In December Fidelis said it had stopped selling vehicle service plans and issuing refunds for canceled contracts. The St. Louis marketer promoted its plans on national TV and through telemarketing campaigns.
Fidelis did not sell vehicle service contracts directly to dealerships, and no dealerships were affected by the bankruptcy filing.
A notice on the company's Web site said the service contracts remain valid and are backed by third-party insurance and administration companies with funds to cover customer claims.
Some providers of competing plans fear the bankruptcy of the well-known provider will taint any business selling vehicle service contracts, including car dealerships.
"This gives the entire industry a black eye," says Larry Dorfman, CEO of Automobile Protection Corp., a provider that offers its service contracts only through dealers.
The Missouri Attorney General's Office charged that Fidelis "used misleading, deceptive and unfair sales tactics and refund practices as a regular part of its business." In a document, the attorney general urged the U.S. Bankruptcy Court in St. Louis to appoint a trustee over the company.
Fidelis' owners, brothers Darain and Cory Atkinson, borrowed nearly $49 million from the company to spend on themselves and their families, court records show.
Fidelis used about a dozen administrators that managed the program by insuring and processing claims. Some administrators also provide service contracts through car dealers. Administrators include Warrantech Corp., of Bedford, Texas, and Administration Plus USA Inc., of Dublin, Ohio. Both companies said their plans are properly insured.
Richard Baldini, president of Administration Plus, said his company did little business with Fidelis. "We controlled their profit and set aside reserves to handle potential refunds," he said.
Warrantech CFO Richard Gavino said his company represented less than 20 percent of Fidelis' business. Warrantech's vehicle service contracts are insured by A-rated carriers capable of paying repair claims under the program, and his company has set aside money to make refunds for canceled plans. Gavino said: "It's not an issue for Warrantech or the consumers who bought the contracts."