Ads from CarShield
featuring rapper-turned-actor Ice-T say that buying its vehicle service
contracts can help you avoid thousands in auto repair bills. CarShield also
hired ESPN’s Chris Berman to urge viewers not to “drive another second without
protection.” Several other companies
and car dealerships hawk these plans, also known as “extended warranties.” Even
some AAA chapters and auto insurance companies such as Allstate and GEICO now
sell this type of coverage.
Everywhere we turn,
consumers encounter scads of annoying sales pitches for car repair plans. Buy a
new or used vehicle from a dealership and the finance manager will try to
persuade you to spend thousands on one. Your phone is likely inundated with
robocalls selling coverage, often using deceptive and even illegal sales
tactics. Your email and U.S. mail boxes get hit with official-looking
statements warning that your ride’s manufacturer warranty has expired, or soon
will, and you are facing a likely Carmageddon if you don’t buy their plans
right now.
These companies promise
to pay for repairs you might—but probably won’t—need. We advise against buying
these kinds of mini insurance policies—home warranties, service contracts for electronics, trip protection, water-and-sewer line coverage, and so on. They are overpriced and highly
profitable for the companies that sell and administer them and pay infrequent
claims, but are usually awful deals for consumers.
While we advise against
purchasing any type of service contract, our review of policies and the
complaints filed against CarShield and dozens of other warranty sellers
indicates their products are especially lousy buys. These companies commonly
use misleading marketing to scare consumers into paying thousands for their
products and then, if you actually need repairs, go to great lengths to avoid
paying for them.
CarShield and dozens of other
warranty sellers have been awarded “F” grades by the Better
Business Bureau (BBB). They’ve generated thousands of consumer
complaints—so many that the St. Louis-based BBB, which covers southern Illinois
and southwest Missouri, where CarShield and many other marketers are
headquartered, issued this warning:
“BBB advises consumers to use
extreme caution when entering into an extended auto service contract for your
vehicle. Consumers report to BBB they feel deceived by misleading advertising,
which includes mailers, telephone sales representatives and radio and
television commercials. Consumers also state they have difficulty canceling
their policies and that requested repairs were not covered by policy
administrators.”
Many complaints deal
with the insufferable, often illegal robocalls and deceptive marketing mailings
commonly used by these companies. Many others highlight
what often happens when a customer’s car or truck actually needs to be fixed.
All too often, consumers report that after making repair claims, plan
administrators found sneaky fine-print reasons to deny their requests for
compensation or to limit amounts they’ll pay. Maybe that’s what Chris Berman
means when he proclaims that CarShield is “rumblin’ and tumblin’ all over that
car repair bill.”
How They Work
Vehicle service
contracts are big business, with $35 billion in retail sales in 2018, according
to Colonnade Advisors, an investment banking firm. Prices for plans vary
depending on the breadth of coverage; vehicle make, age, and mileage; and
number of years (the longest terms are seven years or 100,000 miles). We found
one plan priced at nearly $6,700 and short-term plans for around $2,500. But
most of the plans we checked cost around $3,000 to $4,000.
Generally, the more you
pay the broader your coverage. With some companies, paying more upfront lowers
or eliminates per-repair deductibles, which are usually around $100. CarShield and most other
sellers don’t actually provide the coverage. Instead, claims are handled by
third-party “plan administrators”; if you need a repair, you contact the
administrator and it decides whether or not to pay for it. Get a repair without
first obtaining authorization and you likely won’t get reimbursed for it.
When CarShield responds
to customer complaints filed with the BBB, it often points out that its plan
administrator, not CarShield, makes claims decisions. The BBB maintains that
companies should be responsible for the products they sell, even if their
customers interact with a different corporate entity. CarShield is suing the
St. Louis BBB, accusing it of being biased against the company and ignoring its
efforts to respond to the bureau’s concerns.
In a response filed with
the court, the BBB denied the allegations and said that while the company made
some changes in its responses to complaints filed with the BBB, it has not
addressed the bureau’s ongoing concerns about misleading and deceptive
advertising and marketing, nor resolved an ongoing pattern of complaints.
