SYLVIE DOUGLIS, BYLINE: This is PLANET MONEY from NPR.
(SOUNDBITE OF COIN SPINNING)
SUSIE: Hi. This is Susie (ph) calling with the vehicle service department.
AMANDA ARONCZYK, HOST:
Hey, Susie. What's up?
SUSIE: We are calling about your vehicle's manufacturer's warranty.
ARONCZYK: My what? My vehicle's what?
SUSIE: We sent you several notices in the mail that you have yet to extend your warranty past the factory cutoff.
ARONCZYK: Oh, God. I don't remember you sending me anything.
SUSIE: And this is a courtesy call to renew your warranty before we close the file.
ARONCZYK: Is that bad? That sounds bad.
OK, like everyone else, I usually just ignore these messages. But the other day, and I don't know if it's pandemic brain fog or what, but I had to really think about Susie's message. Like, I have to renew my insurance, my license, my registration. Did I forget to renew my warranty?
(SOUNDBITE OF CALVIN K. SAMUEL AND JOSH KESSLER'S "STAND-UP")
ARONCZYK: Hello, and welcome to PLANET MONEY. I'm Amanda Aronczyk.
MARY CHILDS, HOST:
And I'm Mary Childs, here to talk to you about your car's extended warranty.
ARONCZYK: Because you are not the only one getting these calls. These calls are relentless. The FCC, the Federal Communications Commission, says that for the past year, this is the No. 1 robocall - No. 1 by a huge and growing margin.
CHILDS: Today on the show, the rise and fall of the biggest, baddest auto warranty company, how the industry came crawling back and how those calls became a frustratingly familiar part of our daily lives.
ARONCZYK: By the way, I tried to call Susie back, but her number seems to have changed.
(SOUNDBITE OF CALVIN K. SAMUEL AND JOSH KESSLER'S "STAND-UP")
ARONCZYK: We're going to start the story of extended auto warranties at an auction that took place in the suburbs of St. Louis, Mo., back in 2011.
(SOUNDBITE OF AUCTION)
UNIDENTIFIED AUCTIONEER: Hundred seven thousand dollars (ph).
ARONCZYK: The hall was packed, filled with guys in baseball caps. There are tons of bids being made.
(SOUNDBITE OF AUCTION)
UNIDENTIFIED AUCTIONEER: Hundred fifty thousand dollars, $150,000.
CHILDS: This auction was the liquidation of the first great extended auto warranty empire, the office furniture and jewelry and cars amassed by this one company in its nearly 10 years of business.
DAVE WARFIELD: We sold Mercedes, BMWs, all-terrain vehicles. Everything was tricked out to the nines.
CHILDS: That's bankruptcy lawyer Dave Warfield. He helped organize this whole thing.
WARFIELD: It was the biggest auction, most well-attended auction that the auction company that conducted it ever had.
CHILDS: This is part of Dave's job, liquidating assets from a bankrupt company to try to pay back its creditors and disgruntled customers. This empire of BMWs and ATVs - up until this moment, it all belonged to a pair of brothers, Darain and Cory Atkinson.
ARONCZYK: And the rise and then eventual liquidation of the Atkinson brothers' empire explains a lot about these calls that you've been getting and how this industry skirts the line between scam and not scam.
So back in the 1980s, before the brothers got into warranties, Darain Atkinson was already a bit of a scammer. He'd done some counterfeiting, a little bit of thieving, gone to prison. When he got out, he got a job selling cars in St. Louis.
CHILDS: And St. Louis happened to be the capital of this burgeoning industry. One company in the 1980s had begat all these other little companies. By the time the Atkinson brothers arrived, there was a whole ecosystem of companies selling extended auto warranties. So in 2001, the brothers decide to start their own auto warranty company.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON #2: If you're driving a car that's under 15 years old with less than 200,000 miles, stay tuned to learn how you can save thousands of dollars on car repairs with an extended warranty from US Fidelis.
ARONCZYK: US Fidelis - maybe you saw one of these ads back then. They were everywhere. Well, US Fidelis wasn't really selling warranties. This is the first secret of the industry we're going to tell you about. These are not warranties. A warranty is a word that has a specific meaning, as bankruptcy lawyer Dave explains, a legal meaning.
