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.

Extended warranties: Should you just say no?

Readers weighed in heavily last week against buying extended warranties for most products, after last Monday's column about a Haddonfield woman who ran into trouble getting Sears to deal with her broken-down dishwasher.

Several complained of getting the hard sell for coverage, even when they were buying furniture. But getting their warranties enforced was another matter altogether.

Diane Sufler of Huntington Valley says she was promised a warranty that covered “everything, even cigarette burns and punctures” when she bought a leather sofa set several years ago at a Willow Grove department store. It was a promise that should have reminded her of the adage, "If something sounds too good to be true, it probably is." But it's hard to fault her for trusting what she was told by a reputable retailer.

My husband has never, in fifteen years of marriage, bought an extended warranty on anything. He is of the opinion that they are not worth it, as whatever goes wrong is usually excluded. Unfortunately, he was not with me when I bought the furniture, and I succumbed. My feeling was that this furniture was going to be in my family room and, with two children and a cat, was going to take a beating.
In May 2004, I called as my cat had caused small scratches in the sofa and chair. I was informed that damage caused by pets was not covered. I commented that the salesman had told me "everything" was covered and searched the literature I received with the warranty for any reference to pet damage. No exclusions are noted. Score one for my husband.

That wasn’t the end of her frustrations. Sufler also tried to invoke the warranty a while later after trying unsuccessfully to remove a spot from the sofa. After about three months’ worth of frustrating phone calls and, finally, a visit from the outside company servicing the warranty, she got an offer: She could pick a new sofa that sold for up to $630, or take $200 in cash – exactly what the warranty had cost her.

That would be like paying $1,000 for homeowners insurance and having the company offer you your $1,000 back when your house burns down. Is that how a warranty is supposed to work?

Other readers argued that thinking of extended warranties as insurance illustrates why they are generally such a bad deal – a point that Jerome Bacchetti of Moorestown says I missed in last week’s column

Any insurance, Bacchetti writes, is worth buying only if the loss you’re insuring against could cause you serious economic harm. Otherwise, it’s a losing proposition, because you’ll be paying for covered losses plus the insurance company’s cost of doing business.

Example 1: You are the sole bread winner of a family in which several minor children depend on your income. If you died or became disabled, the family would be in serious trouble. You must have high levels of life insurance and disability insurance.

Example 2: You buy new tires for your car every few years. You can afford the loss of a tire from a “road hazard.” It makes no sense to buy road-hazard insurance, since over the years you will pay more for the insurance than for replacing damaged tires.

Appliances tend to fall in the same category as tires. They are highly reliable, don’t cost a lot to replace, and an annual repair bill costs about the same as the annual insurance premium. Plus, without the insurance, you have more control over who will do the repairs.

Bacchetti would forgo coverage on a computer for those reasons, plus one more: We know we’ll want the latest gizmos, anyway. “If one breaks,” he says, “it gives us an excuse to buy a new one.”

Fred Schumacher of King of Prussia says he’s ready to respond whenever a sales clerk pushes an extended warranty by “citing all the dire things that could go wrong”:

The answer is, of course: If it’s that bad, maybe I shouldn't buy this.

Schumacher continues:

Another aspect to consider is what reliability people call “infant mortality,” which says that if something is going to fail, it most likely will fail early in its life and then be failure-free for X number of years; then failures will occur more frequently as time goes on, till the product’s end-of-life is reached. I'm sure that manufacturers have this information on each of their products. It would be nice to see them, but I'm sure that [companies keep this] confidential. …

I have a rule of thumb, that if an appliance is over 10 years old and it fails, just get a new one, don’t even call a serviceman.

Other readers warned of pitfalls lurking in the fine print. For instance, Richard Herbert, of Oxford, Pa., was one of several who pointed out that some extended warranties don’t last as long as promised, because they begin right away, not when the original warranty expires.

And Chuck Kilian of Levittown reminded me about the confusion that results when both manufacturers and retailers offer coverage on the same product – confusion that almost proved costly to his 78-year-old mother, who was baffled when she got a letter recently from General Electric offering her extended-warranty coverage on her dishwasher. Hadn’t she bought the four-year extended warranty when she purchased it?

Kilian eventually straightened things out: The warranty came from the retailer, a home-supply chain. But Kilian wonders how often consumers wind up with worthless double coverage. “What a racket!” he says.

Getting started

My editor says a blog should begin with introductions, so here goes.
I’m Jeff Gelles. I’ve been the consumer columnist at The Philadelphia Inquirer since 2001 and a consumer writer since 1996. When somebody asks what that means, I like to say that I cover the marketplace from a consumer’s perspective.
Consumer Inq isn’t just an attempt to re-create the same sort of coverage online. My hope is to use the Internet’s advantages – especially its immediacy and interactiveness – to take the genre where it’s never been before.
For that, I’ll need your help: questions, ideas, feedback. If you disagree with something, don’t be shy. I'll freely admit that I often know less about a subject than readers with firsthand experience. I want to learn all I can. (To contact me, click here or call 215-854-4558.)
After all, we're in this together. As a consumer writer, I strive to be dispassionate, but I have an undeniable conflict of interest: I'm a consumer, too.
Just like you, I shop at stores, surf the Web for information and bargains, and argue over the occasional late fee. I buy prescription drugs, and might even ask my doctor about a new one I hear about on TV. I get lured by some ads and put off by others. (You’ll never hear me defending online pop-ups, even if they do help pay the bills on this site.)
Just like you, I worry about insurance coverage, credit scores, and my wife’s aging automobile. I get spammed and phished and bothered by telemarketers – oh, excuse me, survey-takers.
Just like you, I’ve been slammed and crammed and maybe even scammed.
As a consumer writer, I gather information on all these subjects, and many more, on a daily basis. Consumer Inq will allow me to share more of that, and more quickly, than I can in the paper.
Of course, in my role as a journalist, I have some advantages over ordinary consumers. I can usually get past the endless phone trees and voice mail at a company, and get answers if not action. I wish I could intervene on your behalf, but unless it’s a subject I’m writing about, I really can’t.
But I can make this promise: Read Consumer Inq regularly, along with my columns in The Inquirer, and you’ll become a smarter, more knowledgeable consumer. And the more you know, the better off you'll be.