As states investigate extended auto warranty industry, consumers launch class-action suit against Wentzville firm

St. Louis Post-Dispatch  |  April 9, 2009

Matthew Hathaway

Apr. 9, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- A Wentzville company accused of duping consumers into buying auto-service contracts is facing mounting pressure to change its marketing practices, which consumer advocates have dismissed as deceptive and, possibly, illegal.

U.S. Fidelis Inc. has drawn fire from the Better Business Bureau and others, who say the company seldom pays out for claims because of exemptions written into the fine print of the service contracts. Additionally, the company is being scrutinized in a national investigation of the extended-warranty industry, much of it based in suburban St. Louis, that was launched by about 40 state attorneys general.

U.S. Fidelis President Darain Atkinson, reached on his cell phone, declined to comment for this story.

The company, which advertises its extended service contracts on late-night TV and via direct mail, has a history of consumer complaints.

In the last three years, more than 1,100 people have filed complaints about U.S. Fidelis, or its affiliated companies, with the Better Business Bureau. The watchdog group gives the company an "F" because of the volume of complaints and what it describes as a pattern of misleading ads.

"This company continuously has produced ads which have the capacity to mislead the public," said Michelle Corey, president and CEO of the BBB in St. Louis.

U.S. Fidelis and similar companies have been peppered with lawsuits from other state attorneys general and featured unfavorably in consumer advocacy websites such as RipoffReport.com. And just last week, the company was named in a class-action lawsuit in St. Charles County alleging violations of Missouri consumer-protection law.

That suit, filed April 1 by St. Louis lawyers Thomas and Matthew Casey, contends that U.S. Fidelis lied to consumers about coverage, pressured them to sign up for plans under "a false sense of urgency," and failed to provide the full terms of service plans, even when customers requested the fine-print details.

The suit also alleges that sales representatives from U.S. Fidelis told consumers that they qualified for special programs -- such as first-time buyer, military, student or hardship discounts -- when no such distinctions existed. Consumers were told they must buy immediately to take advantage of those discounts, the lawsuit alleges.

Often, consumers purchase extended service contracts after their manufacturer's warranties expire. There's a down payment for the service, and a monthly fee that often is made automatically from a customer's credit card or bank account. The problem, according to consumer groups, is that vehicle owners assume the service contracts offer no-questions-asked protection that's similar to the warranties of some carmakers. Consumers Union, the publisher of Consumer Reports, discourages automobile owners from buying them.

The lawsuit filed in St. Charles County comes at a difficult time for U.S. Fidelis and other brokers of such extended warranties.

Last year, then-Attorney General Jay Nixon filed suit against the company, then known as National Auto Warranty Services Inc., for allegedly violating federal and state telemarketing laws, including the No Call list, and luring customers with deceptive marketing. Similar suits were filed against six other extended-warranty companies -- including five that, like U.S. Fidelis, were based in the St. Louis area -- in a legal campaign authorities dubbed "Operation Taken for a Ride."

More recently, attorneys general from across the nation have launched a coordinated investigation into the industry. Those states are now negotiating a settlement with U.S. Fidelis, according to a spokeswoman for Missouri Attorney General Chris Koster.

Mary Lobdell, an assistant attorney general in Washington state and a coordinator of the multistate investigation, acknowledged the investigation into the extended-warranty industry, but she said she could not confirm or deny that U.S. Fidelis is one of the targets.

Plaintiffs in the St. Charles-based class action are David O. Rucker, of Grand Rivers, Ky.; Josh A. Cox, of High Ridge; Edward C. Hanson, of Brookhaven, N.Y.; and Ronald J. Rutkiewicz, of Interlachen, Fla.

U.S. Fidelis is based at the old Belz Factory Outlet Center near the intersection of Interstate 70 and Highway 40, where it employs more than 600 people.

Atkinson, the company's president, was in the news recently when he opened a Christian nightclub on the grounds of the old mall. The nightclub was open only a few weeks. A church will be taking over the space.

Newstex ID: KRTB-0187-34025127