Nat Pope has spent much of his academic career studying extended auto warranties as seen on TV and has launched robocalls that promised to pay for costly repairs. But what he doesn’t know yet: Who can help if there is a problem with the guarantee?
“I don’t even see where to really expect any satisfaction,” said Dr. Pope, Associate Professor of Risk Management and Insurance at the University of North Texas. “The regulation is fragmented. There is nothing national. The supervisory authorities have other fish to fry. “
This is a problem because such contracts – properly referred to as vehicle service contracts – “pose a risk to consumers, especially the economically disadvantaged who cannot afford their car to break down,” said Rosemary Shahan, president of Consumers for auto reliability and safety.
“Many consumers complain of high pressure, misrepresentation, missed contracts, missed refunds, and overall poor customer service,” said Michelle L. Corey, president of the Greater St. Louis Better Business Bureau. Ms. Corey said the BBB seems to be receiving fewer complaints about policies being sold by dealers and automakers.
In the worst case, telemarketers only collect money. “There’s no guarantee, it’s just a scam,” said Chad M. Canfield, a Michigan prosecutor. “We are in the process of taking some transnational measures to shut these people down.”
Problems are caused by some companies, according to the Service Contract Industry Council, a trade association that also includes some automakers. The website states that the “vast majority” of warranties are from “reputable, licensed companies that adhere to applicable regulations”.
But the retail group also warns consumers “to be careful when dealing with vendors who use unwanted mass marketing techniques such as direct mail and telemarketing”.
“There are huge amounts of illegal robocall operations overseas, designed solely to get people’s credit card numbers,” said Timothy J. Meenan, the council’s executive director. “They are not our members. These are fraud operations. “
Brittney Latham from Louisville, Kentucky knows about these robocalls. “One morning I got a call from a really nice lady. Simply the cutest. They would do this and that and the other. It was just guaranteed and blah, blah, blah, ”said Ms. Latham.
As a single mother with one child, worried about an unexpected repair to her six-year-old car, she signed up for St. Louis Driver Protection. “She deceived me. I bought it, ”she said.
After she paid about $ 2,000 in bonus, the car’s check engine light came on. She was glad she had the policy because the engine was supposed to be covered. However, the company said the specific engine parts that were needed were not listed in the contract. So she took out a $ 550 loan to have her car repaired. The company did not respond to their request for a refund. The driver protection officers could not be reached on the company’s phone number or on its Facebook page.
More and more customers like Ms. Latham are interested in vehicle service contracts. According to a 2019 report by Colonnade Advisors, a Florida-based investment bank, the business is expected to grow to billions in revenue.
The reason for the growth: people are keeping their vehicles longer and worrying about repair costs – especially during the pandemic. “The last thing people wanted to do was use public transport or go without a vehicle,” said Gina Cocking, Colonnade’s managing director. “Having a vehicle service contract was an issue that resonated with a lot of people.”
Service contracts are also becoming more and more familiar, said Ms. Cocking. People buy them for smartphones and fridges and increasingly see them on TV. “These commercials run all the time. When you see these, the product starts normalizing, ”she said.
As business grows, so do complaints, according to BBB. In 2019, the Better Business Bureau received approximately 6,700 complaints in the United States and Canada about companies offering service contracts. Last year that rose by 21 percent to just under 8,200.
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June 24, 2021 at 8:33 a.m. ET
That might not seem like that big nationwide, but a small number of complaints isn’t necessarily a gauge of consumer satisfaction, said Amy J. Schmitz, a law professor at the University of Missouri, where she specializes in consumer protection. A 2004 Federal Trade Commission poll found that only about 8 percent of dissatisfied consumers filed complaints with state or federal officials.
“It’s hard to complain,” said Professor Schmitz. “Some people may not have the background or feel competent or comfortable or know how.”
Policies can cost thousands of dollars, and consumers believe they are covered bumper to bumper when they hear claims like “100 percent of the repairs covered are paid for,” Ms. Corey said. But she says that is misleading because a lot is not covered.
Ms. Cocking said a common complaint she saw while working her company with vehicle service contractors was that customers had a mechanical problem, bought an extended warranty to fix it, and then got angry when they found out that the previous state was not correct covered.
“Our lives are covered in fine print,” she said. “If the consumer doesn’t read the contract, that’s a problem.”
There were some problematic companies years ago, Ms. Cocking said, but that has changed. “These companies are getting too big and too well known” to cheat customers, she said. “This is not a profitable way to grow in the long term.”
Vehicle service contracts have a long and sometimes eventful history.
In 1995, the National Association of Insurance Commissioners created a model law that states should consider. The idea was to regulate all service contracts that cover items as diverse as refrigerators and cars. The law recommended that companies use “clear, understandable language” and provide evidence of adequate financial support for repair costs.
But only a few states have adopted the law. A 2014 survey by the federation, the latest data available, found that only eight states had passed “substantially similar” bills.
“I cannot believe that this model law did anything positive for the consumer,” said Dr. Pope from the University of North Texas. “The reality is that it has been sporadically adopted and even more sporadically enforced.”
Even if states haven’t adopted the Model Act, many states have put in place stricter laws to protect consumers, Meenan of the Service Contract Industry Council said.
But the level of state regulation and the power of enforcement vary, said Dr. Pope.
“It’s all fragmented, and trying to get a consistent consensus at this point about who is doing what is very difficult,” he said.
As a result, consumers who feel they have been treated unfairly can find it difficult to get help from state or federal officials. One topic is resources.
In Michigan, vehicle service contracts “are certainly a problem, but not the biggest problem we see,” Canfield said. So if there was a single complaint, the officers would try to mediate. If that didn’t work, the state would suggest the consumer go to a small claims court.
“We have limited resources. If you’re an individual we can’t do as much as we would if we see 10 complaints, ”he said.
As for federal regulation, it has been more than a decade since the Federal Trade Commission took action against a company that sells vehicle service contracts.
Consumers trying to solve problems on their own can also be a disadvantage, as multiple companies are typically involved. One company can sell the policy while another makes the decision whether to cover a repair.
“Consumers are often jumping back and forth trying to find a solution to their problem. It’s total confusion, ”said Ms. Corey.
Professor Schmitz said it was important to read the contract carefully before buying, and to research the company’s history and look for complaints. Also consider the cost of the policy versus possible repairs. And make sure that the vehicle service contract does not come into effect at the same time as the automaker’s warranty.
“It’s usually not worth it,” she says.
A 2013 reader survey by Consumer Reports found that “55 percent of owners who purchased an extended warranty did not use it for repairs during the life of the policy. Only about a quarter of respondents said they would definitely get it back. ”Consumer Reports advised those willing to spend the money to bargain prudently read the fine print and“ one from a company with one long history to buy, e.g. B. from a car manufacturer ”.
Dr. Pope says it is important for consumers to understand that if they have a problem, there is no guarantee of help.
“I haven’t seen a white knight step on the plate,” he said.