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The Hidden Cost of Third Party Uninsured Warranties
You have just purchased/leased a new or used vehicle. Should you purchase an extended mechanical warranty? When an individual purchases a new vehicle they usually intend to keep their vehicle beyond the time frame covered by the manufacturer?s warranty. This would also apply to the purchase of a pre-owned vehicle. Individuals should seriously consider purchasing an extended mechanical warranty to avoid potential costly repairs.
If you have leased your vehicle, consider an extended warranty if your lease term or expected distance traveled exceeds your manufacturers ?comprehensive? coverage. New car dealerships offer manufacturer backed, comprehensive extended warranties on both new and pre-owned vehicles. These extended warranties are backed by the vehicle manufacturer. Whether you purchase a third party or a manufacturer extended warranty, it is imperative that you follow the required vehicle maintenance schedule in order to keep your warranty valid.
However, as with any purchase, the consumer should research and understand the warranty they are receiving. In today?s marketplace, some third party warranty companies offer low cost warranties with exaggerated claims such as bumper-to-bumper or lifetime coverage. In many cases the warranty does not protect the consumer as one might expect.
Recently, the Ontario Motor Vehicle Industry Council (OMVIC) which is responsible for regulating the automobile retail industry formed a committee to review third party extended warranties to ensure consumers were protected. The New-Car Dealers of greater Toronto have a representative on this committee.
Some warranties have costs that the consumer has to pay before the claim is even processed. Many of the contracts are not written in plain language and provide insufficient disclosures surrounding fees, administrative costs, deductibles, maximum limits and exclusions.
In other instances the consumer discovered there were certain limitations on the number of claims they could make over the life of the warranty.
One concern of the committee was to ensure that if a third party Warranty Company went out of business or became insolvent the consumer would still be covered or be compensated.
In its review, the committee also discovered that, in other jurisdictions Governments had taken precautions to protect consumers from fraud and insolvency of warranty companies by mandating that only insured warranties could be sold and required warranty companies to provide performance bonds.
In the next year, the committee will make recommendations to the OMVIC Board of Directors. One recommendation is that OMVIC?s Standards of Business Practice are amended to include all Dealers who sell an extended third party warranty be deemed ?agents? of the supplier of the warranty. This action will ensure the warranty plan is activated even if the premiums are not forwarded by the Dealer to the warranty company.
The committee will also recommend that contracts include full disclosure of the warranty terms. This would include the time period covered, any exclusions, the effective date of the warranty coverage, along with all fees and costs that are to be paid by the consumer at the time of purchase or during the life of the warranty. The consumer should also clearly understand their maintenance obligations and maximum claim limits.
A proposed change in advertising standards would require the company indicate if the third party warranty was insured or uninsured.
The Motor Vehicle Dealer Act currently provides consumers? protection with respect to Dealers that sell their own uninsured warranties or service plans. Under these regulations a dealer that chooses to sell an uninsured warranty or service plan must indicate the following on the sales contract: The rights of the purchaser and the steps to be taken in the event the Dealer goes out of business or fails to honour the warranty. The provisions that are made for the mediation, adjustment and settlement of disputes between the purchaser and the dealer. The warranty or plan only covers claims incurred prior to the Dealer going out of business and any subsequent claims must be made to the Compensation Fund, such claims being limited to the return of non-earned premiums only.
In 1993 The Toronto Automobile Dealers Association in its commitment to consumer protection, introduced a sales contract that indicates the name of the warranty company, a description of the product, the warranty period and the commencement date of the warranty.
As an Association, we remind consumers to read all contracts to ensure that the warranty provides the coverage that one expects.
In next week?s column, I?ll describe what to look for, when to consider, and what to expect when purchasing an extended warranty.
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