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Car Warranty Scams: A History

Car warranty scams were big news between 2006 and 2010. In this article, we cover the history of extended car warranty scams and explain what the industry has done to protect consumers.

Consumer Protections Now In Place to Protect Against Extended Car Warranty Scams

Before we discuss the history of car warranty scams, it's important to note that after the dramatic rise in complaints concerning unethical marketers of "extended car warranties," which spiked in 2008, ethical companies within the industry banded together to ensure that the industry's integrity would not be ruined by a few bad companies that took advantage of consumers.

Our organization, the Vehicle Protection Association (VPA), was formed precisely to address this issue -- to ensure that consumers who want to protect their vehicles by buying a vehicle service contract are themselves protected and treated well. Back in 2008, our founding members were outraged that the actions of a few bad companies were tarnishing the entire industry. A proactive program was put in place to hold member companies to a high standard and deter any would-be perpetrators of what became known in the mainstream media as "extended car warranty scams" from joining the industry.

Thankfully, things are much different now than they were in 2008. The executives of those few bad companies are now in jail, and our industry has fully supported their prosecution since the beginning. More importantly, safeguards have been put in place to protect consumers. Among other things, in an effort to protect consumers, the industry adopted the VPA Standards of Conduct and implemented a comprehensive Certification Program that allows companies to signal to consumers that they have been audited and adhere to the VPA's industry standards.

Before we move on to our short history of extended car warranty scams, it's worth noting that the industry no longer refers to its offerings as "extended warranties" -- the new term is "vehicle service contract." The FTC strongly suggested to the industry that it not market its products as "extended auto warranties" or "extended car warranties" because, technically speaking, a service contract is not a warranty. Here's how the FTC explains it: Sometimes called an "extended warranty," a service contract is not a warranty as defined by federal law. A service contract may be arranged at any time and always costs extra; a warranty comes with a new car and is included in the purchase price.

A Brief History of Extended Car Warranty Scams

Here's a short chronology of the history of extended car warranty scams:

