Extended Warranty Pricing and Scams

Building and selling cars isn't all that profitable. But writing loans and leases and selling expensive add-ons like extended warranties can be very lucrative -- and can add hundreds or even thousands of dollars to the price of a new vehicle.

With car sales starting to boom after years of desultory sales, the Consumer Financial Protection Bureau is taking a look at whether all these high-priced add-ons are being adequately disclosed to consumers, The Wall Street Journal reports today.

The newspaper says the bureau has issued subpoenas to several large auto lenders seeking information on sales practices, pricing and disclosure.

The add-on products are legal. The question is whether consumers are being properly informed of the cost of the products and the terms of the transaction.

Many consumers complain that they are promised their extended warranty will cost only a few dollars a month while covering nearly anything that could go wrong with their cars, only to learn otherwise when problems occur.

"I was pressured into buying a [AAA] Great Choice plan which they told me would cover everything I needed on my vehicle," said Ronnie of Baltimore in a ConsumerAffairs posting. "Well, after almost a year, I had a problem and nothing was covered. My mechanic told me the claims process in itself was the worst he had ever seen and that this was something called a product warranty which I don't know what that means but my mechanic made it sound like it wasn't a real warranty."

Discriminatory lending

The Justice Department, meanwhile,  is probiing auto dealerships that make their own loans to customers with poor credit, charging interest rates that may be much higher than a bank or auto lender would charge. The Journal said Jon Seward, deputy chief of the department's housing and civil enforcement section, made that disclosure at a panel discussion at George Mason University in Fairfax, Va., earlier this week.

In March, the CFPB warned auto lenders about jacking up interest rates for consumers with less-than-stellar credit ratings, a practice that can result in more expensive loans for minorities.

“Consumers should not have to pay more for a car loan simply based on their race,” said CFPB Director Richard Cordray. “[This] bulletin clarifies our authority to pursue auto lenders whose policies harm consumers through unlawful discrimination.”

Consumers could be losing tens of millions of dollars a year because of  discriminatory lending, the agency said.

The problem involves what are called "indirect" auto lenders, which often allow the dealer to charge the consumer an interest rate that is higher than the rate the lender gave the dealer -- typically called “dealer markup.” 

As a result, markups generate compensation for dealers while frequently giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Lender policies that provide dealers with this type of discretion increase the risk of pricing disparities among consumers based on race, national origin, and potentially other prohibited bases.

Not so, dealers say

Car dealers are fighting back. The National Automobile Dealers Association (NADA) said it and other industry groups "strongly oppose any form of discrimination in auto lending, and the CFPB guidance appropriately explains that unlawful discrimination has no place in the marketplace.”

“However, it is relying on a theory of discrimination that is based on a statistical analysis of past transactions — not intentional conduct — and the CFPB has not provided any information about how it is conducting its analysis," NADA said in a statement.

Ally Financial, formerly GMAC, confirmed in a filing with the Securities and Exchange Commission (SEC) that it is one of the finance sources warned by the CFPB that it could face lawsuits.

“The CFPB has recently advised us that they are investigating certain [parts] of our retail financing practices,” read the filing. “It is possible that this could result in actions against us.”

The dealers group claims consumers often save money when they finance their cars through loans 

NADA said that data collected by the Federal Reserve Board and transaction data collected by J.D. Power and Associates demonstrate that  consumers who chose the indirect channel vs. direct saved, on average, $635.40 in 2008 and it said that in 2009, the average savings climbed to $779.40, then again to $1,162.20 in 2010. 

Rhonda, of Waterloo, Iowa, is angry with Staples. About six weeks ago, she says, she went to the office supply retailer and purchased the Model SPL TXC 15A paper shredder.

After using it twice, she said, it stopped working. What happened next, which resulted in her anger, was probably caused by miscommunication.

“I called Staples and was informed that it only had a two-week warranty!” she wrote in a ConsumerAffairs post. “Two weeks!! Are they kidding? I was assured by the salesman that it was the best shredder Staples carried. I am very upset and feel that I have been scammed out of $150. I have worked in retail for over twenty years and have never heard of such poor customer service. I know that you cannot return an item after two weeks, but this product should have a warranty longer than two weeks. I am very disappointed in Staples and will never shop there again.”

In fact, it does appear that Rhonda and the salesperson she spoke with are talking about apples and oranges. Most stores have a policy that they will accept a return of an item within a specified time period. Two weeks is not unreasonable and Rhonda acknowledges as much.

