At the beginning of 2012, Missouri may no longer be a haven for vehicle service contract providers. That is when a bill signed by Governor Jay Nixon will take effect, at its roots are modifications to an existing statute dealing with the legal instruments known as extended warranties.
The reason that this is important is that the St. Louis area has become what the state’s attorney general has described as “the Silicon Valley for auto service contract scams”. State senator, Scott Rupp, who represents the area of Wentzville and sponsored the bill, told Automotive News that he has more than a dozen of these companies “within 15 minutes” of his house.
The most notable of the businesses with operations in the area was US Fidelis which failed at the end of 2009 and filed for bankruptcy in March 2010. The Atkinson brothers, Darain and Corey, were eventually indicted by the attorney general on a total of 27 counts of various charges related to the practices of the company they led.
The legislation will change the provisions of the law that deal with licensing, contract review by consumers, and the practices of sales personnel.
Under the new rules Missouri may charge business entities up to $100 for the two year license that permits them to produce the contracts. Producers considered individuals by the state can be charged up to $25 for the same period.
Contract purchasers will have a 20 day free look period within which to review the executed document and cancel it if they desire. After 45 days the service contract producer will be penalized if it hasn’t refunded the purchase price. At any time after the free look period the contract may be cancelled and the contract provider must refund to the buyer 100 percent of the pro-rated unused portion of the contract price.
The legislation zeros in on deceptive sales practices by forbidding the use of the word “warranty” in any of their sales materials. In addition, the revisions now restrict false or deceptive statements that might be made about affiliations with car makers or dealers and information concerning OEM new car warranties including their expiration dates. Anyone resorting to fraud in the course of the sale of vehicle service contracts can be charged with a felony punishable by imprisonment of not more than 10 years.
Missouri’s Attorney General Chris Koster formed a task force over a year ago which included input from the Service Contract Industry Council (SCIC). According to the council’s website the licensing provisions “allow Missouri regulators to actively monitor the sale of service contracts to consumers from the state to ensure businesses and individuals are complying with all applicable law.” The law includes license suspension and revocation provisions as well.
The SCIC has drawn up a “Model Act” that 36 states have adopted in some form, a fact which the organization says helped to facilitate the administration of claims in 2009 when car dealership closure was widespread.
Missouri’s experience should serve as wake up call to the other states 14 states that vehicle service contracts are fertile ground for fraud and deception. Since the multi-level structure under which these contracts are marketed makes it difficult for the consumer to do meaningful research state agencies should be doing the due diligence. When one company has a sales function, another administers claims and a third is standing behind the contract the consumer needs assistance at the governmental level.
Bill Summary SB132, www.senate.mo.gov
New Law Addresses Extended Warranty Scams, www.go-scic.com
Jim Henry, Missouri bill cracking down on service contracts moves closer to law, www.autonews.com