Beware of calls peddling extended auto warranties

Some industries are so troublesome that the BBB is compelled to issue frequent warnings about them. The extended auto warranty business is one of them (they’re also known as vehicle service contracts).

There are legitimate warranties. I paid the dealer $1,500 for one when I bought a used car five years ago. It’s already covered $3,000 in repairs that only cost me $200 in deductibles.

The most problematic companies peddle their warranties primarily through robocalls and mailers. I get a call almost every day offering me “one last chance” to buy a warranty. I don’t want to suggest there aren’t legitimate companies selling them via telemarketing, but it would be hard to separate them from the bad ones. Consumers have also complained about warranties they bought in response to ads on TV and radio.

Many of the bad companies are located in the St. Louis area. The St. Louis BBB received 500 complaints on 50 companies in 2018. They’re aggressive in calling out the bad actors and issued a press release in January identifying the three receiving the most complaints – CarShield, Motor Vehicle Services and Safeguard Auto Direct. All have F ratings with the BBB.

I’ve received two mailers from CarShield in the past eight months wanting to sell me a warranty on a new car I got in August. They attempt to create a sense of importance and urgency by using language like Personal and Confidential: Open Immediately and Immediate Response Requested.

A Memphis consumer bought a warranty from CarShield but wasn’t able to get her claim paid when her engine blew up. She said they denied it because she hadn’t changed the oil twelve times in the prior two years and sent out a second adjustor after the first one approved the claim. At one point, they said they couldn’t talk to the repair shop unless it had a passcode they’d never provided her.

In addition to denial of claims, other common complaints include misrepresentations about what’s covered and the inability to cancel warranties. There are often multiple players involved in the contracts – marketers, claims administrators, insurers and financing entities – which makes it harder to check them out and get problems resolved.

I urge extreme caution in buying an extended auto warranty in response to an unsolicited call, but whatever the manner of contact:

• Never provide personal or credit card information until you’re ready to purchase a contract.
• Read the contract carefully before agreeing to purchase it. Understand what is and isn’t covered and any conditions. If the seller won’t provide a copy of the contract for you to review, don’t buy it.
• Don’t be pressured into making an immediate decision. Beware of sales offers that require you to buy immediately in order to qualify for the best rate.
• Read any warranty you currently have to be sure you aren’t purchasing duplicate coverage.
• Do the math. Sometimes the cost of the contract may exceed the car’s value.
• Ask the seller for the names and locations of all parties involved with the warranty. Check all of them out with the BBB.
• Find out how claims are processed. For example, will the company pay repairs up front or do you have to pay and seek reimbursement?

Randy Hutchinson is the president of the Better Business Bureau of the Mid-South. Reach him at 901-757-8607.