November 12, 2009
Kansas City, Mo. -- Attorney General Chris Koster today warned consumers about new tactics businesses are using to try to trick people into purchasing bogus auto warranty products of limited value. Koster filed lawsuits against six such businesses today.
to Koster, the businesses marketed what appeared to be "extended auto
warranties" to consumers, but actually were "service contracts"
or "automotive additives." Many consumers did not realize
they were not receiving auto warranties until they received the package
in the mail. The companies sold the products as service contracts
and auto additives with the effect of avoiding Missouri's service
contract laws, which provide some minimal protection for consumers.
Customers who purchased "service contracts" often later realized the significant limits to coverage. Many contracts contain a 30 to 90 day, 1,000 mile period during which consumers cannot make claims, because that is considered a "pre-existing condition" of the vehicle. However, the extended service contract is only fully refundable within the first 30 days. Customers asked for a cancellation or refund when they discovered the provider would not pay a claim after that initial period, but were refused refunds because they were not within the 30-day cancellation timeframe. Many of the contracts have also been promoted as extending a warranty for 7 years and 100,000 miles. These companies do not tell the consumer that the coverage may be limited to the actual cash value of the vehicle. For an older, high-mileage vehicle, the coverage may soon be less than the price paid by the consumer for the contract.
For companies using the auto additive scam, customers were sent a bottle
of fluid for their car's transmission, engine, or cooling system,
with instructions to immediately add it to the vehicle. Customers
were instructed to install the additive in order for the warranty to
be valid. But they later were denied a refund and told the purchase
is non-refundable if the product has been used. In effect,
the companies encouraged consumers to use the fluids immediately, knowing
that would nullify their opportunity for a refund. Many consumers
did not request the additive and did not realize they would be sent
this additive until they received the packet.
"These businesses are using a ‘bait and switch' scheme and preying on consumers' fears of not having adequate vehicle warranty coverage," Koster said. "They lured vulnerable consumers into purchasing ‘auto warranties,' and then switched to sell them into service contracts and auto additive warranties with inferior or negligible repair coverage, while making it almost impossible for the consumers to cancel the contract or get refunds.
"I believe this auto warranty business continues to be rife with fraud,
and Missouri continues to be at the center of this deception," Koster
said. "This office will continue to pursue and prosecute businesses
such as these that target unsuspecting, innocent consumers."
said the companies marketed these products using misleading letters,
postcards, and telemarketing techniques, some also in violation of Missouri's
No-Call law. He said the businesses would lead consumers to mistakenly
believe their current vehicle warranties were about to expire and that
they would not have another opportunity to purchase an extended warranty
unless they acted immediately. Many potential customers were not
informed that the businesses were not affiliated with the dealership
or manufacturer from whom the customers bought their vehicles.
addition, some of the businesses sought to illegally obtain the consumer's
bank account or credit card information by misrepresenting the purpose
of the information. The businesses would then cause automatic
charges to consumers' bank accounts or monthly charges to their credit
cards without the consumers' permission or knowledge.
six businesses Koster filed suit against today are:
suits charge the businesses with unfair and deceptive practices violations.
Some were also charged with violations of Missouri's No-Call law.
In addition, he charged National Dealers Warranty with violation of
a prior Consent Judgment and Permanent Injunction issued by the Circuit
Court of St. Charles County in 2008, and Warranty Activation Headquarters
with violation of a prior Assurance of Voluntary Compliance approved
by the Circuit Court of the City of St. Louis in 2008.
Koster is asking the court to issue preliminary and permanent injunctions requiring the companies to comply with Missouri's Merchandising Practices Act; provide full restitution to victims and to the state; and pay civil penalties and court costs.
Koster encourages consumers who have complaints about businesses selling motor vehicle extended service contracts to contact the Attorney General's Office at ago.mo.gov or by phone calling the Attorney General's Consumer Protection hotline at 1-800-392-8222.