The settlement with the former owners of U.S. Fidelis, also known as National Auto Warranty Services and Dealer Services, requires the owners to turn over 90 percent of their assets, including a mansion, a 50-foot yacht and more.
Oregon Attorney General John Kroger today announced a multi-state settlement that ensures the former owners of U.S. Fidelis will never again sell auto service contracts or telemarket in 11 states.
"This company's business plan was based on ripping off consumers," said Attorney General Kroger.
The business practices of U.S. Fidelis, which operated as National Auto Warranty Services and Dealer Services, have been widely reported. U.S. Fidelis was the nation's No. 1 motor vehicle service contract seller and a primary NASCAR sponsor before its collapse. State attorneys general began investigating U.S. Fidelis in 2008. The company declared bankruptcy on March 1, 2010.
More than 400,000 consumers nationwide paid the Wentzville, Mo., company thousands of dollars for overpriced service contracts that were allegedly sold through illegal and deceptive means. Its founders, Missouri brothers Darain and Cory Atkinson, are accused of plundering $101 million in corporate assets for their own personal gain.
Attorney General Kroger and a group of other attorneys general sued the defunct company and the Atkinsons earlier this year. The states accused the defendants of a variety of illegal actions stemming from deceptive junk mail, illegal telemarketing robocalls and misleading TV ads. They alleged the company's solicitations misled consumers into believing their auto warranties had expired or would soon expire. They also confused customers into thinking that they were being contacted by a manufacturer or other entity affiliated with their original vehicle warranty.
Many consumers who were led to believe they were purchasing a warranty providing "bumper to bumper" coverage of all major repairs later found the contracts full of exemptions.
The states also accused the defendants of violating Do-Not-Call laws and using technology to bypass caller ID and mask the origin of sales calls; refusing to allow consumers an opportunity to review the complete written service contracts; denying valid refund requests; improperly obtaining consumers' personal information; and violating state licensing and registration laws.
As part of the settlement, the Atkinsons agreed to surrender at least 90 percent of their assets pursuant to a related bankruptcy agreement, including assets from 20 related corporations. The settlement requires the Atkinsons to give $10.5 million to U.S. Fidelis and surrender millions in additional assets, including Darain's 40,000-square-foot mansion, a 50-foot yacht and 10 other boats, 11 autos and 14 motorcycles.
The settlement also requires the Atkinsons to comply with a lengthy list of restrictions on future business and marketing practices. Specifically, they are prohibited from:
Telemarketing in any of the participating states.
Marketing or selling motor vehicle service contracts (unless employed at a dealership, and then only in connection with the sale of a specific vehicle).
Misleading consumers about the source of an offer.
Misrepresenting their relationship with a consumer.
Representing that an offer is "exclusive" or "final" unless it can be substantiated in writing.
Disproportionately targeting consumers 65 or older.
Selling or providing personal information obtained from a consumer to unaffiliated companies for marketing purposes without the consumer's consent.
Additionally, the settlement requires the defendants to provide disclosures in solicitations, honor a consumer's request to be removed from a mailing list and comply with laws and regulations related to fair business practices, credit offers, privacy rights and licensing and registration requirements.
The Atkinsons are required to pay civil penalties and reimburse the State's costs related to the investigation and litigation. With the surrender of their assets, any recovery will come from the U.S. Fidelis bankruptcy. The states continue to negotiate with the bankruptcy estate to benefit creditors and consumers.
In addition to Oregon, the settlement includes Arkansas, Idaho, Iowa, Kansas, North Carolina, Ohio, Pennsylvania, Texas, Washington and Wisconsin.
Federal investigators continue probing whether U.S. Fidelis committed any criminal wrongdoing.
Under federal law, a "factory warranty" or "extended warranty" can only be offered and sold by an automobile manufacturer. Other plans are called service contracts.
The Better Business Bureau has received more than 1,400 complaints about U.S. Fidelis and its affiliates.
Assistant Attorney General Eva Novick handled the case for the Oregon Department of Justice.
Attorney General John Kroger leads the Oregon Department of Justice. The Department's mission is to fight crime and fraud, protect the environment, improve child welfare, promote a positive business climate, and defend the rights of all Oregonians.