The state of Missouri has unwillingly become "the Silicon Valley for auto service contract scams." At least that's how the state's attorney general sees it.
Why Missouri? State officials say a couple of businesses several years ago took a new approach to selling auto service contracts -- directly to the consumer instead of through a dealership.
The no-middleman concept did so well and made so much money, it inspired a lot of imitators, officials said. "A couple of them really took off," said state Sen. Scott Rupp, of Wentzville.
"Employees from those companies left to go off and start their own companies. They're all around the St. Louis area, I guess, because they didn't want to relocate."
Rupp is a member of a state task force that's considering stricter regulations for the sale of auto service contracts.
The Service Contract Industry Council, a trade group based in Tallahassee, Fla., said the situation in Missouri might provoke stronger regulation that could restrict the sale of service contracts everywhere. The group is lobbying Missouri to adopt tougher regulations spelled out in model legislation the service contract industry can live with, such as a requirement to license telemarketers.
Not incidentally, Rupp's constituency of Wentzville is home to US Fidelis, a service contract company that filed for Chapter 11 bankruptcy protection this year and is operating as a debtor-in-possession. US Fidelis put Missouri on the map in terms of complaints against the direct-to-consumer service contract business.
Fidelis made a huge splash in the months before it went bankrupt with a nationwide TV ad campaign that included a NASCAR sponsorship. Behind that facade of big-time success, US Fidelis was in trouble.
Its bankruptcy petition lists page after page of people demanding refunds, plus a long list of complaints and lawsuits in several states accusing Fidelis of violating telephone solicitation regulations, breach of contract and more.
Besides US Fidelis, several other Missouri companies sell auto service contracts -- some of them even less reputable, state officials said. Moreover, some of the smaller companies are difficult to identify because they've changed names, the officials said.
Late last year, Missouri Attorney General Chris Koster sued 10 automotive service contract companies.