was ValleyWag, I think.

  35. warf0x0r says:

    Yay, Imbounding! A BBY special.

  36. rhombopteryx says:

    As the title of the post points out – “Could Be Illegal.” Clearly there’s room for some disagreement here, and the article’s intended to be news, not legal advice. As different posts on this thread illustate, there’s real disagreement about what the law even says – does the “subsequent” mean this or that? Are the two items in one purchase one “transaction?”

    The OP didn’t reference the statute, yeah, but so what? It didn’t reference any supreme court cases on the matter, or any Attorney General’s office guidance, or any published local court cases either… All those probably matter too in figuring out what the Michigan law does and doesn’t cover. For all Ben knows, that particular statute is trumped by another, more specific statute. As EricaKane points out, there could easily be a more specific statute – insurance law.

    Ben’s a journalist – writing journalism. That’s not the same thing as a lawyer. Besides, everyone knows there’s enough pseudo-economists posing as lawyers on the blog to make up for it anyway…

  37. Phildawg says:

    This practice is called “Inboarding”.

  38. Michael Belisle says:

    @BugMeNot2: Oh yes, blame where blame is due. Valleywag wouldn’t know anything about “taste” or “fact checking” The C. might have simply read the headline.

  39. BugMeNot2 says:

    @rhombopteryx:

    Well, if that’s the only standard required, then what’s the point of trying to hold to any journalistic standard? It is a journalist’s job to provide at least some detail, rather than just say, “Someone wrote to us and said that this exchange happened” then amend the legwork someone else has done after other people point out the laziness of it.

    I could send in an email saying, “according to state statute, it’s illegal for businesses to sell televisions at full price if they have a scratch on the bezel.”

    Would it be reasonable for them to just post that without any verification at all?

  40. BugMeNot2 says:

    @Michael Belisle:

    I know what you mean. It’s just one of my pet peeves to have people want to be seen one way, then represent themselves in a way counter to that.

  41. iDevin says:

    The consumer can actually use this tactic to their advantage too. When I bought my Prius last year they offered me the extended warranty for $2500. I knew this was insanely overpriced but I had done my research before and I told them that I’d buy the warranty if they offered me $1000 extra on my trade-in. They bit, so I got the warranty and called Toyota the next week and said I was no longer interested in having the warranty. With Toyota you have 30 days to cancel and get a full refund. The $2500 was credited towards my financing account within two days and I got the same Toyota extended warranty for only $1000 but with one extra year and no deductible from a dealer on the east coast.

  42. u1itn0w2day says:

    Just guessing but this may just refer to a ‘negotiable transaction’ such as something involving clearance or damaged merchandise.If you’re negotiating new in box merchandise prices that might be considered discrimination because you’re not giving everyone a discount or even a chance to ‘negotiate’.

  43. wellfleet says:

    As a Best Buy manager, I would fire an employee on the spot if he inboarded, i.e. offered a customer a lower price if the customer purchased a service or replacement plan.

    It’s not only a shady business tactic, it also means that when the customer actually tries to use the warranty, he will only get credit for the selling price instead of the MSRP. If I discount a $1000 laptop by $280 so the customer will buy the 3-year accidental damage PSP, that laptop is now “worth” $780. Bummer if the customer ever tries to get it replaced.

    Price overrides are checked every single day, and shady dealings like this are termination-worthy.

  44. mr.dandy says:

    I doubt that the savings on a purchase, in most cases, would be more than the price of a contract (they aren’t cheap). So in effect, why don’t they just tell you they’re giving you a free contract, then they get the commish, you get a replacement plan, and everybody’s peachy.

  45. Vanvi says:

    The comments on a post about retail renting (is that what it’s called? I can’t remember) a few weeks ago were generally that people viewed it as theft. Can I ask how this is different? I’m not even saying I wouldn’t or am not tempted to do it, but buying a service plan for temporary monetary gain while fully intending to return doesn’t seem much different than buying a camcorder for vacation and returning it afterwards.

  46. Skeptic says:

    by renegadebarista at 02:20 AM Reply
    @Skeptic:
    Doesn’t it bother you at all that Ben didn’t take the time to check the validity of the Stephen’s submission before posting it? Obviously it wasn’t that hard to verify, because Ben posted the story at 11:32 and Mollyg was able to post the code not 20 minutes later. Wouldn’t it be the goal of an editor of a consumer protection website to provide consumers with the actual code in question, and not just post a story without verifying that the code exists?

    Well, yes actually, I agree.

    Like Dear Ann Landers used to do I think that the sloppy quality of the posts is no accident. Not only is it time saving it also boosts the activity in the comment thread. But, I don’t think that is really a sufficient reason to justify sloppy posts at this level of blogging.

    However, the comment by ” Pylon83″ was making the exact same error as Consumerist, making broad claims without bothering to check facts, so Pylon83’s comment was self-contradictory and ripe for comment.

  47. oakie says:

    @wellfleet: “If I discount a $1000 laptop by $280 so the customer will buy the 3-year accidental damage PSP, that laptop is now “worth” $780.”

    i thought you were lying about being a Best Buy manager until you said this.
    yep… you have the math skill of a Best Buy employee.

  48. wellfleet says:

    @oakie: doh… i have a mild case of dyslexia, let’s make fun of me! i do, however, appreciate your intelligent commentary. very insightful. i meet people like you every day who feel that it is their moral obligation, and who take great delight, in crapping all over me because of my position. you know what, i’ll take my advanced degree, great salary, flexible schedule, and kindness over your smarmy act any day. peace.

  49. wellfleet says:

    @oakie: also, reading through some of your previous posts, you may want to brush up on what “whom” means and when it is appropriate to use it.