But Rhonda is under the impression that the warranty covering the product is only for two weeks, which is not the case. We were able to access the product information on the Staples website, where it clearly states the shredder has a one-year manufacturers' warranty.

Disconnect

When Rhonda called the store complaining that the shredder didn't work, she should have been told to contact the manufacturer. Maybe she was but just didn't understand. Or maybe the store personnel thought she just wanted to return it and explained that it was too late.

Consumers should understand that chain retailers especially don't get involved in warranty issues, unless they have issued the warranty, in the form of an extended service contract. Instead, when an item breaks in the first year of use, the consumer needs to contact the manufacturer directly.

That's why it is important for purchases like shredders to not only keep the store receipt, but to hang onto warranty information, and take the time and trouble to fill out the warranty card and send it in.

Some consumers may be in the market for a big-screen TV for this Sunday's Super Bowl between the Packers and Steelers. When making this type of purchase, consumers often have questions about warranties.

Federal law does NOT require manufactures to issue warranties on their products. However, if they do, the warranty must be easy to read and understand. There are different forms of warranties, including full, limited, extended, and implied.

Many consumers ask what the difference is between a “warranty” and a “guarantee.” While there is no difference between the terms, there can be a big difference between the warranties of two similar products manufactured by different firms.

There is a federal law covering warranties called the Magnuson-Moss Warranty Act.  The law doesn’t require manufacturers to issue warranties on their products, but if they do, the warranty must be easy to read and understand.  No “legalese,” just ordinary language is allowed. 

Every term and condition must be spelled out in writing.  Magnuson-Moss also creates two types of warranties:  FULL and LIMITED.

Full warranty

The label FULL on a warranty means:

• A defective product will be fixed (or replaced) free of charge, and within a reasonable time, including removal and reinstallation if necessary.
• You will not have to do anything unreasonable to get warranty service (such as shipping a piano to a factory).
• The warranty is good for anyone who owns the product during the warranty period.
• If a problem is reported and not dealt with during the warranty period, the company
• is still obligated to deal with the problem even if the warranty runs out.
• If the product can’t be fixed (or hasn’t been after a reasonable number of tries),
• you get your choice of a new one or money back.

Check what parts the warranty covers.  A full warranty may not cover the whole product.  It may cover only part, like the picture tube of a TV. 

Limited warranty

If a warranty gives you anything less than the full warranty, it’s LIMITED.  A limited warranty may:

• Cover only parts, not labor.
• Allow only a prorated refund or credit.
• Require you to return a heavy product to the store for service (the piano).
• Cover only the initial owner.
• Charge for handling.

A product can carry a full warranty on part of the product and a limited warranty on the rest.

Magnuson-Moss generally requires manufacturers to make a copy of their warranty available for you to look at before you buy -- so you can comparison shop for the best warranty coverage.

Implied warranty

Implied warranties are rights created by state law, not by the company.  The most common implied warranty is that the product you buy is fit for ordinary uses -- an electric mixer has to mix, an ice crusher has to crush. If it doesn’t, you have a legal right to get your money back.  Implied warranties come automatically with every product, even though they may not be written out.  However, watch out for “as is” or “no warranty” sales; they cancel out your implied warranty.

Protect yourself

Read warranties before you buy.  Make sure any verbal promises by the sales representative are included in the written warranty.  Keep your sales slip with your warranty.  You may need it to prove the date you bought the product or that you are the original purchaser.  

Marketers hawking extended auto warranties of dubious value are increasingly coming under scrutiny by law enforcement. Since many of these campaigns are aimed at senior citizens, many state attorneys general have stepped up their efforts to prevent fraud.

In Missouri, Attorney General Chris Koster has sued four more companies he says were selling bogus auto warranty products.

Koster said the businesses he has filed suit against today used misleading telemarketing, letters, and postcards to market what appeared to be "extended auto warranties" to consumers, but actually were "service contracts" or "automotive additives."

He said the businesses would lead consumers to mistakenly 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 the businesses were not affiliated with the dealership or manufacturer from whom the customers bought their vehicles.

Many consumers were unaware they were not actually purchasing auto warranties until they received an auto additive in the mail. The companies sold the products as auto additives to avoid Missouri's service contract laws, which provide some minimal protection for consumers. Consumers did not realize the limited value of the products they were purchasing.