  • July 2001 - Brothers Cory and Darain Atkinson incorporate Big Time Productions, Inc., a Missouri company that will eventually evolve to become US Fidelis, the poster child for car warranty scams and the nemesis of VPA members that have always played by the rules and treated customers right.
  • February 2003 - Big Time Productions is relaunched by the Atkinson brothers as National Auto Warranty Services, Inc. In addition to operating under the name National Auto Warranty Services, the company also uses the name Dealer Services.
  • 2003 to 2008 -- National Auto Warranty Services experiences explosive growth, and the Atkinson brothers get rich. It will later come to light that this growth was fueled by deceptive and illegal business practices. Despite getting rich for their car warranty scams, the Atkinsons are accused of not paying their fair share of federal taxes. In 2006, for example, Cory Atkinson received distributions in excess of $14 million but reports no taxable income.
  • May 2008 - Jay Nixon, then-Attorney General for the State of Missouri, files a complaint against National Auto Warranty Services, Inc. for misleading sales pitches regarding vehicle extended service contracts. It is the beginning of the end for the Atkinson brothers and their car warranty scams.
  • July 2008 - Ethical industry members, outraged at the mistreatment of consumers and the growing negative press, form the Automotive Warranty & Service Contract Association (AWSCA), an industry trade association designed to "to promote regulatory transparency, education, and accountability for the marketing and servicing of extended automotive service contracts." The AWSCA will ultimately evolve to become the Vehicle Protection Association (VPA).
  • January 2009 - The Atkinson brothers change the name of their company from National Auto Warranty Services, Inc. to US Fidelis, ostensibly to avoid the negative press and legal attention that was mounting up for National Auto Warranty Services.
  • April 2009 - The Saint Louis Post Dispatch writes that US Fidelis is being scrutinized in a national investigation by "about 40 state attorneys general." [SOURCE: http://www.stltoday.com/news/warranty-firm-here-under-fire/article_558b3c2c-912c-5d00-b1c5-50783444deac.html]
  • April 2009 - The Saint Louis Better Business Bureau (BBB) issues a press release that notes that US Fidelis has generated 33,000 BBB inquiries and more than 1,100 BBB complaints and reports expressing dissatisfaction with the company or its services. [SOURCE: http://www.bbb.org/stlouis/migration/bbb-news-releases/2009/09/bbb-flooded-with-complaints-on-us-fidelis-similar-firms/]
  • July 2009 - The AWSCA changes its name to the Vehicle Protection Association (VPA). The name change eliminates the word "warranty" from the association's name, consistent with the then-emerging shift to refer to the industry's offerings as "vehicle service contracts," rather than using the misleading "extended warranty" phrasing. At this time, the VPA also aggressively expands its focus to emphasize consumer protection. [SOURCE: http://www.prweb.com/releases/2009/07/prweb2661994.htm]
  • September 2009 - The VPA and its membership voice their strong support for new regulations concerning robo-dialing. The new laws ensure that telemarketers are not allowed to make robo-calls -- prerecorded commercial telemarketing calls to consumers -- unless the consumer has given them written permission. The potential fine for violating the rule? Up to $16,000 per call.
  • September 2009 - The VPA launches a Certification-Audit Program to evaluate member companies. Among other things, the third-part evaluations cover compliance with federal and state laws, protecting consumers and honestly representing services provided.
  • August 2009 - The National Association of Attorneys General (NAAG) issues its National Top 10 Consumer Complaints List for 2008, which shows auto warranty scam calls as tied for 9th place on the Top 10 list. Thanks to the efforts of the VPA, and to the closure of bad actors like US Fidelis, extended auto warranty scams will drop off the NAAG complaint list in subsequent years. [SOURCE: http://www.ftc.gov/news-events/press-releases/2011/03/ftc-releases-list-top-consumer-complaints-2010-identity-theft]
  • November 2009 - The VPA and its membership approve a set of industry standards that all VPA members must adhere to. The Standards of Conduct are designed to help members to comply with federal and state laws and regulations as well as help to protect the best interests of the consumers. Members who violate the Standards of Conduct will lose their membership in the VPA, notes the press release issued at the time.
  • December 2009 - US Fidelis stops writing new business. Amid fraud accusations and a growing number of class-action lawsuits, Cory and Darain Atkinson are accused of bleeding the firm of more than $100 million.
  • March 2010 - US Fidelis files for reorganization in bankruptcy court.
  • August 2010 - The first VPA member company passes and receives VPA Certification, showing that they are committed to protecting consumers and providing the most fair and honest service possible. Subsequently, many other companies will undergo the rigorous certification process and achieve VPA-Certified status.
  • December 2010 - Executives from Transcontinental Warranty, a service contract seller based in Florida, plead guilty to using a fictitious company name in connection with a mail-fraud scheme. Prior to closing operations, Transcontinental unethically and illegally robo-dialed consumers with recorded messages warning them that the factory warranty on their automobiles had expired or would expire soon.
  • June 2011 - The VPA issues a press release indicating the industry's strong support for the criminal prosecution of US Fidelis. In the months to come, the VPA issues other press releases supporting the efforts of Missouri Attorney General Kostner in prosecuting the case.
  • April 2012 - Darain Atkinson pleads to federal charges of conspiracy to commit mail and wire fraud and filing a false tax return in 2006, resulting in a $4 million tax loss to the federal government.
  • September 2012 - Cory Atkinson is sentenced to four years in prison on state fraud and stealing charges and is ordered to pay $4 million restitution to the IRS on similar federal and state charges.. Judge calls the US Fidelis fraud "stunning" and "one for the record books."
  • October 2012 - Darain Atkinson is sentenced to eight years in prison, bringing the reign of the extended car warranty scam kings to an end, much to the delight to the VPA and its many members who provide vehicle service contracts to consumers in a fair, ethical and legal manner.

That wraps up our short history of the "extended car warranty scam" years. Today, as has always been the case, a vehicle service contract is a valuable tool designed to help consumers protect one of their most important assets. To ensure that you are treated well by your provider, be sure to do business only with VPA-Certified Companies. They will treat you right, and if they don't we want to know about it.

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