Call Kurtis: Car Service Contracts

We learned hundreds of people have complained about one Northern California company that sold these warranties. A Stockton man says he's now in a financial bind because they won't honor his warranty.

"I'd been ripped off," says Randall Schantin.

He paid Consumer Direct Warranty Services $1,850 for a vehicle product warranty in 2009. Living on a fixed income, and recovering from cancer, he thought it was a good investment to fix any problems that popped up on the used Cadillac he had just bought.

"They assured me that I had no problems for five years 150,000 miles," says Randall.

But last year, the compressor on his air conditioner went out. It's a covered part under his warranty. But he says Consumer Direct Warranty Services denied his claim after asking for a lot of paperwork, and then accused him and his repair shop of filing a fraudulent claim.

"It was obvious that they were looking for any excuse to not pay this claim," says Randall.

"They would choose a variety of decisions to deny the claims. The claim wasn't filed properly, there were typos on it, it was hand-written," says Gary Almond of the Better Business Bureau.

Almond says Consumer Direct Warranty Services has an F-rating for failing to respond to more than 200 complaints across the country.

"This is definitely a scam," says Pat McConahay, of the California Department of Insurance.

The Department wrote the company a cease and desist order last year, for operating without a license. The state also accused the company of deceptive and illegal telemarketing.

"Attorneys general and insurance commissioners throughout the nation are looking at this particular scam because it's growing so tremendously," says McConahay.

Some consumer advocates say service contracts are nothing more than big profit centers for new and used car dealers. The state says if you buy one, you want a policy that covers wear and tear. Some only cover manufacturer defects which are tough to prove the more miles you put on the vehicle. And it's always a good rule of thumb to get a used car inspected independently before buying it. Don't use service contracts as a substitute thinking it'll cover issues that pop up.

Randall has yet to repair his air conditioner even though he's got a few years left on his warranty. He thinks he wasted $1,850.

"Some things you just gotta take, you know, put a band aid on it and wait 'til it heals I guess," says Randall.

The former owners of another warranty company, US Fidelis were recently indicted in Missouri for similar problems. The company in this case, Consumer Direct Warranty Services did not get back to us. The two owners have been fined millions of dollars, but the state says it has yet to collect on any of that money. Consumers' complaints could end up in the attorney general's office.