Phony service contract appeals hurt legitimate dealers

Jim Henry is a special correspondent for Automotive News

Unscrupulous direct-to-consumer marketers -- with their phony solicitations that tell consumers, "Your warranty is about to expire" -- hurt the extended-service-contracts market for everyone.

Better Business Bureau chapters around the country have warnings about this posted online, not to mention Consumer Reports and the Federal Trade Commission.

Since buying a used car a year ago, I've received several notices in the mail that correctly cite the car's year, make and model. Someone who didn't know better would assume the notices come from the manufacturer or maybe the state motor vehicles department.

In fact, it's a shot in the dark. The sender has no idea whether my warranty is about to expire. According to the fine print, the notices come from an extended-service contract company with a Missouri return address, which is "not affiliated with the DMV, the Dealer or manufacturer."

That disclaimer complies with the letter but not the spirit of a law Missouri passed last year to crack down on the direct marketing of extended-service contracts. Discouraging that sort of deception was a big aspect of the law.

No wonder many customers flinch when they hear the term "service contract," even at the most above-board dealership.

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