New Md. law lifts veil on `secret' car warranties

Personal Finance

May 27, 2007|By Eileen Ambrose | Eileen Ambrose,Sun Columnist

Two years ago, Danuta Wilson and her family were driving on a busy road when her car stalled.

The Volvo was towed to a dealer, which concluded that the problem stemmed from the electronic throttle module that controls the flow of fuel and air to the engine. "I was very surprised. It's supposed to last for the life of the car," says Wilson, who administers a scholarship program at Georgetown University. Her five-year-old Volvo V70 Cross Country had 42,000 miles on it.

The dealer refused to cover the repairs, suggesting Wilson put the wrong type of gas in the vehicle or she misused it in some other way. Volvo wouldn't pay, either. Because her warranty had recently expired, Wilson paid the $931 repair bill.

Through research, she discovered that many other consumers shared similar experiences. She says she also found out that Volvo years earlier issued a so-called "secret warranty," where the manufacturer authorized free repairs for some customers but not for others. The Bethesda resident contacted regulators and her state delegate. Thanks in large part to her persistence, Marylanders who own or lease cars will be notified beginning in October when a manufacturer authorizes free repairs for defects. Maryland will become the fifth state to take the "secret" out of secret warranties.

Secret warranties have been around for decades. Manufacturers prefer to call them "policy adjustments" or "goodwill service," says Jack Gillis, author of The Car Book. Manufacturers will notify dealers about a problem with, say, a faulty design, and authorize the dealer to fix the problem for free, though the consumer's warranty has expired. Free repairs usually go to good customers or the loudest complainers, Gillis says.

"Not all of us hear about these free fixes, so that's why we call them secret warranties," he says.

As a result, consumers will pay for repairs out-of-pocket, often blaming their bad luck on developing car troubles after a warranty expired.

Clarence Ditlow, executive director of Center for Auto Safety, says it's difficult to find out about secret warranties, but his group estimates that at any one time there are at least 500 in existence. Over the years, he says, consumers have spent billions of dollars in repairs that should have been picked up by the manufacturer.

"The underlying theme is the manufacturer has made a mistake," he says. "They will notify dealers and their regional offices and service reps but don't notify the consumer because they want the consumer to pay for their mistake."

Stephen Hannan, administrator of Howard County's office of consumer affairs, says he gets a few complaints each year from consumers saying they don't get the same treatment as others.

"The complaint usually is, `I took my car in. This was wrong with it. They wouldn't cover it under warranty. My neighbors got it covered when they took their car in,' " Hannan says. "These in fact are warranties that in many cases were to make someone unhappy, happy. If you didn't become unhappy when they handed you the bill, you didn't necessarily get it."

Maryland's new law is expected to level the playing field.

Among the protections under the law, a manufacturer must notify Marylanders of any adjustment program where the car maker pays all or part of the cost of repairs beyond the warranty. Or if they ask, consumers can get service bulletins or other documents from the manufacturer related to adjustment programs.

Manufacturers will have to mail a notice to consumers about an adjustment program within 90 days of creating it. And automakers will need to tell people at the time of purchase that adjustment programs are sometimes offered. Dealers, too, must be notified of such programs.

Don't worry, manufacturers should be able to find you because they are required to keep information on owners for safety recalls, says Evan Johnson, an administrator with Montgomery County's Office of Consumer Protection. Automakers also track owners for marketing purposes, he says.

Also under the new law, consumers who paid for repairs before knowing about an adjustment program will be able to seek reimbursement from the automaker within two years of the payment or within one year after the manufacturer sent out the notice on the program. The law is not retroactive, so only repairs as of October will be reimbursed.

Dealers and others that repair vehicles also will have to add a statement on invoices. The statement will tell consumers that manufacturers send bulletins about defects to the National Highway Traffic Safety Administration and that these bulletins are available from the government or the manufacturer.

(Consumers can now find summaries of bulletins on the National Highway Traffic Safety Administration's Web site. These summaries deal with safety issues, so not necessarily all bulletins will appear. Also, be aware that not all defects in bulletins are covered by secret warranties, although they are likely candidates for such programs, Johnson says.)

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