Worthless service contracts sold by the vehicle service contract (VSC) industry have cost consumers millions of dollars nationwide, a Better Business Bureau (BBB) study
The BBB undertook the study after consumers filed thousands of complaints about the industry and in the aftermath of the bankruptcy of industry giant US Fidelis. The marketing of contracts is centered in the St. Louis area. Many companies call the contracts “extended warranties” and frequently sell them as a way for consumers to save money on auto repairs. However, all too often, many repairs are excluded.
“Consumers have been frightened and tricked into parting with thousands of dollars by misleading solicitations and high-pressure sales tactics,” said Michael Coil, BBB president and CEO serving Northern Indiana. “Many in the industry have preyed on 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.”
The industry has been evolving for at least the past 25 years, but enforcement of consumer protection laws increased only in the past five years or so. The BBB recommends that state and federal authorities be more vigilant and vigorous in prosecuting violators, including criminal prosecution of the more egregious offenders.
The study shows that many consumers felt they were misled about what a contract provided.
The study recommends that the Department of Insurance, which oversees the VSC industry, consider a regulation that requires consumers to physically sign a contract before it becomes valid and prohibits “signatures” by telephone. It recommends that the Department of Insurance consider a regulation that prohibits VSC providers from insuring contracts with reimbursement insurance contracts in which they or affiliated entities are members, and that Congress amend the Liability Risk Retention Act to prohibit VSC providers from forming risk retention groups to insure contracts.
The BBB advises consumers who are considering buying a vehicle service contract:
- Always read the contract carefully before agreeing to buy it. See what is covered, what isn’t covered and what conditions apply. If the seller won’t provide a contract, don’t buy it.
- If you are on a do-not-call list, report any violations to the attorney general’s office or FTC.
- Do the arithmetic. Sometimes the cost of a contract may be more than the car’s value.
- Ask the seller the names and locations of the providers, administrators and insurers. Ask how claims are processed.
- Check all companies involved in the contract with the BBB at www.bbb.org.