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Extended car-warranty offers are often scams

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A few weeks ago, as I was weeding through what seemed like a bottomless pit of possible topics for this week’s column, I was approached by a newsroom colleague who asked: “When are you going to write something about extended car warranties?”

It seems he and his wife regularly receive automated phone calls from an undisclosed company or companies, notifying them that the warranty on one their cars is up and offering an opportunity to extend it.

The most recent calls – one to their home phone, one to his cell – were made a few weeks ago. Generally, he says, he and his wife get these robocalls about four times a year, including around the anniversary date of when the car’s warranty expired.

His story reminded me that I had received something at home in the mail a few months ago related to this topic. Like the home deed examples I wrote about a few weeks ago (Oct. 6: “Letters offer costly copy of easily obtainable deed”), this letter certainly seemed “official.”

“Request For Immediate Action – Time Sensitive Material Enclosed” was written in bold type across the top of the oversized postcard, along with language like “Important,” “2nd Attempt” and “Please respond within five days.”

“This letter is to inform you that your service contract is expiring or has expired and you may extend the coverage on your vehicle,” it reads in all-capital letters. “Extended coverage offer expires on 28-Sep 2013.”

I didn’t bother to call the number provided for obvious reasons, not the least of which was I no longer had possession of the car cited in the letter – and hadn’t for about two years.

As it turns out, outright scams and dubious business practices aren’t uncommon to the extended-warranty industry. Consider these two recent cases undertaken by the Federal Trade Commission that resulted in massive fines, imprisonment or both.

  • In 2010, the FTC reached a $2.3 million settlement with the operator of two Chicago-based telemarketing companies – Voice Foundations LLC and Network Foundations LLC – for making millions of fraudulent warranty robocalls to U.S. consumers.

In its filing, the FTC accused Damian Kohlfeld and his two firms of falsely representing to consumers that they were affiliated with the car manufacturer or dealer and that their warranty was about to expire.

In addition to paying the $2.3 million, the FTC ordered Kohlfeld to liquidate two investment accounts containing $130,000 and to sell his 2006 Mercedes. All the money collected was to be used to reimburse consumers who fell victim to the scam.

  • And in October of last year, Darain Atkinson, co-founder and president of US Fidelis of Wentzville, Mo. – once the biggest extended-warranty dealer in the nation – was sentenced to serve eight years in prison on both federal and state charges for running a similar auto-warranty scheme. His brother and company co-founder Cory was sentenced to four years.

Several months earlier, a federal bankruptcy judge had approved a $26.5 million settlement to be divvied up between US Fidelis’ creditors and consumers, and a Consumer Restitution Fund was established to distribute refunds to eligible customers who filed claims. As of last month, roughly $3 million had been paid out by the fund to those who were duped by the Atkinson brothers.

So should you receive a phone call or written notice offering to sell you third-party car warranties, the FTC advises:

  • Don’t necessarily believe what they say: Just because they tell you that your warranty has expired or is about to expire, that doesn’t make it true. If you’re not sure, check your owner’s manual, call the dealership where you purchased your car or contact the manufacturer.
  • No need to rush: Be wary of fast-talkers or high-pressure tactics that are common to these types of scams. If it’s a legitimate business, the caller should give you some time or agree to send you information in writing before seeking a final commitment.
  • Don’t disclose personal information: Unless you know precisely who you are dealing with, never give out sensitive information over the phone, such as Social Security, bank-account or credit-card numbers. In the wrong hands, that information can lead to bogus charges and damage your credit history.
  • Be skeptical: Keep your guard up during all unsolicited sales pitches and robocalls, especially if your phone number is listed on the National Do Not Call Registry. With few exceptions, you shouldn’t be getting these calls in the first place.

Nick Pappas is assistant business editor at the Albuquerque Journal and writes a blog called “Scammed, Etc.” Contact him at npappas@abqjournal.com or 505-823-3847 if you are aware of what sounds like a scam. To report a scam to law enforcement, contact the New Mexico Consumer Protection Division toll-free at 1-800-678-1508.

 

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