NEWS

Your Money & You

December 2012

Online shopping this festive season

by Greg Medcraft, ASIC Chairman

This festive season many of you may shop online for gifts, decorations and other goodies. Before you start clicking, here are my tips on how to make your online shopping experience as safe as possible.

Shop around
If you know what you’re buying, shopping around and comparing prices online can be a lot easier than going to lots of different shops.  So invest a little time and compare prices from at least three trusted websites. Saving a few dollars on each item can really add up over the summer holidays.

It also pays to compare online prices with the prices in shops.  You may be able to take advantage of sales or discounts in shops, as well as online.

Another way to make the most of your money is to give gift vouchers, so the recipient can get good value in the Boxing Day sales.

Stay safe online
When shopping online look for websites that have a secure payment system.  A secure payment site should have a picture of a closed padlock on the webpage. An open padlock means a webpage is not secure.

Stay away from online stores that do not offer secure transactions. Look for an ‘s’ in the URL after the http to indicate it is secure (i.e. https://www.).

Paying with a credit card can also offer an extra level of protection, including the possible right to a ‘charge back’ if you fall victim to fraud.  If this happens to you, talk to your financial institution straight away.

Make sure your computer is secure by keeping your operating system and browsers current and using an up-to-date security or antivirus program.

The fine print
Read the terms and conditions of your purchase before you buy. Check carefully for warranties, refund and cancellation policies and expected delivery dates. It also pays to know the full cost of your purchase, including shipping and handling.

Keep a copy of any forms, emails, documents or webpages you have filled in, read or received. They are a record of the sale and will be useful if something goes wrong.

Always check your credit card statement every month to make sure your purchases are correctly recorded and there are no charges for things you didn’t buy.

Unauthorised transactions
An unauthorised transaction is one made by someone else using your account without your knowledge or consent. Contact your card provider or bank as soon as you notice anything unusual.

If you find an unauthorised transaction, contact your bank, credit union or building society as soon as possible and make a complaint. This is important both to fix up the problem and to prevent any more unauthorised transactions.

The Christmas break is a great time to enjoy the company of family and friends but you can still be smart about your spending.   For more information go to ASIC’s MoneySmart website at www.moneysmart.gov.au or send your article suggestions to ADFcolumn@asic.gov.au.

Have a great summer break and I look forward to continuing to work with the Australian Defence Force in 2013.

Car Warranties – will you have peace of mind?

by Daniel Mendoza-Jones

Some of the greatest worries for car buyers are the reliability of their new purchase, how much the car will cost to repair if there is a problem, and whether the manufacturer or seller will provide assistance if things don’t work as they should. Most people are aware that their new or dealer-sold used car comes with a warranty, but they don’t necessarily understand exactly what those warranties offer. Some people also buy an extended car warranty at the time of purchase to try to achieve greater peace of mind. In this article, we look at the warranties that come with new and dealer-sold used cars. We then consider the details of those extended car warranty products, so you can make the best decision about whether they suit your needs.

New and dealer-sold used car warranties
A warranty given by a car manufacturer or dealer is a guarantee that the manufacturer or dealer will fix problems that arise during the warranty period. Exactly which problems will and will not be fixed are explained in the warranty terms, which your car dealer should take the time to explain. There are usually exclusions and special conditions, so if you don’t feel that you understand all the warranty details, ask the seller more questions. After all, warranties are designed to protect and give you some comfort about the purchase.

There are two main types of new car warranty that you should understand.

1. New car statutory warranties usually provide cover for one year or 20,000km, whichever occurs first.

2. New car manufacturer’s warranties usually give you cover beyond the statutory warranty period. These warranty periods are usually ‘two years or 40,000km,’ or ‘three years or 60,000km.’ New car warranties usually cover the car and any accessories that are fitted to the car at the time of purchase.

If you are buying a used car from a dealer, you should receive a used car statutory warranty, which provides cover if the car has less than 160,000km on the odometer, is under 10 years old and does not exceed the luxury car tax threshold. This kind of warranty offers you less protection than a new car warranty. It is usually valid for three months or 5,000km from date of sale. The warranty usually covers car issues relating to safety, reliability and roadworthiness.

One thing to keep in mind when selecting the brand of your new or dealer-sold used car is how easy you think it will be to hold the car manufacturer to its promise. For example, we have heard from some owners of European cars bought in Australia that they have had warranty claim difficulties. This has usually been the case because local car owners are required to deal with the European car company’s local agent, whose main focus is on selling cars and not necessarily providing after-sale service. You should consider first speaking to other people who have bought new cars, especially from smaller foreign manufacturers, to learn about their experiences.

Extended Warranties
As part of the sale negotiation, car dealers often promote the need for the customer to purchase an extended warranty, which is designed to give the buyer cover beyond the original warranty period. Even though these extended warranties are promoted by car dealers, they are usually insurance policies issued by an insurance company. So, if you need to make a claim, you’ll be dealing with the insurance company, not the car dealer or manufacturer. It’s common for a car dealer to offer an extended warranty at an apparently discounted rate in order to add perceived value to your purchase.

Just like any other type of insurance, there are some good extended warranty products and there are others which are highly restrictive and do not represent good value. It’s very important to understand the details of the extended warranty and calculate whether it’s worth the additional cost. In doing so, you’ll see that extended warranties are usually much more restrictive than other statutory and manufacturers’ new car warranties. Typical extended warranty exclusions include wear and tear, car modifications, damage or defect caused by misuse of the vehicle and other parts or systems specifically described (such as manual transmission clutches and door lock actuators).

