Auto Extended Warranties

Consumer Alert

Bill Schuette
Attorney General

The Attorney General provides Consumer Alerts to inform the public of unfair, misleading, or deceptive business practices, and to provide information and guidance on other issues of concern.  Consumer Alerts are not legal advice, legal authority, or a binding legal opinion from the Department of Attorney General.

Auto Extended Warranties
Are they worth the paper they are printed on?

Do you have a clunker that you either can't afford or can't bear to part with?  You are certainly not alone.  Despite recent government efforts to increase auto sales and fuel efficiency, many Michigan consumers are holding on to their older vehicles due to financial or emotional constraints.  Auto extended warranty companies are using the tough economic times to increase their advertising and their sales in the State of Michigan.  Many companies are selling their "extended warranties" as a cost-effective way to repair older vehicles without putting a huge dent in your pocket book.  Unfortunately, some consumers have discovered that the "extended warranty" they purchased to help defray repair costs is not really the same as a warranty that comes with a new car from a manufacturer, and also may not cover the repairs that they need. 

Auto extended warranties – they are not really warranties!

Most companies who offer what they refer to as "extended warranties" are actually selling service contracts.  According to the Federal Trade Commission (FTC), a "warranty" is a guarantee that comes from a vehicle's original manufacturer, which guaranties their product.  You do not have to pay extra for a manufacturer's warranty – it is included in the purchase price of the new (and sometimes used) vehicle.

An "extended warranty" or "service contract" may be offered by a vehicle manufacturer, or they may be offered by auto dealerships or third parties.  Extended warranties or service contracts sold or serviced by third parties are not a guarantee on the product from the original manufacturer.  Service contracts cost extra – sometimes hundreds or thousands of dollars extra – and their coverage varies.  Please note that manufacturers may also sell extended service plans, either at the time of the original vehicle purchase or for purchase at a later date.  These plans will cost extra.  For details on extended service plans offered by your vehicle's original manufacturer, ask your local dealer for more information or visit your manufacturer's website.

Here's an example that may help distinguish a warranty from a "service contract" or extended warranty.  Say you purchased a new vehicle in 2008.  This vehicle was covered by a warranty from the manufacturer for five years, or 50,000 miles.  You did not pay extra for this warranty – it was included in the overall purchase price of the vehicle.  In 2010, your car broke down, and your dealer discovered a problem with your engine.  This was covered by your manufacturer's warranty, and the dealer repaired your vehicle for free. 

You've now had your vehicle for several more years, and you've put 100,000 miles on it.  Your vehicle breaks down again, but this time, the repairs to the engine are no longer covered by your manufacturer's warranty – that expired years ago.  However, in 2014, you purchased service contract for $2,000 from someone who solicited your business over the phone.  Depending on the terms of that service contract, the repairs to the engine may or may not be covered, or may be partially covered by your service contract. 

How do I protect myself when shopping for a service contract?

  1. Never give out personal financial information to anyone that calls you!  This is good advice for any situation, but is certainly applicable if you receive a telemarketing call from someone offering to sell you a service contract because your "warranty is about to expire."  You should always refrain from providing personal information to anyone that calls you, even if they claim to be from your vehicle manufacturer.  Your vehicle warranty may be years from expiring, or in some cases, consumers have received calls from telemarketers claiming to sell warranties on vehicles that they no longer own. 

If you receive a call from someone claiming to be selling vehicle warranties (or any other product for that matter), get as much information about the caller as you can, such as the company they work for, the time and date of the call, and the caller's phone number.  If you are on the Federal Do Not Call Registry, and have been registered for more than 30 days, report this call immediately.  Do-not-call violators may be reported at http://www.donotcall.gov/

  1. Shop around before you buy.  As with any purchase, especially a purchase such as a service contract that may cost hundreds or thousands of dollars, make sure you shop around before you decide which coverage will serve your needs.  Coverage can vary widely, and you need to make sure you understand the ins and outs of your coverage before you buy.  Once you purchase a service contract, it may be very difficult to cancel your coverage or receive a full refund. 
  1. Make sure you know who will be making the decisions on what is covered.  Generally, the organization that sold you the service contract is not the same as the organization that will be deciding whether your claims are covered under your contract, and whether or how much they will cover.  The organization that actually makes the decisions about whether your claim will be covered by your contract is usually called an administrator or provider.  This is important information to know before you buy.
  1. Before you do business, check out the seller and the administrator.  A major part of your pre-purchase homework is checking out the seller and administrator of your preferred policy.  Call the Michigan Attorney General's Consumer Protection Division, at 877-765-8388, to see if there are any complaints on file against both the seller and the administrator of your service contract.  Also, contact your local Better Business Bureau or visit the BBB website and search for information on the seller and administrator.  Finally, you may also wish to run a search for the seller and administrator of your preferred service contract by using an online search engine, such as Google, Bing or others, to see if any negative reports pop up. 

Contact the Attorney General’s Office:

For general consumer questions or to file a complaint, you may reach the Attorney General's Consumer Protection Division at:

Consumer Protection Division
P.O. Box 30213
Lansing, MI 48909
517-373-1140
Fax: 517-241-3771
Toll free: 877-765-8388
www.mi.gov/ag (online complaint form)