"This extended warranty scam is nothing but a 'bait and switch' scheme that preys on consumers' fears having inadequate vehicle warranty coverage," Koster said. "The 'bait' is to lure vulnerable consumers into extending or purchasing 'auto warranties.' Then the 'switch' is to sell them service contracts, or worse, auto additive warranties with inferior or negligible repair coverage, then making it almost impossible for the consumers to cancel the contract or get refunds.

"I believe this warranty business is rampant with fraud, and Missouri continues to be at the center of this deception," Koster said. "This office will continue to pursue and prosecute businesses such as these that target unsuspecting, innocent consumers."

Koster filed lawsuits against six companies using these scams in November.

The four businesses Koster sued are:

• Carhill Enterprises, Inc., d/b/a Consumer Protection Services, St. Louis

• CarSafe, LLC, d/b/a Dealer Preferred Warranties, LLC, St. Charles

• Dealership Services, St. Louis

• Dealership Warranties, Inc., St. Louis County

Koster is asking the court to issue preliminary and permanent injunctions requiring the companies to comply with Missouri's Merchandising Practices Act; provide full restitution to victims and to the state; and pay civil penalties and court costs.

Consumers around the country are being targeted in a a marketing campaign attempting to sell extended auto warranties, calling them on their cell phones and landlines, as well as through postcards, letters and emails.

The marketers offer to sell expensive extended warranties, and often "phish" for personal information about the consumer.

In Maryland, Attorney General Douglas F. Gansler says consumers should simply hang up if they receive unwanted telemarketing calls, and beware of any offers of extended warranties.

The marketing mailings may appear to be an important notice from the consumer's car dealer or auto manufacturer. There is always an eye-catching warning on the front of the card, such as: "Final Notice: Expiring Auto Warranty."

Whether by phone or mail, the marketers warn that the consumer's car warranty is about to expire, and urge the consumer to call a toll-free number or push a button to be connected to a representative in order to renew their warranty.

While state laws vary, Gansler says Maryland consumers should also be aware that the Maryland Telephone Solicitation Act generally prohibits a telemarketer from charging the consumer's charge card before receiving a written contract signed by the consumer. Therefore, there is usually no legitimate reason for the telemarketer to ask the consumer to provide account information.

To avoid becoming a victim of this scam, Gansler offers the following tips:

• Never give out personal financial information such as bank account numbers, credit card numbers or Social Security Numbers over the phone to someone who has called you;

• Beware of any mailings that appear to offer extended warranty coverage;

• When considering an extended warranty, or any other telephone or mail solicitation, always insist on getting the complete terms and conditions of your agreement in the form of a written contract before you agree to sign up, pay any money or provide your credit card information.

• Before entering into any contract, make sure you fully understand its terms and coverage.

There are many things to consider when you're offered an "extended warranty" or "service contract."

Gansler says consumers should beware that certain "extended warranties" do not always provide the peace of mind and financial protection that they might expected. Many of these contracts, when closely scrutinized, exclude so many items that they really provide very little coverage for outrageous prices, he said.

Make sure that you are dealing with a reputable, stable company. Some consumers have found when they sought to take advantage of the extended warranty or service contract that the company from which they purchased the extended warranty or service contract had gone out of business.

Check out a business with your state Attorney General's Office, your local Better Business Bureau and online consumer sites before you agree to do business with them.

More Scam Alerts ...

Not to be confused with a builder's warranty, a so-called home warranty -- actually a service contract -- is typically purchased for existing homes, especially homes sold by real estate agents. These service contracts generally cost $300 to $600 for a yearly basic coverage plan that includes items such as ceiling fans, water heaters, and the furnace.

Here's how a home warranty is advertised: Instead of calling a repair company when something breaks down, you call the warranty company, which sends out a local contractor to diagnose the problem. You'll pay the contractor a service-call fee, typically $50 to $100, and the contractor informs the warranty company what needs to be done to fix the problem.

Once the okay is given, the contractor repairs or replaces the problem item and you don't pay a cent more. Or so the ads promise.

Many consumers do find that these plans work just as advertised. However, many others are reporting serious problems with their warranty company, including American Home Shield (AHS).

Popular with Realtors

Owned by ServiceMaster, which also operates TruGreen and Terminix, AHS is a favorite among real estate agents who use the warranty as a home-selling perk.

One such agent is Anna, of Northern California. "My clients used to complain about AHS, but I always gave benefit of doubt to AHS," Anna admitted. "I figured every company has their share of unhappy complaints."

What Anna didn't know is that the same issues that plagued her clients would soon strike her personally.

