U.S. Fidelis paying $25M to Maryland

Bryan Cohen Aug. 5, 2011, 1:53am


BALTIMORE (Legal Newsline) - Maryland Attorney General Douglas Gansler announced an order for customer restitution and penalties Thursday with a Missouri corporation over allegedly deceptive marketing practices.

Gansler's Consumer Protection Division ordered U.S. Fidelis Inc. and the company's owners, Darain Atkinson and Cory Atkinson, to cease their allegedly deceptive marketing of vehicle service contracts and pay over $25 million in penalties and restitution. U.S. Fidelis, previously known as National Auto Warranty Services and Dealer Services, had been the largest seller of vehicle service contacts in the county.

"U.S. Fidelis misled thousands of Marylanders by promising warranties that it could not offer," Gansler said. "Businesses that sell vehicle service contracts need to be truthful and upfront about the coverage they are offering so consumers can make informed decisions whether to purchase the policies."

From 2005 to 2010, U.S. Fidelis allegedly sold "extended vehicle warranties" to nearly 17,000 Maryland consumers promising to extend manufacturers' warranties and provide "bumper to bumper" repair coverage. Gansler alleged that the company would typically either call consumers or send them mailings informing them that their existing manufacturer's warranty was about to expire and offer consumers an opportunity to extend the warranty. Consumers who responded to the advertisements were allegedly subjected to high-pressure sales presentations.

In July 2010, the division alleged that the company and its owners violated the Maryland Consumer Protection Act and Telephone Solicitations Act by exaggerating the coverage they offered and misleading consumers concerning their relationships with manufacturers.

In its final order, issued on August 1, the division alleged that U.S. Fidelis misled consumers by falsely claiming it had relationships with automobile manufacturers that enabled it to extend manufacturers' warranties when, in reality, U.S. Fidelis had no relationship with auto manufacturers and was offering consumers a repair contract offered by undisclosed third-party insurers rather than a manufacturer's warranty.

The division also alleged that the repair contracts U.S. Fidelis sold to consumers contained significant exclusions and limitations that were not disclosed to consumers and prevented most consumers from receiving meaningful coverage for their vehicles.

Under the final order, U.S. Fidelis and its owners were ordered to return $23,527,411 to as many as 16,972 Maryland consumers who purchased vehicle service contracts from the company. U.S. Fidelis and the Atkinsons were also penalized for each of their transactions with state residents by requiring them to pay a civil penalty of $1,697,200.

In March 2010, U.S. Fidelis filed for bankruptcy. On June 15, its owners were indicted by a Missouri grand jury on felony charges, including alleged unlawful merchandising practices, theft and insurance fraud.

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