Avoid This Car Service Contract Scam

Don't be taken in by deceitful auto-repair warranties.

  • Susan Stellin

The rip-off: Marketers call or mail letters warning you that your car warranty is about to expire, then offer to sell you a service contract to cover the costs of future repairs. These policies, which can run up to around $3,000, are also advertised on TV, the radio, and the Internet, promising bumper-to-bumper coverage that will keep you from shelling out big bucks if your transmission fails or your engine breaks down.

The tip-off: Some “auto-repair service sellers” have led customers to believe that they are affiliated with vehicle manufacturers. Not so. These companies operate on their own and are infamous for refusing to reimburse claims on car repairs, says Bill Smith, a St. Louis-based investigator with the Better Business Bureau (BBB). According to Smith, the sellers often cite loopholes in the contract (ones you would never be able to discern) to avoid paying up, then void the document, leaving you in the lurch.

How to protect yourself: Although the Federal Trade Commission has cracked down on the use of illegal robocalls to sell auto-repair service contracts, many companies, such as StopRepairBills.com, Consumer Protection Services, and Service Protection Direct, are still in business (despite receiving grades of F from the BBB). If you are the target of one of these offers, research the company’s history at bbb.org—or to be on the safe side, steer clear of these policies entirely.