Embattled auto warranty firm files for Chap. 11

Friday, March 29, 2002 | 11:54 a.m.

Several affiliates of Warranty USA, a company accused of operating without a license and misleading consumers about auto repair insurance, have filed for Chapter 11 protection from creditors in U.S. Bankruptcy Court in Las Vegas.

The Seattle-based company, which sold extended warranties for older automobiles to customers in several states, on Wednesday filed voluntary petitions on behalf of Las Vegas-based affiliates Cambridge Risk Management Inc. and Members Network Inc.

A third petition was filed for Warranty & Financial Products Inc., a Seattle-based company that also did business as Warranty USA. Each cited estimated debts between $1 million and $10 million.

Warranty USA was placed in federal receivership in Washington state in late December and filed for Chapter 11 protection in Nevada earlier this month. The receiver has since stopped all sales and financial dealings of the company.

On March 5, four other Warranty USA affiliates also filed for Chapter 11 protection in Nevada. They are Consumer Financial Services Group Inc., Direct Marketing Solutions Inc., Pioneer NW LLC and WUSA Inc.

The Minnesota Attorney General's office sued Warranty USA last December over allegations of fraud, false advertising, deceptive trade practices and high-pressure sales tactics. Texas regulator also warned consumers to avoid the company until its current problems are resolved.

In December, the Seattle Times reported Warranty USA had more than 300 employees and operated call centers in Washington state and Las Vegas.

Alan Friedman, an attorney who represents Warranty USA, said Thursday the company has not laid off employees and plans to reorganize from bankruptcy protection to resume operations at an unspecified date.

He added the company is working with regulators in several states to ensure its new business plan does not violate consumer protection laws.