Anna had a bathroom faucet go on the blink, so she called AHS. Their contractor refused to make the repair, so Anna paid out of her own pocket for a different plumber to make the 10-minute repair.

Her next problem came in the form of a malfunctioning air conditioner.

"The service technician reported that there was lack of maintenance and therefore it has to be replaced and cannot be covered under AHS," Anna wrote. "I paid separately to another vendor and he said the A/C unit is perfectly fine except that there is a leak that has to be fixed."

"Every time I call AHS for a problem, they deny the service either on grounds of lack of maintenance or abnormal wear and tear. How do you define abnormal wear and tear and lack of maintenance?" Anna asked.

No response

We contacted American Home Shield to ask the same questions, but they did not return our calls.

In reality, AHS is no different from other home warranty companies when it comes to exclusions and small print. Warranty company contracts say that a claim can be denied for lack of maintenance, improper maintenance, improper installation, pre-existing problems, code violations, and numerous other reasons.

Further, the contract says that coverage only applies if the item or system breaks down due to "normal wear and tear."

Considering that most home warranty plans do not require a prior inspection, the contractors and warranty companies are the sole judge of what is classified as "normal wear and tear" and "lack of maintenance."

"Our furnace self-destructed and AHS denied to fix it," said Phil, of Lake Forest Park, Washington. "AHS says we did not properly maintain the system, so they cancelled the warranty until we replace the furnace. I don't understand how a warranty we have been paying on for 7 years can be declared non-existent," Phil complained.

Fine print

The reason that a warranty company can call the shots is because of the contract. If you signed it, you're stuck with it, whether you read it or not.

Steve, of Land O' Lakes, Florida, discovered the details of his contract when he filed a claim with Old Republic Home Protection .

Steve's air conditioner was having major issues and Old Republic decided the unit needed to be replaced. As a real estate agent, Steve had recommended Old Republic to his clients, so he didn't think that getting his own problem fixed would be a problem.

"Boy was I wrong," Steve said. "Even though I was told a replacement unit would cost at least $4,000.00, Old Republic said they would pay me only $500.00."

After useless discussions with Old Republic managers, Steve ended up paying $4,200.00 to replace the unit himself. "Old Republic never did send me the $500.00," Steve said.

Steve ran into a brick wall because of the Old Republic terms and conditions that say: "We reserve the right to provide cash in lieu of repair or replacement in the amount of our actual cost (less than retail) to repair or replace such item," a clause commonly found in warranty contracts.

Contractors fume

Home owners aren't the only people that have had issues with warranties. We also heard from contractors who weren't pleased with their dealings with the warranty companies.

Ron, who owns a Louisiana-based heating and air conditioning company, told us that Old Republic called him, unsolicited, and asked him to be a contractor.

"They faxed me a sixteen-page contract ready to sign me up as a repair company," Ron said. "It included ridiculous low rates where I would have to get the local permit, recover the Freon of an air conditioner, buy the equipment, and warranty the job for 30 days."

Ron said that the pay was so low that his company would have made no profit and would have even lost money on labor costs. Additionally, there was the issue of getting paid.

"I had a bad past experience with a warranty company who took months to pay me," Ron said. "Old Republic assured me this wouldn't be an issue, but to get paid promptly I would have to give up 5 percent of the invoice amount."

Another contractor who asked to remain anonymous said that on the more expensive items, many contractors know they will lose money on the covered item. However, they will make it up in other ways such as upgrading the appliance or system to code specifications, hauling away the broken item, or cleaning an item before it can be serviced.

Additionally, contractors typically still get paid the service fee even if the claim is denied.

Insider advice

So what's a homeowner to do? Many consumer advocates would say it's better to "self-insure" -- setting aside a reasonable sum each year to cover routine maintenance and finding reliable local contractors to do the work. This is true of "extended warranties" in general.

Surprisingly, some industry insiders might agree.

"I would not recommend someone buy a warranty when the home has lots of known pre-existing conditions," said Lorna Mello, Vice President of Old Republic Home Protection. "Home warranty plans cover items that fail due to normal wear and usage after the effective date of the plan."

Mello also emphasizes the importance of reading the contract.

"I would advise they read the home warranty plan to clearly understand the terms and conditions of coverage so they have a clear understanding of what to expect."

Also keep in mind that it's the warranty company that decides what an emergency is, not you. This is a lesson that Nancy of Columbus, Ohio, learned the hard way when her furnace failed in February.

