Third-party extended-warranty companies promise to offer peace of mind in the event that your vehicle breaks down. But all too often, their shady practices scam people out of their money instead of giving them real coverage when they need it. Not every extended auto warranty company is out to rip you off, but over the course of our research, we found that the honest ones are few and far between.
What Is a Third-Party Auto Warranty?
A third-party warranty is so named because it has no direct business relationship with the product it covers. In this case, that’s your car. These warranties differ vastly from manufacturer extended warranties, which use original parts and factory-trained technicians to repair your vehicle at a dealership.
Third-party warranty companies may give you the option to take your car into the dealership, but the reimbursement process can be a hassle if a company doesn’t want to cover a part.
A number of these third-party warranty companies are fly-by-night operations that go belly up within a few years, costing consumers hundreds of dollars and leaving them without coverage. When a member of the Edmunds Forums posted a note about her warranty company going out of business, she found out that she wasn’t alone.
“Welcome to the club,” another member wrote. “Many of us here have been burned by similar third-party warranty companies just like Continental. In my case, Warranty Gold did it to me. Your warranty company will or has gone bankrupt and you are fortunate to get anything back. I got nothing. That’s why no regular here will recommend any warranty other than a manufacturer-backed one.”
We Are Not Immune
Some years ago, an Edmunds editor received a third-party pitch letter from SPD Warranty Program, based in St. Louis. The letter said that she had purchased her vehicle “42 months ago,” which wasn’t true, and implied her vehicle warranty was about to expire. The service was called a “manufacturer warranty replacement program,” which is certainly a misrepresentation of its services. The letter tried to scare her by listing exorbitant prices for typical engine and transmission repairs, and said that she would be responsible for these costs if she was not protected. The letter also stressed that she “couldn’t afford to be without coverage!”
We checked SPD on the Better Business Bureau (BBB) Web site, and found that it had an “F” rating. The company was listed under five other aliases and had 229 complaints filed against it. In March 2008, the Missouri attorney general filed a suit against SPD for using misleading notification letters.
Not So Angelic
Similarly, US Fidelis was another third-party warranty company with a poor record. US Fidelis may sound familiar to readers from its TV advertisements, which featured a halo above the logo to imply that it was a faith-based organization. But the business, which has gone bankrupt, was not as worthy as its logo would have had you believe.
According to the BBB, US Fidelis (a.k.a. Dealer Services, National Auto Warranty Services Inc., Dealer Warranty Division and National Auto Warranty Service) received more than 1,100 complaints in a 36-month period. This prompted attorneys general in 40 states to launch a coordinated investigation of the company for charges ranging from contacting people on the “do not call” list to misleading consumers into believing that it is affiliated with a dealer or automaker.
The investigation culminated in the 2012 guilty pleas by Darain Atkinson and his brother, Cory, co-owners of US Fidelis. Darain Atkinson pled guilty to felony stealing, insurance fraud and other consumer violations and was sentenced to eight years in prison. Cory Atkinson was found guilty for similar charges and sentenced to four years in prison. Consumers who have active contracts with Fidelis companies can check the In Re US Fidelis Web site for information about refunds.
Old Habits Die Hard
SPD Warranty, meanwhile, has had fewer complaints since this article was first published in 2009. Many of them were resolved, but resolution may not be a sign of repentance.
“The fact that a company responds to a complaint does not mean that they have changed their business model,” says Chris Thetford, director of communications for the St. Louis Better Business Bureau.
Thetford says his office has seen a repeating pattern of complaints against third-party warranty companies. He adds that consumer complaints fall into two general categories: The first are consumers who purchased a third-party warranty and want to cancel it, but have difficulty getting a refund. The second is consumers who buy a third-party warranty and file it away until they need repairs. When they later review the service contract, they realize that the repairs are not covered, thanks to the agreement’s numerous exclusions.
A Few Helpful Tips
Third-party extended-warranty scams are widespread enough that the Federal Trade Commission (FTC) has issued a consumer alert on its Web site. Here are some of the FTC’s tips, along with some of our own.
Stick with the manufacturer’s warranty: The best way to avoid extended-warranty scams is to choose coverage with the manufacturer’s extended warranty. This way, you deal with the same company you trusted enough to buy a car from in the first place. Almost every car manufacturer offers a factory extended warranty. These warranties will cost a bit more (although they arenegotiable), but at least you’ll have the peace of mind that your vehicle is in the right hands.
Research the company before you sign up: A quick Google search is easy to do, and will reveal quite a bit about the company. You can also ask about the company on message boards, or look them up on your state’s BBB Web site.
Know what’s covered and what isn’t: This is often the biggest source of confusion when it comes to extended auto warranties. Although they are sometimes called extended warranties, they don’t function in the same way that your original bumper-to-bumper warranty does. Think of these as service contracts that minimize your costs in the event of high-priced repairs.
Since their coverage is limited, it is all the more important for you to know what is covered by your extended warranty. You’ll want to get an exclusionary policy. These types of warranties more clearly state everything that is not covered, with the understanding that everything else is covered. This way, you don’t run into any surprises down the line.
If you get mail or phone calls about renewing your vehicle warranty, don’t take the information at face value: Your vehicle’s warranty may be far from expiring, or it may have expired already. Take the time to find out exactly when your manufacturer’s warranty expires. That way, you won’t fall for the trick.
If you’re not sure about the length of your warranty, refer to our warranty page, which has a thorough listing of all factory warranty coverage. A dealership can also look up the exact day your warranty expires (assuming you are under the mileage limit) by determining the “in service” date for your car.
Never give out personal information to someone who contacts you with an auto warranty offer: Don’t share your bank account, credit card and Social Security numbers, or even your driver license number or vehicle identification number (VIN). A few unscrupulous companies have been known to use your VIN to convince you they can “blacklist” your vehicle so that no one else will cover it unless you sign up with them. Don’t fall for this. No such list exists.
Be skeptical of any unsolicited sales from a recorded message: You should be getting fewer of these “robo-dialed” phone calls these days, thanks to the FTC’s 2009 anti-robocall rule. But in the event that a company ignores the rule, don’t pay any attention to its recording. If you want to get more information about an extended warranty, we suggest that you call your local dealer, ask for the finance manager and inquire about the manufacturer’s extended warranty.
Be wary of fast talkers: Telemarketers pitching auto warranties often use high-pressure tactics to gain the upper hand and get you to buy a warranty that day. A reputable company will let you see a copy of the contract and let you decide on your own time. Ask the vendor to fax or e-mail you the contract and take your time going over it. Don’t fall for the “limited-time specials” that many companies claim to have. These pitches are made up to create a false sense of urgency.
If you’ve been burned: If you lose money to a third-party warranty, there are several agencies you can turn to. This will vary based on your situation. Since you signed a contract, your first step is to try and get it resolved with the company. If that doesn’t work, file a complaint with the BBB. “Eighty-five percent of the grade we give a business is based on consumer experience,” said the BBB’s Thetford.
You also can file a complaint with the FTC. Note, however, that the FTC does not resolve individual consumer complaints. Instead, the complaints it compiles can lead to investigations and prosecutions.
The BBB and FTC may not be able to get directly involved, but by spreading the word, you may expose a pattern of suspect activity and prevent others from getting scammed. At the very least, it is important to have recorded evidence of your complaint.