Attorney General's News Release

March 11, 2010

Consumer protection week scam of the day alert: auto service contract fraud

--Attorney General Koster forms task force to help find answers--

Jefferson City, Mo. - Attorney General Chris Koster said today his office is creating a task force to look at sales practice guidelines designed to stop auto service contract fraud, the number one complaint to the Attorney General's office in 2009.

"Senator Scott Rupp and I have invited business people and regulators with a stake in this issue to serve on the Missouri Auto Service Contract Task Force," Koster said. "We created this panel to discuss issues that have arisen from marketing service contracts and to develop industry guidelines to eliminate consumer deception and confusion in the sale of these products."

Koster said the Department of Insurance, Financial Institutions & Professional Registration began regulating service contract providers and administrators in 2008, but some independent marketers are not licensed and have continued to run roughshod over consumers. He said his office filed or settled 12 cases involving independent service contract marketers in 2009.

Koster said these marketers have used misleading letters, postcards, and telephone sales marketing to lure consumers into purchasing service contract coverage without providing basic information about that coverage. This was done with such tricks as misleading consumers to mistakenly believe their current vehicle warranties were about to expire and confusing some consumers into believing that they were extending the manufacturer's coverage. He said while consumers believed they were extending auto warranties, they were actually purchasing service contracts or automotive additives. Customers later realized that the low limits to their coverage rendered the service contract virtually worthless, but due to delays or restrictions on cancellation they were unable to get a refund.

Koster said some direct marketers using the auto additive scam would send customers a bottle of fluid, with instructions to immediately add it to their 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.

"This is a classic ‘bait and switch' scheme that preys on consumers' fears of not having adequate vehicle warranty coverage," Koster said. "These businesses lure vulnerable consumers into purchasing ‘auto warranties,' and then switch 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."

Koster said the task force will hold its first meeting April 16 in St. Louis. Members are:

• Senator Scott Rupp (R-Wentzville)
• John Huff, Director, Department of Insurance, Financial Institutions & Professional Registration
• Michelle Corey, President, Better Business Bureau of Eastern Missouri and Southern Illinois
• Rebecca Howard, CEO, Paylink Payment Plans, LLC
• Doug Ommen, Chief Counsel, Attorney General's Consumer Protection Division
• Jim McAdams, General Counsel, Department of Insurance, Financial Institutions & Professional Registration
• Bill Schicker, McMahon Ford Company
• David Mungenast, Jr., St. Louis Honda
• Sam Barbee, Missouri Automobile Dealers Association
• Matthew Weil, Corporate Counsel, American Guardian Group of Companues

Koster is issuing a "scam of the day alert" each day this week as part of National Consumer Protection Week.