Most of us have been in this situation: We decide to buy a product, and at the checkout counter, the cashier asks if we want to purchase an extended service contract for it. Or perhaps we get a call from a telemarketer not long after the purchase, asking if we want to buy such a contract. Or perhaps we are sold an “extended warranty” on that used car so we can buy some peace of mind in case there is a mechanical breakdown. Assuming that it’s essentially the same thing as a warranty, we agree, only to find out afterwards that it’s something completely different. This realization seemingly always comes at the worst time too, when we realize the product is defective, it’s broken down or isn’t working properly, and need to look at whether the manufacturer, the seller, or the “extended warranty” provider covers the problem.
- Warranties are included in the price; Service Contracts are extra. Confusion arises from the fact that both extended service contracts and warranties ensure some form of maintenance or repair for the product for a certain period of time. One of the key distinctions is that warranties are included in the price of the item while service contracts, which may also be referred to (incorrectly) by the seller as “extended warranties,” are add-ons you have to buy separately and are often offered for after the manufacturer’s warranty expires.
- Misrepresentations at the lot: conflating service contracts and warranties. In today’s vehicle-centric world, most Americans rely on a car to get them to work and back, run errands, pick up their kids, and everything in between. It is then reasonable to expect that consumers, when buying a used car, (especially one with higher mileage), are quick to jump at the chance to buy some peace of mind when offered. However, many salesman at the dealership often conflate the protections and value of a motor vehicle service contract by calling it a “warranty,” or an “extended warranty”; the consumer then believes that he or she has a comprehensive product that will protect them if the used car breaks down when, in reality, they have a service contract filled with exclusions and limitations that typically take up several pages of very fine print. If a salesperson has sold you a service contract that was purported to be a warranty, that can create additional protections for the consumer.
- State law restrictions. In some states, a service contract provider may not even use the term “Warranty” in its name under certain conditions; otherwise, consumers may obviously be confused as to whether or not they are purchasing a warranty, an insurance policy, or something else (hint: it’s almost always the latter). In addition, some states require that any deductible amount be clearly and conspicuously disclosed to the consumer.
- “Supplemental” coverage offered on a new product. Service contracts may also purport to provide supplemental coverage that the original warranty did not cover. For example, while the original warranty may have covered only manufacturing defects in an automobile for a certain period of time (3 years/ 36,000 miles), an extended service contract may attempt cover a variety of mechanical issues that arise after the true warranty period expires or certain issues that the warranty never covered in the first place. Or, they may offer rental car and travel discounts, and roadside assistance. These “supplemental coverage” products that can often be sold with a new car are typically grossly overpriced. You should be suspicious of any new product seller that is asking you to shell out a significant amount of money for “additional or supplemental coverage” on a brand new product. If the product is so great, and comes with a warranty, why do you need this additional coverage? As you might imagine, these types of extended service contracts, in the auto industry and other retail operations, are a huge profit center.
- Communication Issues are common when a claim is denied. Even more confusing and frustrating for consumers, the service contract (the “extended warranty”) provider will often communicate through the repair shop or dealer, and refuse to provide anything in writing to back up their denial of coverage. Service contract providers and dealers often collude to create a shell game where it can be difficult, if not impossible, to get a straight answer as to why they will not repair your vehicle that you thought was supposed to cover the mechanical issues. If you are dealing with a motor vehicle extended service contract provider that refuses to state in writing its reasons for denying coverage, that is a dishonest business practice and a huge red flag that you may not be dealing with a reputable business. Check the fine print, and if it doesn’t add up, contact someone that can advise you of your rights.
- Service contracts do not “extend” the Manufacturer’s Warranty. Motor vehicle extended service contracts usually do not take effect until the manufacturer’s warranty expires, and tend to be offered by third party companies with no direct relationship to the manufacturer. Unfortunately, many of the businesses that sell “extended service contracts”, such as automobile dealers, use deceptive tactics like claiming that the contract ‘extends’ the factory warranty when it does no such thing. While not all extended service contracts are scams, many providers are questionable enough that you need to carry out some due diligence before you even consider buying one.
- Are they worth the extra money? Maybe, but usually not. For starters, many consumers that purchase a used car (or, amazingly enough, even a new car) are talked into paying thousands of dollars for an extended motor vehicle service contract. Also, some simply duplicate what is already covered by the warranty, while others either cover only a part of the item or are so loaded with conditions and stipulations that getting repairs is an enormous challenge as the service contract provider will come up with all kinds of justifications as to why they will not pay your claim (engine sludge, pre-existing condition, etc.). Before you shell out any more money for an extended service contract, consider the following:
- What exactly is covered in the contract?
- Does it provide coverage beyond the warranty?
- How long does the contract last?
- Do any of the clauses deny coverage?
- Are there reimbursement limits or deductibles?
Always compare what the manufacturer’s warranty says and what the extended service contract/warranty says it will provide you.
If you have purchased an extended service contract after being misled about exactly what it covers or even what it is, call an experienced consumer protection attorney or law firm. Bell Law, LLC will review the situation, advise you of your options and fight to ensure that any company taking advantage of you is called to account for its actions.