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Don't buy a troublesome automotive service contract

Consumer Reports News: July 27, 2011 01:08 PM

Car owners continue to feel tricked by vehicle service contracts that provide little or no benefit, the St. Louis Better Business Bureau reports.

The BBB says that, in the past 12 months, it has received nearly 800 complaints about 24 automotive service contract companies in the St. Louis area. The complaints allege misleading advertising and a failure to pay for repairs.

"Typical is a complaint received last month from a Fort Lauderdale, Fla., consumer: 'I pay on time and follow all terms of the policy but they won’t cover anything,' ” the bureau said in a prepared statement.

We discovered similar problems last year, when we reported on auto service plan marketers, such as StopRepairBills.com and the now-defunct U.S. Fidelis, which sell plans from third-party companies. Many of the marketers are located in Missouri.

We found that the plans, which can cost hundreds or even thousands of dollars, typically contain fine print that the providers use to deny claims. They might reject a claim, for example, because the customer can't prove the vehicle was maintained according to the manufacturer's recommendations or because the problem was caused by gradual wear and tear or was a pre-existing condition. And plan benefits might be limited to a vehicle's market value at the time of a breakdown or a specified maximum amount. Because the marketers don't actually provide the coverage, they often disclaim responsibility for the plans they sell.

Part of the problem, the marketers told us last year, is that customers don't read the agreements before they buy. The companies said they were pressuring plan providers to cover legitimate claims and have stopped marketing the plans of those that don't.

But the complaints continue, the St. Louis BBB says. It pointed to three active Missouri companies that have received the BBB's lowest, "F" rating, National Dealers Warranty, doing business as Stop Repair Bills; Service Protection Direct or Protection Direct; and Car Safe or Dealer Preferred Warranties. The BBB says all three companies have been the target of lawsuits by the Missouri attorney general.

In May, the St. Louis BBB issued a report critical of the industry, entitled "Vehicle Service Contract Industry. How Consumers Lost Millions of Dollars." It's available in PDF format from the bureau's website

Bottom line. We generally say skip extended service contracts, also known as extended warranties. But that goes doubly for automotive service contracts sold by these companies. Even if the provider might cover your claim, you may find that the mechanic won't accept the coverage because of the amount of time it can take to get authorization to begin work. Instead of buying a contract, take the money it would cost and put it in a separate bank account to cover future repairs or for the eventual down payment on a replacement vehicle. And maintain your vehicle according to the owner's manual recommendations.

Anthony Giorgianni

   

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