NEWS RELEASE
Office of Maryland Attorney General J. Joseph Curran, Jr.


November 2, 2001 Media Inquiries: Sean Caine 410-576-6357

SERVICE CONTRACTS NOT ALWAYS A GOOD DEAL, ATTORNEY GENERAL ADVISES

When you buy an appliance, computer or car, you may be asked if you want to buy a service contract, also known as an extended warranty. The salesperson may urge you to buy one for the peace of mind of knowing that future repairs will be covered. In this month's issue of his Consumer's Edge newsletter, Attorney J. Joseph Curran, Jr. advises consumers to check out service contracts carefully before buying.

"Salespeople push service contracts because they can be very profitable for retailers, but they can be a waste of money, either because you won't need to use them or because you can't get the service contract to pay for repairs you thought were covered," said Curran.

Following are some things consumers should consider before buying a service contract:

  • How does your regular warranty coverage compare with the service contract? Make sure any extended warranty coverage begins when your regular warranty ends, so you're not wasting money on duplicate coverage.
  • Exactly what is included–and not included–in the service contract? If specific repairs or components are not mentioned, assume they're not covered. Find out whether repairs resulting from misuse, wear and tear, or unsatisfactory maintenance are covered, and what these terms mean. Don't rely on what the salesperson says. Ask to see the actual service contract and read it.
  • Is the item likely to need repairs? In its October 2001 issue, Consumer Reports magazine reported that only a small percentage of many common appliances and home electronics items needed repairs within the first three years. It also said that in many cases the cost of a service contract was more than the cost of the repairs that were needed. Buying merchandise with a good performance record is your best insurance against getting a "lemon."
  • What other expenses must you pay when the item needs servicing? Does the service contract require you to pay a charge, such as a deductible, each time service is needed? Who pays shipping costs?
  • How and where can you get service? Does the service contract include in-home service? Are you required to bring the item to a specific dealer for repair? If you relocate to another area, will service be readily available?
  • Who backs the service contract? Is it the business from which you are buying the item itself, or another company? When some consumers have tried to use their service contracts, they've found that the third-party company that issued the contract has gone out of business and cannot repay claims. Ask if there is any insurance underwriting the policy, or whether the store or dealer you are buying from would honor the policy if the other company went out of business.
  • Is an extended warranty available through your credit card company? Some credit card companies offer extended warranties if you buy a product with their card. Check with your card issuer for the terms and conditions.

Curran offered a special caution for consumers considering buying a service contract on a used car: Many service contracts cover only mechanical breakdown–or defect–of parts, not corrosion or wear and tear. Yet many, if not most, repairs on older cars are due to corrosion or wear and tear rather than a manufacturing defect.

In summary, don't buy a service contract on the spur of the moment. Only buy one if you have found out exactly what is and isn't covered under the contract, and how reliable the company is that backs the contract.

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