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Major article on extended service plans; gov investigation

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Major article on extended service plans; gov investigation

Old 11-13-2009, 07:42 PM
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Will monitors make this thread a sticky? Hope so, as members here ask about extended service plans almost hourly.


Koster sues 6 area auto service-contract firms for deceiving consumers
By Matthew Hathaway
St. Louis Post-Dispatch


Missouri Attorney General Chris Koster’s office announced today that it has filed suits against six companies selling extended auto-service contracts and alleged that the firms, all located in suburban St. Louis, tricked consumers into buying so-called “extended warranties” through unfair and deceptive practices.

The firms are St. Peters-based National Dealers Warranty, which does business as StopRepairBills.com; south St. Louis County-based Warranty Activation Headquarters, which does business as Nationwide Automotive Protection; St. Peters-based Extended Warranty Corporation, which does business as Key Protection Group; St. Charles-based Dealers Warranty, which does business as Mogi; St. Peters-based U.S. Auto Warranty; and St. Charles-based Dealer Warranty Services.

(In a related development today, a service-contract trade group today released a 20-page Standards of Conduct guide that prohibits many of the deceptive marketing practices alleged by Koster.)

Koster’s office also warned consumers about what it called an “auto additive scam” that involves the sale of warranted additives marketed as service contracts. The sale of these so-called additive warranties, which was first reported by the Post-Dispatch, allows companies to sell a form of vehicle protection that may not be subject to some consumer-protection regulations.

Consumers are sold an automotive additive — a bottle of liquid, or some tablets. Companies selling the additive say that if the product fails to prevent a breakdown, the warranty on the additive will cover repair bills — or at least some portion of them.

But, for consumers, there are big drawbacks to this form of vehicle protection. For instance, consumers aren’t entitled to a pro-rated refund if they cancel. When they buy service contracts, they are.

Critics — including some inside the industry — say the marketing of these additive warranties confuses many consumers, leaving them trapped in coverage they no longer want. The warranted additives also allow service-contract brokers to sell in California, where they’re otherwise prohibited from doing business.

In a prepared statement, Koster said he believes the service-contract industry is “rife with fraud, and Missouri continues to be at the center of this deception.”

His statement continued, “This office will continue to pursue and prosecute businesses such as these that target unsuspecting, innocent consumers.”

Koster’s office also accused service-contract brokers of other consumer-unfriendly — and, in some cases, illegal — business practices, including:

* Using misleading letters, postcards and telemarketing techniques, some also in violation of Missouri’s No-Call law;
* Failing to inform potential customers that the businesses were not affiliated with the automakers or dealers — as the companies’ marketing materials might suggest;
* Seeking to obtain consumers’ bank account or credit card information through misrepresentation.

Koster’s suits charge the businesses with unfair and deceptive practices violations, and some companies were also charged with violations of Missouri’s No-Call law. Koster also sued National Dealers Warranty and Warranty Activation Headquarters for violating the terms of agreements that settled an earlier state lawsuits.

The suits seek injunctions requiring the companies to follow Missouri’s Merchandising Practices Act; pay full restitution to victims and to the state; and pay civil penalties and court costs.

Tags: Chris Koster, Dealer Warranty Services, Dealers Warranty, extended auto service contract, extended warranty, Extended Warranty Corporation, Key Protection, lawsuit, lawsuits, Missouri attorney general, Mogi, National Dealers Warranty, Nationwide Automotive Protection, stoprepairbills.com, US Auto Warranty, Warranty Activation Headquarters
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Old 11-14-2009, 07:16 AM
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I wish all states would take the initiative to protect consumers from sleazy businesses. Kudos to the Missouri AG for this initiative.
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