"We called AHS and was told no-one was available to take care of emergencies. We informed them that we had a 9-month-old infant in the house, and the home was very cold (Ohio winter weather)," she told ConsumerAffairs.com.

Nancy also learned that the homeowner generally has no choice about which contractor shows up to do the work.

"The company, Brokaw Heating, was assigned to come out within 1-2 days (horrible service). When we called Brokaw, they hung up on us and continue to be unresponsive. We have called 6 times to AHS only to hear the same thing -- nothing."

Pricey new-car extended warranties are usually poor deals, according to a recent survey and in-depth report published in Consumer Reports'Annual Auto Issue. Providing further evidence is action by the Missouri attorney general against several warranty companies in the St. Louis area.

Sixty-five percent of more than 8,000 Consumer Reports readers surveyed by the Consumer Reports National Research Center earlier this winter 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.

Meanwhile, Missouri Attorney General Jay Nixon took legal action against several businesses, most of them based in the St. Louis area, that he said used misrepresentation and deception to sell motor vehicle extended service contracts to consumers around the country.

Nixon said the coordinated filings of lawsuits and settlements, dubbed Operation Taken For A Ride, involve scores of consumers who were misled into paying for extended service contracts on their vehicles that, in most cases, they did not need.

CR Survery

In the Consumer Reports survey, respondents cited warranty costs of $1,000 on average that provided benefits of $700 -- an average $300 loss.

Some 42 percent of extended warranties were not used, and only about a third of all respondents used their plan to cover a serious problem. About one in five respondents (22%) said they had a net savings. Seventy-five percent did not buy extended warranties at all.

"Extended warranties sell costly 'peace of mind' for repair nightmares that probably won't occur," said Rik Paul, automotive editor, Consumer Reports. "Sellers know what tends to break, and in most cases consumers are betting against the house."

Extended warranties were, however, a better deal for those who bought more troublesome cars scoring lower in CRs reliability ratings, such as those from Mercedes-Benz. Still, only 38 percent of Mercedes-Benz owners said they saved money. The average loss was $100.

Lexus and Toyota owners lost the most money: $600 on average for Lexus and $550 for Toyota. Owners of Pontiacs and Jeeps broke even because on average they had covered repairs that equaled the warranty cost.

Consumer Reports' analysis of specific car makes was based on 5,465 responses from a December 2007 online survey of CR readers who owned 2001-2002 vehicles.

What to do

Consumer Reports experts suggest, among other things, shoppers put the $1,500 to $2,300 they might spend on an extended warranty into a money market savings account or mutual fund instead, to insure against unlikely significant repair costs.

For consumers who want absolute peace of mind and don't mind paying for an extended warranty, Consumer Reports offers the following advice:


• Don't feel pressured to buy an extended warranty at the same time as buying a new car. Instead, shop about six months before the vehicle's factory warranty runs out.
• Ask for and have a trusted mechanic review sample contracts before buying.
• Bargain hard -- sales commissions can be large.

'Taken for a Ride'

Missouri AG Nixon said the companies targeted by his office used use high-pressure, misleading tactics.

Its rather insidious how these companies prey upon consumers fears, sending misleading letters informing them that their current motor vehicle warranties were about to expire, when in fact many of the consumers possessed factory warranties that wouldnt expire for several months, Nixon said.

That was the hook to sell these consumers unneeded motor vehicle extended service contracts for hundreds or thousands of dollars. When consumers canceled the contracts, many received only a partial refund or no refund at all.

Nixon says the companies mislead consumers in letters and postcards with boldfaced statements such as Notification of Interruption! and Important Dated Material Enclosed leaving the impression that they are sent from the manufacturers who produced the consumers vehicles or the dealers who sold the vehicles to them.

In fact, Nixon said, the defendants fail to inform the consumers that they are not affiliated with the manufacturer, dealer or any local, state or federal government agency, and that the mailings amount to advertisements for the companys service contracts.

Many consumers confused, but not wanting their car warranties to expire went ahead and purchased the new, but in most cases unneeded, service contract the company was hawking, Nixon said.

In one case, an elderly consumer received a postcard stating that her motor vehicle warranty was expired or about to expire in March 2007, even though her actual extended warranty through General Motors wouldnt expire until November 2008. The consumer purchased a new service contract for $1,898 from the company, and the company refused to issue a refund when it was requested.

