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The Facts Regarding Vehicle Service Contracts and "Extended Car Warranties"

Vehicle Protection Association (VPA) sets the record straight on common myths and misperceptions concerning the vehicle service contracts industry.

Selbyville, DE, June 30, 2011 -- The Vehicle Protection Association (VPA), an association formed to promote regulatory transparency, education and accountability for marketing and servicing automotive service contracts, is concerned about inaccurate reporting by the media relating to vehicle service contracts, which are occasionally incorrectly referred to as "extended car warranty" contracts.

Six common myths and reporting mistakes are addressed below:

Myth #1: US Fidelis's Behavior Is Representative of the Entire Vehicle Services Contracts Industry

Powered by the recent arrest of the founders of now-defunct US Fidelis, a new wave of reporting is underway regarding the vehicle service contracts industry. Some reports suggest that the entire industry operated and continues to operate in the same way that US Fidelis did. This is simply not true. US Fidelis was the exception, not the rule. Their actions, which the VPA has strongly condemned, date back to 2005. Since then, the industry has been completely overhauled. Many legitimate companies in the industry have always played by the rules and treated companies right, even dating back prior to the entry of US Fidelis into the market. Many other firms have more recently invested heavily in new compliance efforts to ensure that mistakes are not made. It is improper to judge an entire industry based on the actions of a few bad actors.

Myth #2: The Industry Pays Lip Service to Reform While the Same Old Practices Continue

This is simply not true. The industry has invested heavily in reform measures, including creating industry Standards of Conduct and a rigorous Certification Program. Many companies that finance vehicle service contracts now only work with VPA certified companies, making it difficult for non-compliant firms to join the industry. Outside of the VPA membership, there may still be some bad actors -- but VPA members treat consumers right. If they don't, their membership will be revoked.

As evidence of progress, the vehicle service contracts industry was once the largest generator of complaints to the Missouri attorney general's office. In 2010, it was the tenth on the list, with the large decrease in complaints due principally to industry efforts to ensure compliance and to protect consumers.

Myth #3: Vehicle Service Contracts Are a Ripoff -- There's No Reason to Buy Them

This is not the case. Consumers who buy vehicle service contracts protect their investment in their vehicle. In an economy where hard working people are dependent on their cars for their livelihood to get back and forth to work, an auto service protection plan provides the peace of mind to help them get back on the road again.

Myth #4: Vehicle Service Contracts Are Not a Ripoff -- But Consumers Should Always Buy Them From an Auto Dealer

This is a common misstatement in the media. The reality is that the vehicle service contracts sold by dealers and those sold by third-party companies are often identical or nearly identical. A number of companies create these products and they are sold through two channels: the dealer channel and the third-party channel. Non-dealer firms are able to sell vehicle service contracts to keep the market competitive. Indeed, without third-party companies, dealers would have an effective monopoly on vehicle service contracts, which would drive prices up or lead to anticompetitive terms, such as requiring that repairs be made at the dealership, rather than at a local auto repair business.

Myth #5: When a Vehicle Service Contracts Company Goes Out of Business, Consumers Are Left Holding the Bag

This is not the case. The industry is structured in a way that protects consumers. When a vehicle service contract marketing company, such as US Fidelis, goes under, legacy contracts are still honored by the industry's administration companies, provided that the original contract was created by a legitimate administrator. (The vast majority of US Fidelis's contracts were underwritten by solid administrators with a long track record of doing right by consumers. Some, however, were created by a proprietary administration business that was set up by US Fidelis). It is a mistake to report that prior customers of US Fidelis can no longer file and get paid for a claim on their contracts.

Myth #6: After Buying a Vehicle Service Contract, It Is Impossible to Cancel the Contract and Get a Refund

Again, this is not true. The VPA's Standards of Conduct mandate a "30 day free look period" All customers are allowed to review their contracts and get a full refund after reviewing their contract within the 30 day time period from the date of sale.

In addition, many vehicle service contracts can be cancelled after the free look period is over. Prior to selling a vehicle service contract to a consumer, VPA members must let the buyer know whether a "contract is refundable and if so, the time frame within which the consumer can cancel for a full refund." Moreover, as outlined in the VPA's Standards of Conduct, VPA Members must "be aware of and comply with all applicable state laws governing refunds and/or applicable three (3) day right to cancel laws" and must "maintain adequate cash reserves to issue timely refunds to all consumers that are entitled to a refund pursuant to the Member's cancellation policy and/or applicable state and federal laws."

About the Vehicle Protection Association

The Vehicle Protection Association (VPA) is a not-for-profit trade association representing firms that are active in the automotive service contract industry. Members include service contract payment provider companies, marketers, administrators, insurers, and software providers. VPA currently has more than 50 member companies. The organization is committed to ensuring regulatory compliance among members, educating consumers on their rights, protecting consumers, and otherwise ensuring the integrity of the automotive service contract industry. For more information, visit www.vpainfo.org.

For more information:

Chris Carenza, Executive Director
Vehicle Protection Association (VPA)
Phone: (314) 667-5654
info@vpainfo.org

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