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AG Cooper gives auto warranty sellers the boot

Release date: 11/8/2010

Agreement permanently bans defendants from doing business in NC and 10 other states

Raleigh: Attorney General Roy Cooper and 10 other state attorneys general reached an agreement with the former owners of auto warranty seller U.S. Fidelis, permanently prohibiting them from selling or pitching auto warranties in North Carolina. 
     
“Misleading consumers into buying extended warranties that rarely meet expectations is no way to do business,” Cooper said. “The nation’s largest auto warranty seller is now out of business and can no longer harm North Carolina consumers.”
 
In April, Cooper filed suit against U.S. Fidelis of Missouri, which operates under the names National Auto Warranty Services and Dealer Services, and its owners Darain and Cory Atkinson, asking the court to order a permanent injunction against their unfair practices, consumer refunds and payment of fines. Today, Wake County Superior Court Judge Paul Gessner entered consent judgments between Cooper and the Atkinsons. 
 
According to Cooper’s original complaint, U.S. Fidelis misled consumers about the benefits and coverage of service contracts, failed to provide written contracts to some consumers, failed to disclose key terms and restrictions, and failed to pay refunds when requested. The complaint also alleged that the defendants violated telemarketing laws by using pre-recorded messages and calling consumers on the Do Not Call Registry
 
U.S. Fidelis, formerly the nation's number one seller of extended car warranties, declared bankruptcy earlier this year.
 
The settlement announced today requires the Atkinsons to comply with restrictions on any future business the may operate. Specifically, they are prohibited from:
 
  • Telemarketing in any of the states that sued U.S. Fidelis, including North Carolina
  • Marketing or selling motor vehicle service contracts (unless employed at a dealership, and then only in connection with the sale of a specific vehicle).
  • Misleading consumers about the source of an offer.
  • Misrepresenting their relationship with a consumer.
  • Representing that an offer is “exclusive” or “final” unless it can be substantiated in writing.
  • Disproportionately targeting consumers 65 years of age or older.
  • Selling or providing personal information obtained from a consumer to unaffiliated companies for marketing purposes without the consumer’s consent.
 
Under the settlement, the Atkinsons owe North Carolina $4 million each in civil penalties plus investigative costs. Any recovery will come from assets surrendered as part of the U.S. Fidelis bankruptcy. The states continue to negotiate with the bankruptcy estate to benefit creditors and consumers.
 
In October 2010, a federal bankruptcy judge said he will approve a settlement that requires the Atkinsons to give $10.5 million to U.S. Fidelis and surrender millions in additional assets, including Darain Atkinson’s 40,000-square-foot mansion, a 50-foot yacht and 10 other boats, 11 autos and 14 motorcycles. The bankruptcy settlement was conditioned on the states’ agreement to settle claims with the Atkinsons.
 
Besides North Carolina, the other states that participated in the settlement are: Arkansas, Idaho, Iowa, Kansas, Ohio, Oregon, Pennsylvania, Texas, Washington and Wisconsin.
 
Cooper encouraged consumers to think carefully before purchasing any extended car warranty.
 
“My office hears frequently from consumers who aren’t happy with their extended warranties,” Cooper said. “Make sure you check out warranty offers thoroughly before you agree to pay any money.”
 
Keep the following tips in mind to avoid trouble with auto service contracts or extended warranties:
 
  • Don’t fall for urgent calls or letters warning you that your car warranty is about to expire. Be sure to review your current manufacturer’s warranty to see if it’s still active and don’t give in to pressure from salespeople.
  • Read both the manufacturer’s warranty and the extended warranty carefully. If they cover many of the same parts for the same period of time, you probably don’t need the extra warranty.  
  • Read the entire contract before you sign it or pay any money. Make sure that any promises made to you are put in writing. If the service contract doesn’t say that an item is covered, assume that isn’t. 
  • Most extended warranties have a deductible, meaning you’ll pay a fee for each repair. You may be required to pay for repairs upfront and then wait to be reimbursed.
  • Make sure you’re dealing with a reputable seller and are ready to purchase before you give them your bank account or credit card information over the telephone.
 
To check out an auto warranty company or report a problem with one, North Carolina consumers can call 1-877-5-NO-SCAM toll-free within state. Consumers can also file complaints online at www.ncdoj.gov.