Nixon filed one of his lawsuits against that company, Vehicle Services Inc., of St. Peters, in St. Charles County Circuit Court, requesting injunctions, restitution for consumers, penalties and other relief. In addition, the Attorney General filed lawsuits today against the following businesses:

• TXEN Partners, which does business as Service Protection Direct of St. Louis; and a related company, United Warranty Solutions, for using misleading notification letters to pressure, confuse and intimidate consumers into purchasing MVESCs they did not need. The defendants failed to disclose coverage requirements to consumers who purchased MVESCs (such as the requirement to use a specific brand of oil to receive reimbursement for repairs); failed to honor contract terms and perform repair on consumers vehicles; and failed to issue refunds to consumers, including one consumer who is owed as much as $3,800. The lawsuit was filed in St. Louis County Circuit Court.

• Dealer Warranty Services of St. Charles, for using misleading notification letters to pressure, confuse and intimidate consumers into purchasing MVESCs they did not need. The defendant also misrepresented to consumers the cost of purchasing the MVESCs and debited the bank accounts of several consumers without authorization. The lawsuit was filed in St. Charles County Circuit Court.

• Certified Auto Warranty Services Inc., of Lenexa, Kan., which promised a 100 percent Money Back Guarantee to those consumers who purchased and canceled MVESCs, but then issued only partial refunds or no refunds at all. One consumer who paid $1,335 canceled her contract, but has received no refund to date. The lawsuit was filed in Greene County Circuit Court.

• National Dealers Warranty Inc., of St. Peters, which sent consumers postcards and letters informing them that they had limited time to purchase renewed, extended warranties for their vehicles. The company neglected to inform consumers that it was not affiliated with the dealers or manufacturers of the vehicle, or that it was actually offering to sell MVESCs instead of warranties. The lawsuit was filed in St. Charles County Circuit Court.

• National Auto Warranty Services Inc., of Wentzville, which also sent consumers postcards and letters informing them that their warranties were about to expire, and that it was offering them their final chance to purchase a renewed, extended warranty. The company failed to inform the consumers that it was not affiliated with the dealers or manufacturers of the vehicle, and that it was actually offering to sell MVESCs instead of warranties. In addition, the company violated the Missouri No Call Law by calling Missourians who were on the No Call list, as well as federal telemarketing laws by contacting consumers by phone and failing to honor their requests not to be called. The lawsuit was filed in St. Charles County Circuit Court.

• Smart Choice Protection of St. Louis, doing business as Direct Dealer Warranties, which also sent consumers postcards and letters informing them that their warranties were about to expire, and that it was offering the final chance to purchase a renewed, extended warranty. The company failed to inform the consumers that it was not affiliated with the dealers or manufacturers of the vehicle, and that it was actually offering the sell MVESCs instead of warranties. The lawsuit was filed in St. Louis City Circuit Court.

In addition to the lawsuits, the Attorney General filed assurances of voluntary compliance with two companies to settle allegations of misrepresentation in the selling of extended warranties:

• Carhill Enterprises, which does business as Consumer Protection Services, of 1232 Washington Avenue in St. Louis, will pay $7,209 restitution to eight consumers and $4,000 to the state to cover the costs of the investigation and enforcement of the case. The company also agreed to injunctive relief which requires them to inform consumers upfront of specific details of their product prior to purchasing. The agreement was filed in St. Louis City Circuit Court;

• Warranty Activation Headquarters, of 12244 Tesson Ferry Road in St. Louis, satisfactorily responded to all consumers who complained. The company will pay $5,000 to the state to cover the costs of the investigation and enforcement of the case, which was filed in St. Louis City Circuit Court. The agreement also requires the company to provide full refunds to any consumers who cancel within 30 days.

Nixon encouraged consumers who have complaints about businesses selling motor vehicle extended service contracts to file complaints with his office, by either going online to ago.mo.gov or by calling the Consumer Protection Hotline at 1-800-392-8222.

Complex terms can make the contracts difficult to enforce. And it also seems that many retailers who sell these contracts can just refuse to pay off. After all, they wrote the contract and know its loopholes intimately.

Case in point -- Ahron, of Lexington, Kentucky, tells ConsumerAffairs.com that he recently took his laptop computer to Best Buy for a repair under his three-year in-store warranty.

Cracked case

The computer casing had started to crack in three areas a manufacturing defect that Ahron says was clearly covered under the warranty. The casing on his computer had never been opened and no liquid had ever been spilled on the keyboard, he says, conditions that would have voided any warranty.