The Office of Fair Trading in NSW has pointed out some common extended warranty conditions and requirements:

  • A regular service during the whole warranty period at a specified place (such as at the dealer from which you bought the car) at your own cost, for example, every 5,000km/6 months or 10,000km/12 months depending on the distance the vehicle has travelled;
  • An excess payment up to $500 per claim depending on the part that fails;
  • A service coupon which must be stamped and posted within 7 days; and
  • A maximum payout limit (which may not cover the necessary repairs and you may need to pay the gap yourself).

Some people also agree to buy an extended warranty because they think it will help them on-sell the car during the extended warranty period. For example, if the extended warranty period is five years, and you think you might only want the car for three years, you might be able to market the car has having two years remaining on its extended warranty. This can be possible, but you must first check whether the extended warranty can be ‘assigned’ to another person, and if so, under what conditions. If you’re not sure, ask the dealer before agreeing to the purchase.

You should also keep in mind that many car dealers are strongly encouraged to sell you an extended warranty product. This is often because there are commercial arrangements between the dealer and the insurance company, the details of which are not usually made clear to purchasers. For example, car dealers can often earn lucrative commissions (the part of the fee that goes to the dealer to reward him or her for selling you the product) on the sale of extended warranties, in addition to other less obvious rewards such as volume bonuses which reward the dealer for selling a certain number of extended warranties each month or year. So, you should be sceptical if a car dealer tells you that the extended warranty is being provided to you ‘for free’ or ‘at a loss,’ because it’s likely that the dealer will be financially rewarded by the insurance company in other ways.

If you’d like to know more about car warranties, or check whether there are special things to keep in mind in your state, visit the website of your state’s fair trading office in your state:

World Revolution – Is It The Only Solution?

By Air Commodore Robert M.C. Brown

Editor’s note: A version of this article appeared in the financial services media earlier in 2012 and is presented in this edition of Your Money and You for the benefit of the ADF community.

It would be easy to write off the Occupy Wall Street (OWS) movement as an ill-disciplined bunch of radicals reminiscent of the anti-capitalist rent-a-crowd demonstrators who appear at most meetings of western Finance Ministers.

Indeed, for those of us who are inclined to such a view, a visit to the OWS website (Occupywallst.org) may well confirm that inclination:

“Occupy Wall Street is a leaderless resistance movement with people of many political persuasions. The one thing we all have in common is that we are the 99% that will no longer tolerate the greed and corruption of the 1%. The rich will get richer and the poor will get poorer until the proper agencies indict the criminal Wall Street bankers. Congress and the Senate have been infiltrated by bought-out crony government collectivists who have sold us out to corporate white collar criminals and fraudulent bankers. The only solution is world revolution!”

Therefore, a reader could hastily conclude that OWS is just another rabble-rousing opportunistic group. However, deeper analysis of the movement’s messages reveals considerable resentment and even anger amongst ordinary people towards the financial services industry:

“Until the proper agencies uphold their oath to the Constitution we will be fleeced by bailouts, taxes, Ponzi schemes, fraud, austerity measures, inflation, and a devaluing dollar while government turns a blind eye to it all. So cheer those criminals on if you really want an end to capitalism. It’s not even our debt. We don’t owe it. They (the financial services industry) should suffer their own losses in a free-market capitalist system. Letting banks and corporations fail when they are insolvent is what capitalism is all about, not bailing them out. Bailouts destroy capitalism and free-markets. Anyway, just try going over the speed-limit, get caught talking on the cell phone when you’re driving, or let your kid have a lemonade stand without a permit…those laws are enforced!”.

Those don’t sound like the thoughts of a bunch of anti-capitalist long-haired layabouts. In fact, without entering into the merits of their arguments, I suggest that these words reflect what a lot of ordinary people are thinking about the economic system in which we live and the income (and power) inequalities that they perceive to have developed in recent decades since the deregulated free market commenced its wild ride some twenty years ago.

Fundamentally, the problem comes down to trust. The way ordinary people see it is that the financial services industry has rorted the system without regard to its wider ethical responsibilities towards society as whole. Therefore, it has betrayed the trust that made the bankers, their product distributors and their service providers rich beyond their wildest dreams.

Worse still, they held out their hands for a bail-out on the basis that they were too big to fail, thus transferring the pain from the financial services industry to ordinary taxpayers in a classic case of socialising the losses and privatising the gains.

As a chartered accountant, I ask what should financial services industry professionals do about all of this? We can do a lot about it by redoubling our efforts to demonstrably respect and comply with our professional and ethical standards which are designed to create trust between us and the public whom we are bound to serve.

As professional people, trust is our most valuable asset. Therefore, our standards are not just some rhetorically worded documents that we should appear to honour, but don’t need to worry about too much when there’s a dollar to be made.

When our codes of ethics are breached, we diminish ourselves, our professions and the trust that the community has placed in us to self-regulate above minimum community expectations. Essentially, the widespread unethical actions of the financial service industry have caused the financial crisis and have lead to the formation of movements like Occupy Wall Street.

Should we choose to ignore these messages, financial services industry professionals face a bleak future of intrusive government regulation and a much diminished role in society. It doesn’t need to be that way. It’s completely up to us.