WARFIELD: Under the law, a warranty can only be issued by the manufacturer of the product.
ARONCZYK: So you can't just call it a warranty.
WARFIELD: Right. Correct. And it limits who can issue them to the manufacturer. So these guys did many things, but they didn't manufacture cars.
ARONCZYK: When you buy a new car from Toyota or Ford or Subaru, those companies, the manufacturers, they can sell you a warranty. It's a written promise to repair or replace your parts within a specified period of time.
CHILDS: So the Atkinson brothers decide they're going to sell this other thing, this not-warranty thing. It was more akin to, like, insurance that wasn't very good. But they didn't want to call it insurance because that is also a specific word, one that would subject them to all these state laws. Insurance is a highly regulated industry. The thing the brothers were actually selling is what's called a vehicle service contract. For a monthly fee, they promise to cover your car bumper to bumper, no giant surprise bills when you take it to the shop.
(SOUNDBITE OF ARCHIVED RECORDING)
UNIDENTIFIED PERSON #2: The choice is yours. You can pay your repair bills yourself, or you can let us pay them for you. To find out more, call 1-800-813-1059 for a free five-minute quote. That's 1-800-813-1059.
ARONCZYK: You call and talk with one of the telemarketing reps. And let's say you tell them you own a Ford Fiesta. Here is the shady part. They imply that they're affiliated with Ford. And seeing that your warranty is about to expire on that Ford Fiesta, they offer to extend that warranty, which, of course, they can't actually do. But in the contract you just agreed to, this not-warranty thing, there are a ton of exceptions.
WARFIELD: The contracts that they issued were completely legal. They were just marketed in a very deceptive way. And at the end of the day, they didn't cover a whole lot.
ARONCZYK: Which maybe you didn't notice because you probably didn't see a contract. This whole transaction was usually done over the phone.
CHILDS: Apparently, the salespeople used a tactic called FOAM, F-O-A-M. That stands for Freak Out About Mileage. It was this really high-pressure call. Your mileage was going up. Your car was going to break down. You can't afford to fix it. And you lose your job if you can't get to your job.
ARONCZYK: And this pitch worked. The US Fidelis brothers start selling hundreds of thousands of contracts. And behind the scenes, the brothers are trying to motivate the salespeople. Dave, the bankruptcy lawyer, says that there was money literally flying around the office. Every week, the top salesperson was rewarded by being given time in the company's money machine, which is like a shower stall that you stand in, and a fan blows money all around. It's like a cash tornado.
WARFIELD: And cash would rain down on them. And you were, you know, grabbing furiously and stuffing it in your pocket. You were given 30 seconds or a minute or whatever, and that was your bonus. And the whole salesroom would look on and cheer them on.
CHILDS: That sounds like a powerful incentive. I feel like I would really respond to that.
ARONCZYK: We would make so many more episodes.
CHILDS: So the business wasn't all scam, lest you think that all of the money the brothers collected just went into the brilliant cash tornado. No, some of it did actually go to paying off their customers' car repairs.
WARFIELD: There were millions of dollars of claims paid over the course of time. It's not like there was zero coverage. It just wasn't anywhere near as much coverage as the typical consumer thought they had purchased.
CHILDS: And usually when you're like, oh, wait; this isn't what I thought I purchased, you can cancel and get a refund.
ARONCZYK: But the brothers' sales team did whatever they could to make sure customers did not cancel those contracts.
WARFIELD: They had a routine where you would have to talk to several people to cancel. And part of the lore of the case is that after the sixth or seventh person, then they purposely cut off the call and made you come back again.
ARONCZYK: I've totally had that happen to me.
CHILDS: Dave says that if an employee was working the cancellation line and was able to talk somebody out of canceling, that was called a save. And salespeople were compensated for how many saves they made.
ARONCZYK: For a couple of years, the brothers were doing really well. These shady tactics were moving contracts. They were buying all of those Mercedes and BMWs and ATVs and building gaudy mansions. Darain Atkinson's mansion in particular was unique.
WARFIELD: I remember a walk-through shower in which Darain, who was an engaging enough fellow, he actually gave me a tour of the house the first time I was there. He referred to it as his car wash. He said, it's kind of like you go in one end dirty and you come out the other end and you're clean.
