(Click here to read the earlier post about extended warranties.)

From the St. Louis Post-Dispatch:

US Fidelis suspends sales of service contracts


by Matthew Hathaway
ST. LOUIS POST-DISPATCH
Wednesday, Dec. 30 2009
WENTZVILLE — After laying off hundreds of workers at its massive call center
this month, US Fidelis announced Tuesday that it has stopped selling extended
auto-service contracts.

Meanwhile, Missouri Attorney General Chris Koster is seeking to amend a lawsuit
against US Fidelis to include additional allegations of deceptive practices
that, according to a motion, were directed by the company’s owners, brothers
Darain and Cory Atkinson.

Company spokesman Ken Fields would not answer a reporter’s questions about the
viability of the company, and he denied a request to interview US Fidelis Chief
Executive Chris Riley.

As recently as April, US Fidelis had boasted about 1,100 employees and claimed
to be the nation’s top seller of extended auto-service contracts, which often
are marketed as “extended warranties.”

The firm was an industry leader, and in the St. Louis area it spawned dozens of
rival companies started by or staffed with former US Fidelis employees.

As with US Fidelis, several of those companies are being sued by Koster for
misleading consumers. On Tuesday, Koster’s office sued four more area
companies: St. Louis-based Carhill Enterprises, which does business as Consumer
Protection Services; St. Charles-based CarSafe, which does business as Dealer
Preferred Warranties; St. Louis-based Dealership Services; and Maryland
Heights-based Dealership Warranties.

Fields, of the Fleishman-Hillard public relations firm, did provide a company
statement attributed to Riley. In it, he said the company had suspended sales
and was focusing on reducing the number of customers who cancel their coverage.

The company has blamed a tide of recent cancellations on the economy as well as
what it considers to be unfair criticism levied against it by consumer groups
and the news media.

“As a result, hundreds of good, hard-working people have lost their jobs and
the St. Louis area has lost hundreds of millions of dollars in annual economic
impact that our company provided,” says the statement, which credited the
company with delivering “more than $280 million in annual economic impact in
Missouri.”

Although sales have been suspended, the company says it still employs more than
200 workers — including customer-service and account-resolution agents who work
with existing customers, which the company has said number more than 300,000.

Keeping most of those customers from canceling is important, but it may not be
enough to keep the company viable, said Philip Jehle, the former chief
financial officer and vice president of operations at US Fidelis. To survive,
it needs new customers.

“If they’re not selling, there’s no revenue,” Jehle said.

US Fidelis customers pay in monthly installments, but that money doesn’t go to
US Fidelis, Jehle said. That’s because the firm gets its money on the front end
— in full and in advance — from companies that finance customers’ purchases.
When those customers cancel, US Fidelis must pay the finance companies back.

Cancellations aren’t the company’s only concern.

On March 6, 2008, Missouri’s then-Attorney General Jay Nixon sued the company
for violating telemarketing laws and for mailing consumers deceptive sales
letters. Litigation of that lawsuit stopped when Missouri joined a multi-state
investigation of the firm.

That investigation now includes at least 43 state attorneys general.

Last week, Koster’s office breathed new life into the state lawsuit by seeking
to amend the original complaint. The amendment would include allegations of 40
current and past business practices that violated consumer-protection and
telemarketing laws.

Koster’s office now accuses US Fidelis of deceiving consumers through the sale
of controversial and unregulated coverage plans that require consumers to
purchase an auto additive. That practice, which is common among
service-contract brokers based in the St. Louis area, was first made public in
August when the Post-Dispatch published a story about the prevalence of what
Koster has since dubbed “the additive scam.”

Additive-based warranties, unlike extended service contracts, do not need to be
refundable or underwritten by insurance companies. The additive-based plans
cover fewer repairs, it’s easier for companies to deny claims and consumers
often are unaware that the product they bought wasn’t, in fact, a service
contract.

One Response to “Extended Warranties update!”

  1. Mitch says:

    Its such a shame when a company has to go out of business…the human impact is never considered….executives of too many companies do not think of taking care of their employees, their staffs, who have given so much to the company for much less than they get when they make risky decisions. I do hope the employees who lost thier jobs find new, and better jobs…and then maybe there can be a silver lining in all this terrible mess for the only deserving ones in all this mess. Not sure the state AG investigates good companies…no matter what the PR people try to spin.

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