Missouri Attorney General Chris Koster recently released a report from his Auto Service Contract Task Force. The group was looking at the deceptive practices of members of the auto service contract and auto warranty business. As part of the data gathering the task force heard from consumers.
Donna Acosta purchased her contract from US Fidelis, Inc., formerly known as National Automobile Warranty Services, Inc. She purchased a $2,175 contract and never received a copy of it. Had she received it, she might have seen that US Fidelis had sold her an additive contract rather than a service contract. The contract, which was never provided to Ms. Acosta, also disclosed its Limits of Liability, which allowed the obligor to pay only up to the actual cash value of the vehicle rather than the actual amount of the repair.
When Ms. Acosta’s 1996 Dodge Ram required $4,667.80 of repair, she had no idea that the obligor would pay less than $2,000 of the repair. Moreover, the company issuing the contract or “obligor” considered itself to have no additional liability to Ms. Acosta for the rest of the term of the contract. Thus, US Fidelis sold Ms. Acosta a contract with less than $2,000 worth of coverage for $2,175 – a fact Ms. Acosta realized too late because she never received her contract.
Charles Hiser purchased his contract from Extended Warranty Corporation, Inc. On April 4, 2009 in response to a mailer marked “Extremely Urgent and Time Sensitive” that informed Mr. Hiser, “THIS MAY BE YOUR LAST CHANCE TO EXTEND YOUR WARRANTY COVERAGE,” he called Extended Warranty Corporation, Inc. to look into purchasing an extended warranty for his vehicle. Mr. Hiser asked the Extended Warranty Corporation telemarketer to send him the contract so that he could look it over before signing it. The telemarketer responded that the offer the company was making to Mr. Hiser was “only good that evening” and that Mr. Hiser would have to pay a $248 down payment before the contract could be sent. The telemarketer assured Mr. Hiser that he could cancel the contract within 30 days.
With this guarantee, Mr. Hiser agreed to purchase what he believed was an extended auto warranty, and he gave the telemarketer his credit card information. At the end of the call, the telemarketer informed Mr. Hiser that he would receive a bottle of coolant additive to help extend his engine life. The telemarketer told Mr. Hiser to add this coolant additive to his radiator overflow as soon as he received it; the telemarketer did not disclose to Mr. Hiser that his coverage was tied to the installation of this product.
When Mr. Hiser received the package containing his contract and the auto additive, he followed the telemarketer’s instructions and immediately poured the additive into his engine, then went into the house and started reviewing the contract. It was only then that he discovered that he had purchased an additive contract, that the exclusions on coverage were much more extensive than the telemarketer had stated, and that the contract provided for a low aggregate limit to the obligor’s liability. In addition, Mr. Hiser discovered that the contract mandated a $75 fee for any cancellation, and that any cancellation required that Mr. Hiser return the unused product.
When Mr. Hiser contacted Extended Warranty Corporation to cancel, his request was initially denied because he had followed the telemarketer’s instructions and installed the coolant additive in his car. Mr. Hiser eventually was able to get a refund only by contacting the contract’s obligor, who in turn contacted Extended Warranty Corporation.
William “Brandon” Brubaker
Brandon Brubaker purchased his contract from Dealers Warranty, LLC, doing business as “Mogi.”. He called Mogi to inquire about a service contract after his uncle passed on to him a post card offering a discount on vehicle coverage for people enrolled at college. After the telemarketer made representations about what was covered by the contract, Mr. Brubaker stated that he wanted to talk to his mom before purchasing. The telemarketer told Mr. Brubaker that he would not get the discount if he called back later, but that he could make a down payment that day and then could cancel the contract within 30 days if he did not want it. Mr. Brubaker agreed, and made a down payment. The telemarketer told him that he would receive his contract in a week.
The next day Mr. Brubaker’s mother gave him an auto service contract purchased through the dealer as a birthday present. Mr. Brubaker immediately contacted Mogi to cancel the service contract, as the telemarketer had told him he could do. The Mogi representative told him that he needed the account number to cancel the contract, but he could not provide this number because he had not received the contract from the company yet. Mr. Brubaker eventually received the contract just prior to the expiration of the contract’s 30-day cancellation period. He called to cancel within days of receiving the contract, but the company said that there was nothing they could do because this call had been made after the 30-day cancellation period. Mogi continued to debit Mr. Brubaker’s account for 5 months after he had called to cancel. As of the day of Mr. Brubaker’s testimony, Mogi had not refunded any of his money.
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Ruth Portagee purchased her contract from Warranty Activation Headquarters, Inc., now doing business as Nationwide Automotive Protection. Ruth Portagee called Warranty Activation Headquarters in response to a letter she received from the company. The telemarketer she spoke with told her that with the Diamond coverage, she would not have to worry because everything would be covered. Ms. Portagee purchased the Interstate Diamond contract. Based on the telemarketer’s statements she thought she was purchasing a bumper to bumper warranty that would give her “peace of mind.” The telemarketer did not tell her about exclusions from coverage, limits to the provider’s liability, the cancellation or refund policy or the existence of the contract’s administrator, provider or finance company. Ms. Portagee paid $221 down and the total $2,211 over 18 months.
In November 2009 the timing chain on Ms. Portagee’s vehicle broke and the repair was going to cost $3,500. Ms. Portagee thought the repair would be covered because the timing chain was listed as a covered part by the contract. The obligor denied Ms. Portegee’s claim because they said that the timing chain was not “broken,” that Ms. Portagee caused the damage, and that the repair of the timing chain was just recommended by the mechanic and was not necessary. Ms. Portagee was unable to repair her vehicle.
Dean Scoular, an attorney, purchased his contract from US Fidelis, Inc., formerly known as National Automobile Warranty Services, Inc. When Mr. Scoular rejected US Fidelis’ first price for a service contract, the salesman put him on hold and came back on the line to give him a lower price. Mr. Scoular specifically asked if this new price included bumper-to-bumper coverage, and he was told that it did. Mr. Scoular also asked to review the contract, and he was told that he would be able to review it after his purchase and that he could cancel then. Since Mr. Scoular thought that had purchased a top-of-the-line service contract, he was surprised when he received an additive in the mail. Despite his surprise, Mr. Scoular did not worry because he remembered the salesman’s description of the contract as providing bumper-to-bumper coverage. When he had to take his car in for repairs, US Fidelis and the obligor on the contract denied his claims.
Suggested Changes to Law
According to Koster, if fully implemented, the recommendations would completely redesign the segment of the auto service contract industry that solicits consumers through direct-mail and telephone solicitations. Specifically, the recommendations include:
- Requiring sellers of motor vehicle extended service contracts to deliver contracts to the consumer within thirty days, or prior to the purchase if requested by the consumer;
- Requiring licensing of all sellers of motor vehicle extended service contracts not otherwise covered by other licensing. Licensing would come under laws covering sellers of insurance products; and
- Outlining consumers’ rights, including a 20-business-day “free look” period to give consumers ample time to request a refund. The Task force also recommended explicitly prohibiting fraud and deception in any aspect of the offer, sale and solicitation of contracts.
“Too many bad actors in the auto service contract business have taken advantage of, and actually cheated, consumers,” Koster said. “It is time for this outrageous behavior to end, and for this industry to be held to the same standards as other Missouri businesses.” – Source
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