Millions spent on worthless car warranties

Wednesday, July 6, 2011

The Better Business Bureau (BBB) of St. Louis has determined that millions of customers have wasted millions of dollars on worthless car warranties.

The story first broke on June 23 on NBC's Today Show, highlighting the demise of US Fidelis, which sold millions of dollars in worthless vehicle service contracts.

The BBB undertook the study after consumers filed thousands of complaints about the industry and in the aftermath of the bankruptcy of the industry giant, US Fidelis.

Marketing of the contracts was centered in the St. Louis area, and many companies called the contracts extended warranties. The contracts were frequently sold to consumers as a way to save money on auto repairs. Often, many repairs were excluded.

"Consumers have been manipulated and pressured into spending thousands of dollars on these worthless warranties," said Judy Mills, BBB president and CEO. "Many victims are the elderly and other unsophisticated buyers who believed they were getting warranties sanctioned by auto manufacturers. What most of them got was a worthless piece of paper."

Missouri Attorney General Chris Koster began prosecuting vehicle service contract sellers in 2008. Since then, Koster's office has filed suits against 13 companies and 20 individuals, obtaining compliance agreements or consent orders in eight cases. Four of the companies paid $78,925 in penalties or restitution and were sued again when allegations of wrongdoing continued.

This month, Missouri joined other states by enacting tougher laws regulating the industry. A federal regulation has brought robo-calling solicitations to a virtual halt. This, along with the prosecution of some offenders, may bring significant changes to the industry. The study also cautioned if enforcement laws remain lax, the industry "may continue to find ways to evade the laws."

The study pointed out that the multi-tiered industry, made up of sellers, providers, administrators, insurers and financing entities, causes confusion among consumers. In a survey of 660 BBB complainants, 64 percent said they did not know the name of the provider of the contract who was responsible for paying claims. Approximately 16 percent thought the provider was the insurance company.

Once a contract was accepted and payments began or were completed, 93 of the consumers surveyed said the companies refused to allow claims consumers thought were covered. Consumers spent an average of $1,480 for the covered repairs, the study said.

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