Missouri Settles With Defunct Auto Warranty Firm

Missouri Attorney General Chris Koster says his office has obtained a consent judgment against another company that markets extended warranties. This time, the settlement is with St. Peters, Mo.-based Vehicle Services, Inc., and its owner, Steven Chapa, for alleged violations of Missouri’s Merchandising Practices Act.

According to Koster, Vehicle Services is no longer in business. When it was in operation, Koster says it marketed what appeared to be “extended auto warranties” to consumers through direct mail, the Internet, and by telephone. Consumers all over the country have received post cards in the mail, “alerting” them that their auto warranty was about to expire.

The “extended warranties” marketed by Vehicle Services actually were “service contracts” or “automotive additives.” Koster said the consumers were mistakenly led to believe their current vehicle warranties were about to expire and that they would not have another opportunity to purchase an extended warranty unless they acted immediately. Many potential customers were not informed that Vehicle Services was not affiliated with the dealership or manufacturer from whom the customers bought their vehicles.

“I want to emphasize to consumers their right to see a written service contract and agree to its terms. Under Missouri law, the failure to contract in writing is a violation of Missouri’s Motor Vehicle Extended Service Contract law,” Koster said. 

Nasty surprise

Customers who purchased coverage under “service contracts” by telephone often later realized the significant limits to coverage. Customers asking for a cancellation or refund when they discovered the provider would not pay a claim were often denied a refund or made to go to great lengths to obtain a partial refund.

Under the terms of the settlement agreement, Chapa must pay the state $25,000 in restitution and civil penalties and is prohibited from any further violation of Missouri’s Merchandising Practices Act and Vehicle Extended Service Contract law.

Consumers considering the purchase of an extended auto warranty should think twice. A 2008 survey bu Consumer Reports found these expensive service contracts are usually bad deals.

Sixty-five percent of more than 8,000 Consumer Reports readers surveyed by the Consumer Reports National Research Center said they spent significantly more for a new-car warranty than they got back in repair cost savings.

Extended warranties are very lucrative for dealers, who are being squeezed by lower commissions and better pricing information. On average, dealers collected around $800 on each extended warranty they sold.