When I arrived at Best Buy I presented my problem to the technician. He told me this should definitely be covered but it would have to be shipped off for a couple of weeks for the casing to be repaired, Ahron said.

In less than a week Ahron says he received a call from Best Buy, informing him that parts had previously been removed from his computer, meaning the casing had been opened and the warranty, therefore, was void. Ahron said he asked to speak to a supervisor.

About an hour or more later I received a call back from the same technician, who told me he had spoken with a manager and that nothing could be done to help me because the liquid spilled on the keyboard had voided my in-store warranty, Ahron recalled. When I told the technician that nothing was mentioned about liquid before he denied ever telling me parts had been removed.

Ahron said he believes the company simply didnt want to pay for the repair to his computer and fabricated a reason not too. And hes not alone.

A matter of time

Mark, of San Diego, said he opted for a four-year extended warranty when he purchased a plasma TV in April 2003. Because he was traveling extensively in his job with the Department of Defense, Mark arranged to have the TV delivered in September, five months later.

The TV was delivered September 13, 2003 and the Best Buy installers attached it to my wall, hiding all the wires on Sept 17, Mark told ConsumerAffairs.com. The TV operated fine until Sept 4, 2007, when it suddenly went out. Although I thought I still had a few more days left on the extended warranty Best Buy informed me that the warranty had started 5 months before I received the TV.

Mark took Best Buy to Small Claims Court and won. In the process, he made some interesting discoveries.

I found out from Samsung that the TV was manufactured in Korea 17 days after Best Buy said the warranty started, he said.

Interestingly, Samsung showed the date of purchase as September 13, 2003, the date Mark received the set. Samsungs 24-month manufacturer's warranty began on that date.

The judge ruled that I am entitled to costs of Best Buys repair service visit on Sept 12, 2007 for $100 and to have the TV fixed or replaced, Mark said. Best Buy personnel are the only people that I speak to that cannot understand why. Even the judge spent most of the time explaining it to them.

Yet despite experiences like Ahrons and Marks, a recent J.D. Power and Associates survey shows consumers continue to buy service contracts when they purchase major appliances.

Among owners of refrigerators, stoves, dishwashers and laundry appliances, approximately 25 percent report purchasing an extended warranty, while approximately 15 percent of microwave oven owners do so.

Think twice

Extended warranties certainly provide a degree of peace of mind, said Dale Haines, senior director of the real estate and construction industries practice at J.D. Power and Associates. With some appliances -- particularly those with complex electronics and potentially high repair costs -- purchasing an extended warranty may make sense.

"However, major appliances tend to be very reliable, and consumers should consider very carefully -- depending upon their circumstances -- whether an extended warranty is worth the additional cost, Haines said.

Perhaps one other factor should be considered as well.

Will the retailer selling the extended warranty actually honor it, or will it try to weasel out of its obligations, requiring the consumer to drag them into a courtroom to gain satisfaction?

Wal-Mart is expanding its offering of extended warranties on electronics items, including the computer laptops, large-screen TVs and digital cameras it recently introduced to its stores.

Extended warranties have long been a cash cow for electronics retailers like Circuit City and Best Buy, who earn profit margins of 40% to 80% on them.

Computer retailers and direct marketers like Dell and Gateway have recently begun pushing consumers into buying expensive extended warranties by shortening the standard warranty to as little as 90 days.

The November 2004 issue of Warranty Week reported that Dell's revenue from extended warranty sales was actually overtaking its spending on warranty claims, and Gateway increased its warranty revenue to $33 million while decreasing its warranty costs to $15 million.

But the extended warranties are hardly a best buy for consumers, who usually find the warranties either duplicate the manufacturer's warranty and are thus an unnecessary expense or don't provide extra protection when customers need it. ConsumerAffairs.com has received more than 3,000 consumer complaints about extended warranties in the last year.

In fact, according to the Consumers Union, the reason extended warranties are so profitable is precisely because they're not worth much to the consumer.

"Many of these (products) are established, mature technologies; They usually don't break down," Lauren Hackett, a spokeswoman for Consumer Reports, told The Wall Street Journal. "And if they do, we find that it is generally within the manufacturer's warranty."

Wal-Mart expanded its inventory of higher-priced electronics goods recently, hoping to make up for reduced sales on its lower-priced goods. The falling sales were attributed to lower-income consumers having less spending money because of higher gas prices, health care costs and other factors.

