“Consumers have been frightened and tricked into parting with thousands of dollars by misleading solicitations and high-pressure sales tactics,” said Andy Fisher, President and CEO of the BBB. “Many in the industry have preyed on the elderly and other unsophisticated buyers who believed they were getting warranties sanctioned by auto manufacturers. What most of them got was a worthless piece of paper.”
The BBB in St. Louis undertook a study of the industry because of the large number of complaints filed with that BBB, including 97 consumers from Louisiana. The study included a survey of 660 complainants across the country.
While the industry has been evolving for at least the past 25 years, enforcement of consumer protection laws was rare and increased only in the past five years or so, the study notes. It recommends that state and federal authorities be more vigilant and vigorous in prosecuting violators of the laws, including criminal prosecution of the more egregious offenders, a rarity thus far.
Several states have enacted or are considering stiffer laws regulating the industry and a new federal regulation has brought robo-calling to a virtual halt. Along with recent prosecution of offenders, this “may herald a new beginning in the industry,” the BBB study concludes. But it also warns that if enforcement continues to be lax, those in the industry “may continue to find ways to evade the laws.”
The study pointed out that the multi-tiered industry—sellers, providers, administrators, insurers and financing entities—cause confusion among consumers. It notes that 64% of respondents to the survey said they did not know the name of the provider of the contract who was responsible for paying claims, and 16% thought the provider was the insuring company.
The survey revealed that 92% of respondents felt that the company’s selling tactics were misleading or otherwise improper. While telephone calls accounted for 28% of the first contact with a company, a like number of consumers said they called a company because of TV or radio advertising. Thirty-one percent said they responded to a mail solicitation.
Once a contract was accepted and payments begun or completed, 93% of consumers surveyed said the companies refused to allow claims that they thought were covered by the contract. The average amount consumers spent for those “uncovered” repairs was $1,480, the study notes.
A lesser known aspect of the VSC industry is a requirement in many states that contracts be backed by insurance policies or other indications of financial stability to provide protection for consumers. If a company denied repairs, a consumer could appeal to the company that insured the contract. The study notes that 84% of consumers responding to a survey did not know the name of the insurance company, if the contract was insured.
The BBB advises consumers who are considering buying a VSC:
· Always read the contract carefully before agreeing to purchase it. See what is covered, what isn’t covered and what conditions apply. If the seller won’t provide a contract, don’t buy it.
· If you are on a do-not-call list, report any violations to the attorney general’s office or FTC.
· Do the arithmetic. Sometimes the cost of a contract may be more than the car’s value.
· Ask the seller the names and locations of the providers, administrators and insurers. Ask how claims are processed.
· Check all companies involved in the contract with the BBB at www.bbb.org.
The study can be found at http://tinyurl.com/3p45k3a