Service contracts
marketed by automakers through their dealership franchisees generally require
that you use the dealers’ repair shops. That can be a drawback; our surveys indicate that, on average, car owners are
more satisfied with repairs done by independent shops than by dealers.
Third-party plans like those CarShield sells allow repairs at dealerships or
independent shops.
Gotcha! Many Repairs Aren’t Covered
Wade through the fine
print for these contracts, as we did for more than a dozen of them, and you’ll
find so many excluded repairs that you’ll wonder if there’s anything left on
your car that is covered. Common components
usually excluded: brake shoes and rotors; clutches; fuel injectors; exhaust
systems and catalytic converters; batteries; shocks and struts.
Did the hybrid battery
pack fail in your Toyota Prius? Not even that automaker’s Extra Care Platinum
Vehicle Service Agreement, Toyota’s most expensive plan, will cover your repair
costs. Need to replace a heat
shield, battery cable, or the transmission throw-out bearing on your Honda? How
about an engine repair due to carbon buildup or overheating? Don’t expect the
Honda Care vehicle service contract to cover any of that.
Has your car or truck
developed a water leak? Expect to get soaked for that repair. You’ll also pay your own
repair bills if a built-in navigation system loses its way or your
entertainment system fails to entertain. Most contracts also
exclude many non-mechanical parts, such as armrests, seat fabric, door handles,
weather stripping, bumpers, and body panels.
Sometimes you can
increase coverage by buying a premium plan, but even with such Cadillac
coverage we often found long lists of excluded repairs. You’ll also be on the hook
for the cost of diagnosing anything that turns out not to be covered. That can
be expensive if, for instance, determining the problem requires a shop to tear
down your engine or transmission.
Here’s another
head-scratcher: Some plans exclude parts such as valve guides, piston rings,
and transmission bands if the administrator concludes they failed due to your
vehicle’s age or mileage, even with normal operation and use. Ditto if you have
age- or mileage-related seepage from your vehicle’s seals and gaskets.
Some plans provide
multiple details about what is covered but say little about possible parts and
situations that aren’t, and telling the difference practically requires a
degree in automotive engineering. “ANY PARTS NOT LISTED ABOVE ARE NOT COVERED,”
says a sample contract supplied by American Auto Shield. Some companies list
covered and non-covered parts and conditions, a more consumer-friendly
approach.
But the contract,
listing all these exclusions, often isn’t provided until after the plan is purchased,
unless a customer asks to see it in advance or finds a sample on the company
website, as we did. That leaves many customers relying on fast-talking
salespeople, rosy brochures, and other marketing that fails to highlight all
the complicated restrictions.
Oh, Your Repair Is Actually Covered? Well, Get Ready for
More Roadblocks
Based on our review of
complaints, it’s clear that car warranty plan administrators are passionate
about denying claims. CarShield has generated
the most complaints to the BBB of any vehicle service contract company we
checked; in June 2021, it had racked up 1,850 complaints over the past three
years, 1,150 of which were in the last 12 months.
As of June 2021, over the
last three years the BBB had received more than 1,000 complaints against the
American Auto Shield, a major CarShield plan administrator that also directly
markets plans. Many complaints filed
against CarShield and other warranty companies describe similar scenarios of
denied reimbursement, sometimes even for repairs that should be covered. A big
claims-denial strategy: Plan administrators decide a problem existed or was
developing before coverage was purchased.
Similarly, plans often
deny coverage when administrators conclude drivers failed to take action to
avoid or limit damage, such as continuing to drive vehicles after hearing
squeaks or rattles, or seeing warning lights. Administrators often
also refuse to pay out when customers can’t provide receipts or other proof
that they performed all required oil changes on time or otherwise followed the
manufacturer’s maintenance recommendations. And—as if that’s not enough—upon
sign-up, plans typically impose a waiting period of 30 days or 1,000 miles,
during which no repairs are covered. Bernard McMillian of
Burgaw, N.C., encountered an extended runaround when he tried using his
CarShield coverage for the first time after two years as a customer.
