Important Facts About Mechanical Breakdown Protection for Used Vehicles
Exclusionary and Stated Component Coverage
Thanks to pervasive auto manufacturer and franchise dealer new and near-new (i.e. "certified") car marketing, Credit Union Member expectations about used-car vehicle service contract mechanical breakdown coverage can be wayyyy off - and in the event of a breakdown, that can mean Member complaints, loan performance problems and costly litigation or regulatory scrutiny for the Credit Union who offered the product or merely provided additional financing for it through an auto dealership.
One of the biggest misconceptions about used-vehicle extended warranty products centers around the difference between exclusionary contract coverage - “Here’s a short list of parts and situations that are excluded from coverage” vs. the much more common used-vehicle stated component contract coverage - “The exact name of the part must be named in the contract or it’s not covered.” And, by the way, “If a non-stated component causes the failure of a stated component...then even the stated component isn't covered!”
Unfortunately, more comprehensive and easier to understand exclusionary coverage contracts are typically unavailable to members buying higher mileage or older model used cars on account of vehicle qualification rules or cost. Without specialized mechanical knowledge or product expert assistance, the odds are heavily against the average member (or loan officer!) being able to identify all of the "stated components" that are essential for critical breakdown protection, and worse, of understanding exactly what to expect in the event of a breakdown and claim for benefits.
For Credit Unions this means 1) More product due diligence for those who offer or provide additional financing for stated component vehicle service contracts, 2) The necessity of more structure around product sales presentations (made by Credit Union loan officers or in their auto dealer networks) and 3) Additional internal product underwriting and audit processes to meet regulatory expectations.