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Nixon considers bill to regulate auto service contracts

Friday, May 20, 2011 | 11:49 a.m. CDT

ST. LOUIS — Missouri, home to companies accused of defrauding tens of thousands of people who bought auto service contracts, would impose some of the nation's toughest restrictions on those firms under a bill Gov. Jay Nixon is reviewing.

Nixon's office told the St. Louis Post-Dispatch that he will review the bill over the next few weeks before deciding whether to sign it. The measure was approved by the Legislature last week.

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The bill seeks to weed out fraud in an industry that recently drew national attention after some St. Louis-area firms were accused of defrauding customers.

Among other things, the bill would require that sellers of the contracts be licensed by state insurance regulators.

The bill was introduced by Sen. Scott Rupp, R-Wentzville. Wentzville was the home of US Fidelis, one of the companies accused of lying to consumers about what repairs would be covered and failing to pay prorated refunds to consumers who canceled their coverage.

Once the nation's leading seller of extended auto-service contracts, US Fidelis collapsed in 2009 amid allegations of consumer fraud. The company filed for bankruptcy in March 2010.

In 2009, Missouri Attorney General Chris Koster dubbed the St. Louis area "the Silicon Valley for auto service contract scams."

Under Rupp's bill, the state's Department of Insurance, Financial Institutions and Professional Registration could revoke any seller's license if it believes consumers are at risk. Some financial institutions, automakers and car dealers already regulated by the state would be able to sell service contracts without getting a license.

The legislation also would require service contract sellers to send written contracts to consumers within 45 days of an over-the-phone purchase; give full refunds to consumers who cancel within 20 business days after the written contract has been mailed to them; give prorated refunds to those who cancel later; and stop using deceptive practices, such as telling consumers their vehicles' factory warranties are expiring, or claiming the service contract "extends" a car's factory warranty.

The Vehicle Protection Association's executive director, Larry Hecker, wouldn't say whether the group objected to Rupp's bill, but he's said in the past that the industry should police itself.

Doug Ommen, Koster's chief counsel for consumer protection, said some service contract companies supported tighter restrictions.

"We've heard from a lot of people in the industry, and this is what a lot of them want," Ommen said. "They realize this industry has been the wild, wild West and it needs to be tamed."


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