At first, he said, the
plan administrator, American Auto Shield, denied his claim for an engine repair
on his 2011 Dodge Ram 1500, saying he couldn’t provide receipts for regular oil
changes. After he ran around town
to obtain them, the company demanded towing receipts to show that McMillian
didn’t continue driving the truck after the problem had surfaced. Then he had
to pay $900 to have a mechanic tear down the engine and take photographs of the
parts that needed repair. Finally, after waiting more than two months, he said,
the company agreed to pay for only part of the repair, leaving McMillian on the
hook for the cost of replacing a damaged crankshaft.
“I am left having to pay
$2,800 because of this useless product and have been without a drivable vehicle
for two months while they come up with excuse after excuse for why they won’t
honor their policies,” McMillian wrote in his 2020 complaint to the BBB. CarShield told the BBB
that American Auto Shield rejected the claim because McMillian continued to
drive the vehicle once the problem occurred, causing further damage. It said
that if he wanted to pursue the case further, he should arbitrate it with the
administrator, as his contract required. “That’s passing the
buck,” said McMillian. He said he first purchased the service contract because
CarShield commercials made it “sound like a winner to me.” Now he says his wife
has to calm him down whenever he sees a CarShield ad on TV.
We found plenty of
similar complaints against CarShield and other companies. One consumer who bought
a policy offered by Endurance Warranty Services complained to the BBB that he
waited for two months to get approval for an engine repair. At first, the
company required use of parts that were so inferior that the repair shop
refused to use them.
After that issue was
resolved, the customer said, the company told the shop that it decided not to
cover the repair because the damage apparently occurred during the 1,000-mile
waiting period. In responding to the BBB complaint, the company said it had
reached a resolution with the customer but didn’t provide details.
As of June 2021, the BBB
gave Endurance Warranty Services a “C+” rating and issued an alert for its past
advertising practices, including the use of aggressive, confusing, and
intimidating mailings, some of which, the BBB said, were sent in envelopes
resembling federal tax documents. Over the past three years, the BBB has
received more than 775 complaints about the company, 340 of which were filed in
the last 12 months.
Although far fewer
complaints are filed about plans offered by automakers, some customers
expressed frustration with them, too. After a Hyundai owner’s
Santa Fe SUV developed leaks in its air conditioner hoses, the Hyundai
Protection Plan refused to pay for the $700 repair, saying hoses were excluded
from coverage. Checking the contract, the customer confirmed that hoses were
indeed not listed among the many air conditioner parts that were eligible for
payment if they failed.
However, the customer
noted that when the dealer presented the plan, there was a checkmark next to
“Climate Control System,” indicating it was covered. “How am I supposed to
know what parts are making the A/C system and what [are] not?” the customer
asked in a complaint to the BBB. The customer added that the way the contract
was formulated and sold “requires a high level of mechanical knowledge about
[the] car air conditioning system to even detect potential traps.”
But Wait, There’s More
As if all these
aggravations aren’t enough, some plans limit the hourly amount they’ll pay to
reimburse your mechanic. For example, unless you pony up an additional premium,
the American Auto Shield contract we reviewed limits the payable labor rate to
$100 per hour. In most major metro areas, shops’ labor rates are usually higher
than that; in some regions, they average more than $140 per hour.
You also could wait
weeks just to get a repair authorized. A common complaint we saw involved long
delays while companies sent inspectors to assess whether a repair was eligible
for reimbursement or requiring second opinions from other repair shops—yet more
potential hurdles.
Deceptive and High-Pressure Marketing
As you might expect, the
annoying ads, robocalls, and other marketing tactics used by warranty sellers
don’t mention all the policy exclusions, claims denials, and other hassles. Instead, they use scare
tactics, citing problems that cost thousands of dollars to repair, then
providing a solution: Buy one of their plans to avoid disaster.
