FTC settlement shows why a car-repair contract may be a bad idea

Car repairs are a dreaded expense for most families.

When you see a TV ad – with a celebrity saying “you’ll never pay for expensive car repairs again,” it may seem like just the thing for you.

When you call, a “specialist” confirms what the ads promised and offers to sign the contract on your behalf.

However, in the case of CarShield, after you gave your O.K., the Federal Trade Commission says customers got a thick document full of many, many exceptions and exclusions.

If you tried to use your coverage, you’d discover CarShield might require you to pay to find out what caused your breakdown, might fail to cover repairs, and might decline to give you a rental car until your claim is approved.

The FTC says CarShield customers also had trouble finding a mechanic willing to accept their CarShield contracts. 

CarShield has agreed to pay $10 million to settle FTC charges that its advertisements and telemarketing for vehicle service contracts are deceptive and misleading, and that many purchasers found that many repairs were not “covered,” despite making payments of up to $120 per month. The FTC also alleges CarShield’s celebrity and consumer endorsers made false statements in its ads.

“For many consumers, a personal vehicle is one of their most valuable assets and a vital lifeline for getting to work, taking their kids to school, and obtaining medical care. Instead of delivering the ‘peace of mind’ promised by its advertisements, CarShield left many consumers with a financial headache,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection.

Worse still, CarShield used trusted personalities to deliver its empty promises, Levine said.

If you’re considering buying a vehicle service contracts, do some research, says Ari Lazarus, consumer education specialist for the FTC. Lazarus offers these tips to consider:

• Never agree to a contract you haven’t looked at. Look for exclusions that deny coverage or restrict where you can get your car serviced. Does the contract match the coverage the salesperson described to you? If not, walk away.
• You don’t need – or want – duplicate coverage. Check to see if your car is already covered by an existing warranty. You may already have the coverage you were looking to buy.
• Don’t rely on celebrity endorsements alone. It’s helpful to look at reviews from a variety of sources, such as trusted websites with impartial expert reviews. Also be on the lookout for fake reviews.