More warranty warnings: Steer clear of misleading pitches

Jeff Ketterer, of Newtown, thinks my recent warnings about service contracts, often called “extended warranties,” still don’t go far enough, and raises a point that probably can’t be overemphasized: Some companies use highly questionable tactics to push third-party warranties on unsuspecting consumers.

If you read your junk mail, you know what I’m talking about: The pitches often seem designed to fool you into thinking that you’re being offered an extension on your original warranty. In all likelihood, the companies are buying mailing lists of vehicle owners whose warranties are about to lapse. Nowadays, such information is routinely being bought and sold.

Ketterer saw two recently — sent to his mother — that seemed designed to confuse. He was there to prevent her falling for the pitch, but he worries about others who are vulnerable.
“My mom is 80 years old. She can't be the only person out there getting these things,” he says.

Some third-party extended warranties undoubtedly come from good companies that will do what they say. But before you sign up, look carefully into any company you’re considering.

Start with the Better Business Bureau, and also do a broader Internet search for complaints to make sure the company hasn’t been targeted by law-enforcement officials. But remember, too, that in any field, the worst scammers know how to hide, sometimes by changing names or addresses.

If you’re tempted to buy such coverage, the best option is an actual extension of the full warranty from the manufacturer, if one is available.

If a car dealer offers you a service contract, find out who’s behind it, and why the dealer considers that company trustworthy.

Here’s some advice on auto service contracts from the Federal Trade Commission (to see its whole brochure, click here. ):

Many service contracts sold by dealers are handled by independent companies called administrators. Administrators act as claims adjusters, authorizing the payment of claims to any dealers under the contract. If you have a dispute over whether a claim should be paid, deal with the administrator.

If the administrator goes out of business, the dealership still may be obligated to perform under the contract. The reverse also may be true. If the dealer goes out of business, the administrator may be required to fulfill the terms of the contract. Whether you have recourse depends on your contract's terms and/or your state's laws.

Learn about the reputation of the dealer and the administrator. Ask for references and check them out. You also can contact your local or state consumer protection office, state Department of Motor Vehicles, local Better Business Bureau, or local automobile dealers association to find out if they have public information on the firms. Look for the phone numbers and addresses in your telephone directory.

Find out how long the dealer or administrator has been in business, and try to determine whether they have the financial resources to meet their contractual obligations. Individual car dealers or dealer associations may set aside funds or buy insurance to cover future claims. Some independent companies are insured against a sudden rush of claims.

My advice: Always remember that the fine print matters. You need to know what a service contract covers and what it doesn’t cover. Equally important, you need to know who stands behind it.

And remember, too, that auto manufacturers often stand behind their products beyond the original warranty period. According to an estimate in the Center for Auto Safety's report on hidden warranties, as many as 500 secret warranties are probably in effect at any given time. If a problem is related to a design defect, you may be covered even without a service contract.