May 21, 2010 at 9:00 AM ET
COLUMBUS, Ohio -- It's no secret that the recession has caused many drivers to postpone a new car purchase and hang on to an old clunker or buy a used vehicle instead. But there’s a drawback to keeping an older car: the threat of hefty repair bills. Enter opportunistic extended automobile warranty companies.
Linda Crowe of Columbus, Ohio, left, thought she was making a safe, conservative choice two years ago when she purchased a three-year old truck with 30,000 miles on it. But the vehicle's manufacturer's warranty was about to expire, and the deluge of extended warranty junk mail she soon received got her thinking: What would she do if the car's transmission failed in two years? So she signed up with California-based Auto One Warranty, and thought she'd purchased protection for up to 100,000 miles. Peace of mind, she thought, was worth the $2,918 price tag.
Instead, she had merely acquired a two-year headache, and a fight with a firm that would soon declare bankruptcy and ultimately face a lawsuit by Ohio Attorney General Richard Cordray.
The industry has received a sizable black eye recently: Two other extended warranty firms were also sued by Cordray's office – and eight other state attorneys general -- in April.
While Crowe's story has a happy ending, her tale is a warning to other consumers who might consider purchasing additional protection for their vehicles: Always ask questions and do some research before signing on with unfamiliar companies for any product.
Crowe had second thoughts after purchasing her warranty, and within three weeks, she requested a refund. Her contract indicated she had 30 days to cancel the deal, but that promise turned out to just part of the sales pitch.
"They told me it would take up to 10 weeks to get a refund," she said. "I called after 10 weeks they said it was still in process." Thus began a ritual that continued for months. She would call, and an Auto One representative would say the refund was still in the works. "They lied and just kept on continuing to lie," she said.
(Auto One representatives could not be contacted for comment. Calls to the phone number listed on Auto One's Web site returned only an "all circuits are busy" message.)
After six months, she called American Express and tried to initiate a consumer dispute, but it was too late. Unscrupulous firms that want to avoid what are called "chargebacks" in the credit card business will often try to stall customers, as chargebacks are generally impossible after 90 days.
"My problem was I had faith they were going to give me back the money because they kept telling me 'It's in the works; it's in the works,'" Crowe said.
About that time, Crowe did some Internet research and discovered a cascade of complaints about Auto One. She also found out the company had an "F" rating with the Better Business Bureau. It was a harsh lesson.
"The big thing I want other people to know is before you buy anything, before you sign a contract look at the attorney general's site. Look at the BBB site, because it's all there," she said. "If we would have went there in the beginning...we wouldn't have made that purchase to begin with."
About one year ago, Crowe contacted Cordray's office and filed a formal complaint, and learned that there were dozens of complaints about warranty companies piling up.
More letters were traded, but Crowe still wasn't getting anywhere. She was told that Cordray was readying a lawsuit against the firm, but in March she absorbed the biggest blow yet -- an Auto One telephone operator told her the company was closing.
Losing nearly $3,000 would hurt anyone, but it was particularly painful for Crowe, a social worker who asked that her employer not be identified.
"I really thought, 'Well that's it. We've lost $2,900 and we're not going to get it back,' and it really made me sick because I am this far away from retirement," she said. "For me that's a lot of money just to throw away. I was really disheartened."
But Crowe just "couldn't forget about it." And one last time, she pulled out all her paperwork and scoured it. Suddenly, she noticed a critical detail she'd missed before: While Auto One sold her the warranty, a firm named ACSC (Automobile Customer Service Corp.), based in Huntsville, Ala., was actually the warranty provider. So she tracked the company down and called.
"And they told me, 'I'm sorry ma'am. I hate to say this, but Auto One took your money. ... You won't get it back," Crowe recalled. She said the operator also told her that ACSC had never received any money from Auto One.
But Crowe, undeterred, shared this new information with Cordray's office, which intervened.
Last week, she received a check for $2,912 in the mail from ACSC. The firm told her it was making an exception in her case, refunding money it had never received.
An operator at ACSC told msnbc.com that the company had "no comment" on Crowe's story.
Crowe, on the other hand, said, "I am very grateful to them. But I think the attorney general had something to do with it. I'm still a bit in a state of shock that I got the money."
Not all extended warranties are scams, but Cordray says consumers should beware that third-party companies often mislead consumers, offering "bumper-to-bumper" plans full of exclusions that often aren't disclosed clearly to consumers. And in the lawsuits filed against coverage providers, Cordray found many complaints of unfair coverage denials.
"These service contacts can be protection for you, but you just need to careful you understand exactly what's being offered, what the exclusions are, what the prices are and what the terms are," he said. "They are being advertised as the same as warranties when in fact it often is not the case."
Cordray also said that businesses that seem obstinate at first will offer refunds or other compensation after an attorney general's office gets involved. That's why he encourages complaints (and maybe why he gets 30,000 of them each year.) Of course, not every one has a happy ending, and Cordray cheered Crowe's persistence and her decision to re-read all her paperwork when all seemed lost. But he gently chided her as well, and all consumers who sign up with a company before they read up on it.
"It tells you that the first time (she read the contract) wasn't good enough," he said. "One rule of thumb ... if you don't understand something, then you shouldn't be signing it."