CHILDS: This house looks like a Disney castle in the middle of an otherwise normal neighborhood. It had an infinity pool and a bowling alley and secret rooms.
ARONCZYK: So the personal empires are expanding, but also growing, the number of complaints made to places like the local Better Business Bureau. Some of those complaints make it into the press, which creates this bad cycle for the company. More negative press means more contracts canceled. More contracts canceled put the business at risk.
CHILDS: So this is where the brothers get really creative.
WARFIELD: US Fidelis came up with something that was ingenious but absolutely 100% fraudulent. And that is they marketed an additive.
ARONCZYK: An additive, like this mystery fluid.
WARFIELD: And what you were supposed to do was buy this bottle of additive from US Fidelis, pour it in your crankcase or radiator. And you poured this one 16-ounce bottle in there. And then they warranted that.
CHILDS: They put a product warranty on the additive, which they sold for, like, $2,000. So let's say you buy coverage that comes with this additive. You get a bottle of stuff in the mail, pour it into your car. A few months later, your car is making a weird noise, so you take it to the shop. And when you try to get US Fidelis to cover the repairs, they say, oh, we don't cover that. And you say, this coverage sucks. Please, can I cancel my warranty? Give me a refund.
ARONCZYK: And they say, sure, no problem. You can get that refund. Just go ahead and mail back that additive. But you know what's really hard to return? Sixteen ounces of liquid that you poured into your car.
WARFIELD: So you say, what did that additive do? What magic qualities did that additive have that made it so that it would keep your car from breaking down? In the bankruptcy case, we took this additive, and we sent it to the lab. It was water with a little bit of soap in it. It was basically Windex.
ARONCZYK: The additive's only magic quality - giving US Fidelis a quasi-legal reason to not cancel your warranty and not send you a refund.
CHILDS: So it's about 2007, 2008. And while the brothers are trying to keep their business afloat with basically Windex, they are also upping their outreach. And this is where they come up with their next terrible scheme, combining extended auto warranties and robocalls. They hire a company to help them do robocalls. And like all things the brothers did, they went big.
WARFIELD: They did, by one estimate, a billion robocalls.
ARONCZYK: A billion robocalls (laughter).
WARFIELD: Correct. There's an anecdote - and this definitely falls into the category of something I can't prove - that they robocalled Chuck Schumer on the floor of the Senate.
WARFIELD: And Chuck Schumer got really pissed off (laughter). And he's always been anti-robocall. You can look at his record. And there's a - there was always a rumor that US Fidelis caused that.
ARONCZYK: Their robocall strategy was so aggressive - those billion calls were made in just 10 months - that by the end of 2009, over 40 states went after US Fidelis and the Atkinson brothers, claiming that the robocalls were misleading and were violating Do Not Call laws. Yes, there are laws that protect consumers from robocalls, but they don't always get enforced. So then the brothers were banned from robocalling.
CHILDS: No robocalling plus tons of negative press effectively killed the business. Sales dried up, and a few months later, US Fidelis went bankrupt. And it was up to our friend Dave, the bankruptcy lawyer, to try to comb through the 625,000 contracts and all the paperwork and then try to recoup as much money as possible to pay back customers and creditors. But that was kind of hard. Dave, the bankruptcy lawyer, had to sell all the crazy stuff the brothers had sunk all their money into - the cars and the ATVs at that auction, that Disney castle house with the car wash shower and so many other fine details.
WARFIELD: I remember the leather floors in the library.
ARONCZYK: I have so many questions about just the leather floors (laughter).
WARFIELD: Right. So here's a fun fact - leather floors scuff. So it really wasn't that good of an idea, as it turns out (laughter).
CHILDS: Obviously, it cost a lot of money to do the house up like that. And those amenities were particular to the brothers. Not everyone wants to pay tens of millions of dollars for a place with an upholstered floor. So Dave could only sell it for a fraction of what it cost to build and perfect.