Last week, Wal-Mart began selling two-year product warranties on TVs and computers priced higher than $300 in most of its stores. The warranties cost $28.88 to $98.99, and cover maintenance and repairs after the manufacturers' warranties expire.

Wal-Mart's warranties are being sold in partnership with warranty-provider N.E.W. Customer Service Cos.

The next time you buy a personal computer, read the fine print very carefully. The warranty may not be as long as you think, and you may have to pay for coverage that used to be free.

Major computer vendors such as Gateway and Dell have been reducing standard warranty coverage to as little as 90 days, and exhorting consumers to purchase pricey extended warranty programs.

This might lead to savings in the long-term, as replacement parts can often cost far more than the money you'll spend on an extended warranty. But it could also mean you're spending money for protection you may not need after the first three to six months of owning your PC.

A Dell Dimension 5100 desktop, for example, can cost you as little as $799 with special online offers and discounts applied. But purchasing any coverage beyond the standard 1-year warranty can tack on an extra $80 to $330, not counting any additional peripherals or accessories you might buy.

The Gateway NX250X laptop's online price is $949 after the $50 rebate, with a "Notebook Value Service Plan" of 90 days. However, the purchase comes with the "Value Plus" 2-year extended warranty protection already selected, which adds an extra $109 to the purchase price.

This is becoming standard operating procedure for many Gateway products purchased online -- the default package includes an extra-cost extended warranty plan.

Extended warranty sales are big business for Dell and Gateway these days. The November 2004 issue of Warranty Week reported that Dell's revenue from extended warranty sales was actually overtaking its spending on warranty claims, and Gateway increased its warranty revenue to $33 million while decreasing its warranty costs to $15 million.

Not every major PC manufacturer is cutting corners on its warranty protection. Hewlett-Packard continues to offer the standard one-year warranty for all its products, and MPC (formerly MicronPC) offers a three-year-warranty as well as dedicated in-house technical support.

Of course, purchasing that extended warranty is no guarantee you'll actually receive decent replacement parts for your defective machine, or reliable tech support to help you fix your problem.

ConsumerAffairs.com regularly receives hundreds of complaints from users who are frustrated with rebates they didn't get, tech support that doesn't help, and extended warranties that don't cover their computer malfunctions.

Take the case of Miriam from Alameda, Clifornia, who purchased a new Dell in January 2005, and has been wrestling with constant glitches and unreliable assistance ever since:

"I've been on the telephone for inordinate amounts of time, sent and received over 32 emails, had new memory, a new fan, new hard drive, new power supply and new memory installed by [a Dell contractor]," she said.

"I paid for an extended warranty and I am getting nothing in return."

Becky from Martinsburg, WV purchased a Dell Inspiron laptop for her son at $677, including a rebate of $150 and a three-year-extended warranty of $50 per year.

Once her son received the laptop, she didn't get the rebate claim form or any documentation for a warranty beyond the standard 90-day limited version.

"I have spent hours on the phone today trying to reach some sort of satisfaction on this and have been told that I can not get the rebate," she says. "I can add the warranty for the cost of $150. Obviously the sales rep misled me or had the info wrong himself, but the sales manager basically told me there was nothing they could do. I am out $150 due to this deception."

Hundreds of thousands of American motorists are holding worthless extended warranty policies following the bankruptcy of National Warranty Insurance Co.

The question now is what the dealers who sold them the Smart Choice extended warranties do when consumers seek service under the extended warranty. If they fix the vehicle, they will have to eat the cost; if they tell the consumer the warranty is worthless, they risk angering customers, setting off a public relations nightmare and possibly facing a rash of small claims court actions.

The Grand Court of the Cayman Islands declared the large insurer of independent service contracts for auto dealers insolvent earlier this month. The court decided that the company could not survive its financial troubles and that its assets should be liquidated.

According to court-appointed auditors, National Warranty has almost a million contracts outstanding. The auditors' report estimates that losses could exceed $100 million. National Warranty is based in Lincoln, Neb., but is incorporated in the Cayman Islands. The company insured vehicle service contracts sold through about 5,000 dealerships nationwide.

The company began offering the Smart Choice extended warranties in 1984. Sales recently were around 15,000 policies per month.

Coverages range from one to 10 years under the contracts, which cover repairs and parts for vehicles out of factory warranty. Dealers say they sell an average three- to five-year service contract for $800 to $1,500.

Exactly how the outstanding contracts will be resolved had been undecided since June 6, when National Warranty requested and obtained a Cayman Islands court order protecting it from creditors.