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The most glaring offenders are companies which sell service contracts that are not backed by an A.M. Best rated insurance company.
Wilmington, Delaware (PRWEB) September 18, 2016
It’s no secret that the vehicle service contract industry has had its share of controversy over the years. In spite of widespread crackdowns on illegal and unethical business practices, it is once again rearing its ugly head. In many cases, consumers are purchasing worthless contracts and find themselves unable to go after the companies who rob them of their money. After a months-long investigation, we are releasing the findings along with a corresponding infographic of questions consumers should ask before purchasing a contract.
While many states have taken significant action to eliminate the worst offenders, new companies are cropping up utilizing deceptive and in some cases, illegal practices. Unless a prospective new customer is given specific guidance, they are most likely not aware of underhanded tactics to look out for and as a result, often find out too late the policy they purchased isn't worth the paper it’s printed on.
The most glaring offenders are companies which sell service contracts that are not backed by an A.M. Best rated insurance company. This added level of protection is necessary to ensure consumers are covered in the event the company goes out of business or its administrator is otherwise unable to pay claims. By law the names of the policy administrator as well as the AM Best insurance company backing the agreement have to be printed in the contract. In most states, if a company does not meet this insurance regulation, they are selling illegally.
Some companies give the appearance of legitimacy by providing nothing more than "sample" contracts on their website. In other cases, insured plans are presented to prospective customers up front, then are switched to an uninsured contract upon signup. Unfortunately, an uninformed consumer is likely to make such a purchase – especially since uninsured contracts are generally sold at a much lower price.
Another problem is the aggressive sales tactics used by some companies to get customers to sign up. Price drops for immediate purchases seem to be the most common tactic. While not illegal, fabricating reasons for lowering the price simply to secure sales raises questions about a company’s ethics and guiding principles. High pressure tactics often result in consumers making decisions they would not otherwise make if given the time and necessary information.
Customers are also being taken advantage of by some sales representatives who state that all repairs will be paid for - when in fact the contracts contain multiple exclusions, forcing consumers to pay for the majority of repairs themselves. It is vital that the policy holder read the contract and have a clear understanding of what is covered.
Because of a few unethical companies, reputable businesses within the industry have had to fight along with legislators to maintain the industry’s integrity. Unchecked predatory selling practices make it harder for consumers to know who to trust when searching for a way to insure themselves against expensive vehicle repair bills.
The VPA (Vehicle Protection Association) advocates regulatory compliance among their members, but does not monitor companies outside their association. Even some consumer advocacy sites are further confusing the issue. Not only are they offering full-blown "Accreditation" to a few of these companies (thereby artificially boosting the offending company’s credibility), they also refer large numbers of customers to them through their platform every month in return for a sizable fee.
Legitimate consumer protection agencies as well as local, state, and federal lawmakers must find a way to work with reputable businesses in the industry to prevent history from repeating itself. Comparison Shopping Inc. is forwarding the results of our investigation to State Attorneys General and Insurance Commissioners in an effort to raise awareness of this and other harmful business practices. When predatory companies are allowed to operate, it gives consumers a false and dangerous sense of hope for coverage that doesn’t exist and often costs them a tremendous emotional and financial price when expensive repairs are needed. Consumers need to know what a legitimate vehicle service contract consists of and how to choose the business they buy from wisely.
Infographic: Five Questions Consumers Should Ask Before Buying An Extended Service Contract