ARONCZYK: One more big thing - that money for the mansions, well, the brothers stole that from the company. Dave figures they skimmed over a hundred million dollars. In 2012, the Atkinson brothers, who, by the way, I could not reach - like, does anyone even pick up their phone anymore? - they were sent to prison for selling those not-warranties that they had called warranties. Among the list of crimes, consumer fraud, insurance fraud, tax evasion, stealing.
(SOUNDBITE OF ADAM SAUNDERS AND MARK STEPHEN COUSINS' "FAIRYTALE KINGDOM")
ARONCZYK: And that was that. Their scam was over, and no one ever received an extended auto warranty robocall ever again.
(SOUNDBITE OF MONTAGE)
UNIDENTIFIED ROBOCALLER #1: Press one now if you wish to extend...
UNIDENTIFIED ROBOCALLER #2: If you are interested in renewing your auto warranty now...
UNIDENTIFIED ROBOCALLER #3: Press two to decline coverage on your vehicle...
UNIDENTIFIED ROBOCALLER #1: Once again, press one now.
UNIDENTIFIED ROBOCALLER #4: Or call our 800 number at 833-304-1447.
CHILDS: To continue after the break, press five. No, don't actually - don't really do that. Don't press any buttons when they call. You will just be telling them that your number belongs to a real person who might have a bank account, and then that makes your number all the more valuable. Don't press any buttons. But stay tuned for the return of the auto warranty robocall.
(SOUNDBITE OF MUSIC)
ARONCZYK: Ten years after US Fidelis went bankrupt, these auto warranty calls, as you know, are back with a vengeance. So how did this happen again? To explain, we are going to break this into its two parts, the auto warranty business and the auto warranty robocalls. First, the business part.
CHILDS: For that, we called Michelle Corey. She's the president of the St. Louis Better Business Bureau, which has tracked complaints about US Fidelis and many of the other auto warranty companies for decades.
ARONCZYK: Why wasn't the death of US Fidelis the death of the sort of scammy parts of extended auto warranties?
MICHELLE COREY: Well, the fall of US Fidelis, the largest extended service contract company out there at that time, when the two owners went to federal prison, things did happen. Things changed for the betterment.
ARONCZYK: Michelle says the rules got stricter. In dozens of states, sellers now had to be licensed insurers. Sellers could no longer claim to extend a manufacturer's warranty. And sellers were forced to make it easier for customers to see the contracts before agreeing to them.
CHILDS: So a bunch of these companies went bankrupt. And from about 2011 to 2018, complaints went down a lot.
COREY: But it didn't last that long.
ARONCZYK: OK, so why do you think it didn't last?
COREY: Well, it's a very lucrative business.
CHILDS: It's a short answer - money. The hustle works. And all the knowledge can get passed down from generation to generation. A whole new batch of these companies pops back up, tweaking the brothers' model to get around this thicket of new regulation.
ARONCZYK: And according to Michelle, over the past two years, more and more complaints have started to come in - way more than ever before.
CHILDS: When you're unhappy with your vehicle service contract, you can send a complaint to the Better Business Bureau.
COREY: So in 2019, there were about 7,000 complaints registered at Better Business Bureau. 2020, there were, like, 9,000 complaints registered. So we are seeing that growth.
CHILDS: And Michelle figures, for every complaint that actually gets made, there are hundreds more unhappy customers.
ARONCZYK: Now, these are all complaints about vehicle service contract companies. The thing that kind of blew my mind, though, is this. Of those nearly 9,000 complaints, guess how many mention robocalls. I'm going to tell you the answer. The answer is seven - seven. Only seven of the 9,000 complainers mentioned being bothered by robocalls.
CHILDS: So that means the real, actual companies that are trying to sell you a vehicle service contract are not the whole robocall problem. The industry is back. Complaints about the industry are back. But they're not the only ones calling you.
ARONCZYK: So who else is robocalling you about your auto warranty? Well, a lot of these calls are actually trying to get info from you - your bank account number or your Social Security number, some info that they can turn around and sell. And in that case, the auto warranty part is - I don't know - just kind of incidental.
CHILDS: So we did the auto warranty business part. Now we're going to do the auto warranty robocall part. Back in 2017, we, PLANET MONEY, did a show about the then-growing scourge of robocalls. We talked to Ajit Pai, the then-chair of the FCC, and he told us he had a plan.
