If a disappointing holiday season worsens liquidity problems for Sears in the United States, the consequences for its customers will already be familiar to Canadian consumers.

Canadian consumers recall the demise of Sears Canada in the fall of 2017, and the unique consequences for a particular set of consumers – those who had purchased Sears Protection Plan coverage for their appliances.

One particular point of interest will be to see whether default by the U.S. parent could change Canadian consumer protection in a way that the Sears Canada’s failure did not.

Consumers Council of Canada’s 2018 report Consumers and Product Insurance Purchase Decisions used the Sears Canada story to highlight the many gaps in consumer protection and consumer understanding. That report included three findings that could become particularly relevant, should the troubled U.S. retailer, which went through a bankruptcy in 2018, ultimately liquidate.

First, the vast majority of Canadian consumers did not understand how extended warranties and service programs such as the Sears Protection Plan worked. Some retailers, including Sears, self-fund their extended warranties. So when the retailer liquidates, the amounts consumers have prepaid to provide for future repairs and replacements are simply an asset in the retailer’s bankruptcy case, and provide no actual protection. Most major retailers in Canada and the United States use third-party providers, so that protections should continue to be in place if the retailer or manufacturer go out of business.

Second, Canadian practices are strongly shaped by U.S. practices. Many of the largest retailers in North America use the same third-party protection providers in Canada that they do in the United States. The report showed how little Canadian protection contracts differ from U.S. contracts. U.S. policy changes would likely be reflected in Canadian practices.

Third, U.S. policy changes often follow cataclysmic events. A suite of consumer complains led to an initial wave of consumer protection laws in the 1970s. The report describes the questionable sales practices that led to updated state-by-state laws through the 1980s and 1990s. The default of a large national retailer with considerable prepaid consumer money could easily trigger another set of policy changes.