Vehicle Service Contract Scams Cost Consumers Millions of Dollars
- A national scam practiced by some in the Vehicle Service Contract industry has cost consumers millions of dollars
- Consumers are misled into thinking the contracts are from auto manufacturers and that they cover more than they actually do
June 30, 2011, Memphis, TN - Despite rising public awareness of problems in the nation’s vehicle service contract industry, consumers continue to tell the Better Business Bureau they feel tricked by misleading advertising or duped into spending thousands of dollars for contracts with little or no value.
“Many of these companies have preyed on the elderly and other unsophisticated buyers who believed they were getting warranties sanctioned by auto manufacturers,” said Randy Hutchinson, BBB president. “What most of them got was a worthless piece of paper.”
Typical is a complaint received from a Cordova man: “We feel like we have been ripped off. We are given very vague explanations on why our claims were rejected. We have paid almost $2000 in payments but cannot receive any services.”
Another consumer, from Memphis, had a similar complaint: “The car needed a water pump. I filed a claim with this company and they denied it. They told me I had to have all of my oil change receipts. I was never told of this before.”
Another Memphis man who contacted the BBB was more blunt: “They try to play mind games with you.”
The BBB in St. Louis, where many of these companies are located, undertook a study of the industry because of the large number of complaints filed with that BBB. In the past 12 months, the BBB has received nearly 800 complaints involving 24 auto service contract companies in the St. Louis area. While now-defunct US Fidelis has received the biggest number of complaints – 200—three other firms have received at least 60 complaints during the 12 months. Those companies are:
- National Dealers Warranty, doing business under the name Stop Repair Bills, of St. Peters, Mo. Consumers have filed 187 complaints and reports about this company during the 12-month period and 523 in the past 36 months.
- Service Protection Direct or Protection Direct with headquarters in downtown St. Louis. Consumers have filed 76 complaints and reports about the company in the 12-month period and 298 in the past 36 months.
- Car Safe or Dealer Preferred Warranties, of St. Charles, Mo. The company has been the focus of 68 consumer complaints over the 12 months and 167 in the past 36 months.
Each of these businesses has an “F” grade with BBB, the lowest grade possible, and all have been the target of lawsuits filed by the Missouri attorney general’s office.
Consumers claim a variety of concerns with the businesses, each of which uses telemarketers to sell vehicle service contracts to the public.
Complaints allege misleading mailers or sales pitches, difficulty obtaining copies of contracts, difficulty obtaining refunds after canceling contracts and difficulty getting payment for repairs consumers thought should have been covered. The companies maintain that their ads and sales are not misleading and that those who administer the contracts – and not the sales companies – decide when and how much to pay for repair work.
Randy Hutchinson, BBB President, said recent consumer complaints highlight continuing problems with the industry.
“The stories from consumers have changed little since the days, just a couple of years ago, when US Fidelis was the nation’s biggest seller of these contracts,” he said. “Recent news coverage has gone a long way toward educating consumers about this industry, but, unfortunately, too many people are still being hurt.”
Earlier this month, brothers Darain and Cory Atkinson, who founded and ran US Fidelis, were charged with multiple counts of unlawful merchandising practices, stealing and insurance fraud in connection with their operation of the company. Watch Michelle Corey of the Better Business Bureau in St. Louis tell The Today Show about the BBB's investigation of the business.
The BBB suggests caution to consumers who may be considering purchasing a vehicle service contract and offers the following advice:
- Always read your contract thoroughly and make sure you understand it completely before paying for coverage.
- Never give any personal or credit card information to anyone over the phone or via e-mail until you are ready to purchase a contract.
- Do not be pressured into making an immediate decision. Beware of any sales offers that require you to buy immediately in order to qualify for the best rate.
- Beware of any claims that you will receive “total” or “bumper to bumper” coverage on your vehicle. That does not necessarily mean that every problem with your car will be covered. Look for conditions and disclaimers.
- Read your manufacturer’s warranty and contact your dealer or manufacturer to make sure you are not purchasing duplicate coverage.
- Do the math. Sometimes the cost of a service contract may be more than the value of the car.
- Check the contract seller’s BBB Business Review by going to bbb.org or by calling 901-759-1300 or 800-222-8754. Do not be misled by marketers who suggest that you check the review for contract administrators and not the brokers themselves.