(SOUNDBITE OF ARCHIVED NPR BROADCAST)
AJIT PAI: The ultimate solution, I think, to this problem is to find a call authentication standard.
CHILDS: This plan would encode a unique signature into every phone number, like a digital fingerprint but for phone numbers, so when a call is placed using that number, you know it's a real caller, not a robot or a scam artist. So there was a plan, but it still hasn't happened.
JESSICA ROSENWORCEL: We shouldn't have waited this many years. To be very blunt about it, I think we should've put it in place in 2017.
ARONCZYK: This is the new acting chair of the FCC, Jessica Rosenworcel.
ROSENWORCEL: I took over the agency about two months ago. But if I had my druthers, we'd go back in a time machine and put it in place in 2017 because that's when the real increase in robocalls began.
ARONCZYK: She says this digital fingerprint tool would be really effective. She plans to put it in place.
ROSENWORCEL: It's not the single cure-all. We're going to have to do a lot of things at the same time. But it's one that would help.
ARONCZYK: But it seems, in the meantime, we will just keep getting all of these calls. Right now, No. 1 call is from these, quote-unquote, "auto warranty companies." No. 2 is calls asking for your Social Security number. That one's a classic. Don't do it. No. 3 is fake tech support calls.
CHILDS: And as you have probably noticed over the years, the type of scam shifts.
ROSENWORCEL: What you find over time is that scammers move around. There's always a new fraud that they get engaged in.
CHILDS: So why cars? There are a couple basic reasons.
ROSENWORCEL: One thing that is slightly different here is that there's often public information about you owning a car, even what car you might have. And so if they can figure out how to use that and make these calls, they might appear more credible.
ARONCZYK: So you're saying there are people out there that know I own - I think it's a 2007 Hyundai Elantra.
ROSENWORCEL: Well, you're announcing it right here, right now, but...
ARONCZYK: Oh, no.
CHILDS: Oh, my God, Amanda.
So your information at the DMV - that's often public. Sometimes car dealerships sell your information. Or you might just disclose it on a podcast.
ARONCZYK: And why these car robocalls now? The FCC seems to think these calls mirror our national anxieties. They told us that when the country was recovering from the 2008 meltdown, people had huge mortgage debt, so No. 1 robocall topic was, not surprisingly, debt relief and mortgage relief. During the Affordable Care Act debate, there were health care robocalls.
CHILDS: They follow whatever our big personal debt burdens are, whatever we are worried about the most. Like, COVID-related scams have already arrived. And because they target our anxieties, they work.
ROSENWORCEL: One of the reasons that it might be successful, it appears the people are responding.
CHILDS: Like Amanda. Apparently, our national anxiety is about our cars right now, which actually makes sense. It's really expensive to have a car, and it's expensive to buy a new one. The average monthly car payments for new and used cars are both at record highs. We are driving more miles than ever in America. Our cars have more miles on them than ever. Our cars are older than ever. We are wringing every last dollar we can out of our cars, and we want whatever warranty, whatever security we can get. So maybe when Susie calls with her fake auto warranty pitch...
SUSIE: Hi. This is Susie calling with the vehicle service department.
CHILDS: ...We're a little curious because we're a little desperate. We answer. We press one.
(SOUNDBITE OF JOHNNY HAWKSWORTH'S "YOO-HOO")
ARONCZYK: If you wish to extend your economic knowledge, PLANET MONEY has a newsletter. You can subscribe - npr.org/planetmoneynewsletter. You can also send us an email - email@example.com. We're also on Instagram, Twitter, Facebook and TikTok - @planetmoney.
CHILDS: Today's show was produced by Alexi Horowitz-Ghazi and mastered by Gilly Moon. PLANET MONEY's supervising producer is Alex Goldmark. Our show editor is Bryant Urstadt. This episode was edited by Sara Sarasohn.
ARONCZYK: Special thanks to Matthew Hathaway for his help and for his reporting for the St. Louis Post-Dispatch on US Fidelis. I'm Amanda Aronczyk.
CHILDS: And I'm Mary Childs. This is NPR. Thanks for listening.
(SOUNDBITE OF JOHNNY HAWKSWORTH'S "YOO-HOO")
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