Worthless service contracts sold by the vehicle service contract (VSC) industry have cost consumers millions of dollars nationwide, a Better Business Bureau study concludes.

BBB undertook the study after consumers filed thousands of complaints about the industry and in the aftermath of the bankruptcy of industry giant US Fidelis. Many companies call the contracts “extended warranties” and frequently sell them as a way for consumers to save money on auto repairs. However, all too often, many repairs are excluded.

“Consumers have been frightened and tricked into parting with thousands of dollars by misleading solicitations and high-pressure sales tactics,” said Kim States, BBB President. “Many in the industry have preyed on the elderly and other unsophisticated buyers who believed they were getting warranties sanctioned by auto manufacturers. What most of them got was a worthless piece of paper.”

The industry has been evolving for at least the past 25 years, but enforcement of consumer protection laws increased only in the past five years or so. BBB recommends that state and federal authorities be more vigilant and vigorous in prosecuting violators, including criminal prosecution of the more egregious offenders.

This month, several states enacted stiffer laws regulating the industry. A federal regulation has brought robo-calling solicitations to a virtual halt. This, along with prosecution of some offenders, “may herald a new beginning in the industry,” the study concludes. It warns that if enforcement remains lax, the industry “may continue to find ways to evade the laws.”

The study pointed out that the multi-tiered industry—made up of sellers, providers, administrators, insurers and financing entities—causes confusion among consumers.   It notes that in a survey of 660 BBB complainants, 64 percent said they did not know the name of the provider of the contract who was responsible for paying claims, and 16 percent thought the provider was the insuring company.

Once a contract was accepted and payments begun or completed, 93 of the consumers surveyed said the companies refused to allow claims that they thought were covered. Consumers spent an average of $1,480 for the covered repairs, the study says.

The survey revealed that 92 percent of respondents felt that the company’s selling tactics were misleading or otherwise improper.  While telephone calls accounted for 28 percent of the first contacts with a company, a like number of consumers said they called a company because of TV or radio advertising. Thirty-one percent said they responded to a mail solicitation. The study shows that many consumers felt they were misled about what a contract provided
The study recommends that individual states consider a regulation that requires consumers to physically sign a contract before it becomes valid and prohibits “signatures” by telephone. It also recommends that states consider a regulation that prohibits VSC providers from insuring contracts with reimbursement insurance contracts in which they or affiliated entities are members, and that Congress amend the Liability Risk Retention Act to prohibit VSC providers from forming risk retention groups to insure contracts.

The BBB advises consumers who are considering buying a vehicle service contract:

• Always read the contract carefully before agreeing to buy it.  See what is covered, what isn’t covered and what conditions apply.  If the seller won’t provide a contract, don’t buy it.
• If you are on a do-not-call list, report any violations to the attorney general’s office or FTC.
• Do the arithmetic. Sometimes the cost of a contract may be more than the car’s value.
• Ask the seller the names and locations of the providers, administrators and insurers. Ask how claims are processed.
• Check all companies involved in the contract with the BBB at www.tucson.bbb.org or by calling (520)888-5353.

Better Business Bureau of Southern Arizona and Mountain State Employers Council (MSEC) will host a workshop, Navigating the Murky Waters of Wage and Hour Laws, on Wednesday Feb. 16, from 11:30 a.m. to 1:30 p.m. at the Residence Inn Marriott, located at 5400 Williams Circle in Tucson.

Class action wage and hour lawsuits have been exploding, and are now as common as discrimination suits. Employers have fallen prey to many of these lawsuits, in part, because the laws can be confusing.

Presented by Curtis Graves, staff attorney for MSEC, this session will give businesses an understanding of the Fair Labor Standards Act and the most current information regarding Arizona wage laws. Registration is $10 for BBB Accredited Businesses and MSEC members; $15 for all others. Lunch will be included.

Anyone who wishes to attend should register no later than 5 p.m., Feb. 14 by visiting, www.tucson.app.bbb.org/events.

If a debt collector is contacting you about a debt you know you don’t owe, explaining your case can be an uphill battle. Whether it’s a matter of mistaken identity, an honest error or identity theft, the Better Business Bureau recommends taking five steps to fight back against erroneous debt collectors.

According to a 2010 report, the FTC received 119,364 complaints about third-party and in-house debt collectors last year, up from 104,766 in 2008.  While complaints can be about any number of issues, trying to collect on a debt the consumer doesn’t owe is common. In a recent example, the FTC reached a million-dollar settlement with Credit Bureau Collection Services over accusations that the collection agency violated federal law by inaccurately reporting credit information and pressing consumers to pay debts they often did not owe.

“It can be an exhausting process to set the record straight on a debt you don’t actually owe,” said Kim States, BBB President. “Because debts are often sold and resold to many different collection agencies over time, you may have to make the same case every few years when the debt trades hands again.”

If you’re receiving calls for a debt you don’t owe, it could be a case of mistaken identity. Perhaps you share the same name, or even inherited an old phone number of the person who actually owes the debt.

You could also be the victim of zombie debt—it could be that you paid the original debt off but it wasn’t recorded as paid, or the statute of limitations on the debt has expired and the debt collector is trying to get you to pay for a debt you can no longer be taken to court over.

A final common cause of being hounded for a debt you don’t owe is fraud. It could be that you have become a victim of identity theft and someone is opening up new lines of credit or buying items using your good name. Additionally, the “debt collector” calling could actually be an identity thief who is trying to get you to divulge personal financial information such as Social Security, bank and credit card numbers.

If you’re being pursued for a debt you don’t think you owe, BBB recommends taking the following five steps:

1. Request written proof of the debt. By law, a debt collection agency must provide you with a validation notice within five days of contacting you about the debt. If you would like to get verification of the debt, send a written request to the debt collector within 30 days after you receive the validation notice. This written proof can help you determine if the callers are actually identity thieves, or if you (more…)