This misleading,
aggressive marketing draws lots of complaints. Consumers—including some who
don’t even own cars—are often deluged several times a week or daily with
come-ons by companies warning them that their auto warranties have expired or
soon will. The scary words “Final Notice” often get bandied about to suggest
it’s their last chance to get in on a good thing.
Those who respond often
end up being subjected to a tortuous, high-pressure sales pitch. A consumer in Allen,
Texas, told the BBB that a representative of Motor Vehicle Services, another
BBB F-rated company, “tried to scare and bully me into getting their extended
warranty services, which I declined. He made it seem as though I was a criminal
for not responding how he wanted me to.”
Some consumers
complained that companies tried to mislead them into believing that they were
associated with their carmakers or state motor vehicles departments. “The company stated the
extended warranty was an absolute requirement of the motor vehicle
[department],” said an Elkton, Md., woman who had been subjected to a sales
pitch by Safeguard Auto Direct, yet another Missouri BBB F-rated company. “I
thought I was talking to the Motor Vehicle Administration the entire phone
call.”
A Denton, Texas, man
told the BBB that within two months of buying a new Subaru, the Missouri-based
Motor Vehicle Services sent three notices warning that his warranty was about
to expire. “The whole notice or letter is geared to look like it came from
Subaru,” the consumer said. “This could easily coerce someone that didn’t know
better.”
Another frequent gripe
came from those who purchased policies and then tried to cancel—in some cases
because they had changed their minds, in others because they realized they had
fallen for a misleading, high-pressure sales pitch. Many said they found it
difficult to reach anyone and, when they did, were treated rudely or even had a
company representative hang up on them, sometimes repeatedly.
“When I called Motor
Vehicle Services to cancel the policy and get a refund, I was yelled at by
three different men in their call center, being told I was letting my pride get
in the way and that is why I did not want to continue with them,” a Sarasota,
Fla., woman wrote the BBB. “They would not let me cancel the policy no matter
how many times I asked.”
An Ann Arbor, Mich.,
customer of US Automotive Protection Services, another BBB F-rated company, had
similar issues. “The sales representative continued to berate me for around 10
to 15 minutes, demanding that I consider how many people were out of work due
to COVID and that I should not cancel,” he said.
Some said companies
continued to bill—or try to bill—their credit or debit cards after they
canceled.
Years ago, two
principals of US Fidelis, a prominent failed service-contract marketer, were
imprisoned after facing federal charges related to, among other things,
engaging in some of the very behavior that customers now accuse other companies
of employing today, including using deceptive marketing and failing to make
required refunds to those who canceled their contracts. It was just one of
several companies that sell and back vehicle warranties that have gone out of
business over the years, stranding its policyholders.
Don’t Buy These Plans
There’s no point in
paying thousands of dollars for coverage for repairs you likely won’t need and
backed by companies that often refuse to pay out if you have a problem. Keep in mind that
vehicles now come with longer manufacturers’ warranties and better reliability.
Most owners will have few problems, which makes it even less likely that a vehicle
service contract will be a good bet.
The risk of even
expensive car repairs isn’t worth insuring against. When buying one of these
plans, you’re betting that the cost of your vehicle’s repairs will exceed the
price you pay for the coverage itself. The plan’s seller is betting the
opposite—but it gets a lot of leeway in deciding when and how much to pay out
for most repairs, which means it’s making a safer bet.
So it’s not surprising
then that a survey by Consumer Reports of
auto repair service contract customers found more than half never used their
coverage; even those who did ended up paying hundreds of dollars more than they
saved on repairs.
You’ll do better by
planning on paying for repairs yourself. That’s also our advice if you’re
thinking about purchasing other kinds of service contracts, whether for your home's HVAC systems or appliances, computer devices or smartphones, or water and sewer lines. Even if your
vehicle needs a repair, you want to be in charge of decisions, not a company
focused on holding down its own costs.
One final warning: Be
careful when financing the purchase of a new or used car. The Federal Trade Commission
warns that some dealers have been caught sneaking the costs
of service contracts into loans or leases.
