In the largely unregulated world of extended auto-service contracts, there's one bedrock consumer safeguard: Customers canceling those vehicle-protection plans are refunded for the coverage they don't use.

In most states, including Missouri and Illinois, it's the law.

Yet St. Louis area companies have found a way around this rule by selling a different type of vehicle protection - warranties tied to oil additives, transmission fluids and other products that promise to keep cars running longer.

Here's how the product warranties work: Consumers are sold an automotive additive - a bottle of liquid, or some tablets. Companies selling the additive say that if the product fails to prevent a breakdown, the warranty on the additive will cover repair bills - or at least some portion of them.

With traditional auto service contracts, the consumer is purchasing a promise that the seller will cover repair bills. The difference? First, with the additive, the consumer is buying a product, not a contract. Second, the consumer is entitled to a refund if a service contract is canceled early. That's not the case with a product warranty.

And many consumers don't understand that difference.

"I didn't know I was buying any $2,000 bottle of additive," said Jeanette Franklin, of Houston, Texas, who bought a product warranty from Wentzville-based US Fidelis in November. "If they told me that's what it was, I never would have bought it."

Franklin's complaint is consistent with many that the St. Louis Better Business Bureau has received. The BBB has shared more than 80 complaints involving additives with the Post-Dispatch.

But the companies say they're helping consumers by offering vehicle-protection plans for older, high-mileage vehicles.

US Fidelis Chief Executive Chris Riley said in a statement that the product warranties help consumers keep their vehicles on the road longer: "Customers who have purchased this product have had more than $5 million in product warranty claims paid," he said.

The company would not answer questions about its product warranties that were

e-mailed to a spokesman.

An attorney for St. Louis-based National Dealers Warranty said the company trained sales agents to be honest about some drawbacks of product warranties, including the fact that they can't be refunded. Other firms did not return calls seeking comment for this story.

Thousands of consumers have complained to the BBB about auto-protection plans sold by St. Louis companies. Its crusade against the service-contract industry has focused on allegations of telemarketing abuses, deceptive direct-mail literature and high-pressure sales tactics. BBB officials said they knew little about the product-warranty side of the industry until asked about it by a reporter.

As a result, the BBB hasn't specifically tracked whether consumers' complaints were over a service contract or product warranty.

Critics - including some inside the industry - say the marketing of these product warranties confuses many consumers, leaving them trapped in coverage they no longer want. The warranted additives also allow service-contract brokers to sell in California, where they're otherwise prohibited from doing business.

Franklin said she believed the two bottles of AutoLifeXtend oil and transmission additive were product samples, or maybe a thank-you gift from US Fidelis for buying a service contract. She said the company told her to activate her coverage by using the products, which she did.

She discovered just how much her protection plan differed from a service contract when she called the company on Aug. 18 to cancel the $2,060 purchase, which was to be financed over 24 months.

Franklin said the company initially wouldn't refund any of the $800 she had paid because she had used the product as instructed. In other words, US Fidelis couldn't give her a refund because she couldn't return the additives. Days later, the company refunded $375 after Franklin threatened to contact the Texas attorney general, she said.

With service contracts, cancellations are common. Sometimes customers are dissatisfied; often they cancel only because they've sold their vehicle or the cars have broken beyond repair. Depending on how much of the service contracts they've used, these consumers can qualify for refunds of several hundred dollars.

With the product warranties, they're generally entitled to nothing.

Mary Lobdell, an assistant attorney general in Washington state, is spearheading a 43-state investigation into the service-contract industry. She wouldn't say whether product warranties were part of that investigation, but she said many of those protection plans were "grossly misrepresented" to the point that "consumers truly don't understand what they're buying."

Larry Hecker heads the Vehicle Protection Association, a trade group for companies that sell auto-service contracts. He said the product warranties were sold primarily to avoid California regulations that allow only auto dealers to sell service contracts.

Hecker acknowledged that the widespread sale of no-refund warranties could be problematic for an industry struggling to get past allegations that it frequently takes advantage of consumers.

"We haven't addressed (product warranties) yet, but I'm sure we will down the road," he said, adding that it will probably be discussed by industry leaders when they meet for an annual conference next month in Orlando, Fla.

One industry veteran who plans to attend that meeting is Bill Rosenbach, who once ran a subsidiary of Wentzville-based US Fidelis and now works as a consultant for companies that sell both service contracts and product warranties.

Rosenbach said the quality of the additives and the warranties tied to them varied considerably from company to company.

Some of the additives may be beneficial to vehicles, but most don't have any significant impact on how a car runs, he said.

Michael Carter, the general counsel for St. Peters-based National Dealers Warranty, says the additive that company sells - dubbed "The Choice" - improves auto longevity by lowering vehicles' operating temperature. Carter said consumers typically needed to use the product only once to be covered by the warranty.

Carter said product warranties could be a good buy for consumers who didn't qualify for traditional service contracts because their vehicles were too old or their mileage was too high. He defended the non-refundable nature of the coverage, but he said the company could make exceptions. National Dealers Warranty, he said, will "err to the side of good faith and good will" in some cases.

For companies such as US Fidelis and National Dealers Warranty, product warranties offer at least one big advantage over traditional service contracts.

"There's a lot more profit," said Rosenbach, of Lincoln, Neb. "But the worst part about product warranties is consumers think they're getting a service contract."

Many consumers have complained to the BBB that they couldn't get a refund because they used the product. But others complained about the reverse: They didn't use the product - either because they believed it unnecessary and threw it away, or their mechanics advised against using it - and later found out this was grounds for denying any claims made on the warranties.

The 10 St. Louis area businesses named in those BBB complaints include some of the country's biggest service-contract brokers, including US Fidelis; National Dealers Warranty; Dealers Warranty, of St. Charles, which does business as Mogi; Carhill Enterprises, of St. Louis, which does business as Consumer Protection Services; and TXEN Partners, of St. Louis, which does business as Protection Direct.

Several of those firms sell product warranties tied to additives made by Dura Lube, which also sells its additive products directly, through its website, for as little as $11.99.

In 2000, the company that made Dura Lube paid $2 million to settle a Federal Trade Commission lawsuit alleging that claims about the product's effectiveness were misleading and unsubstantiated. Dura Lube did not return calls seeking comment.

three auto service scenarios

STEP 1 - Extended service contract firm sends consumer a warning: The factory warranty on his car is expiring.

STEP 2 - Consumer calls about the warranty, but can't purchase until a down payment is made - before seeing a contract.

STEP 3 - Consumer agrees to a plan that covers parts of the vehicle's powertrain. He is essentially buying a $2,000 bottle of engine additive, which carries a 5-year/100,000-mile warranty. The payment can be spread over 24 months.

STEP 4 - Contract arrives, as does the bottle of additive.

What could happen next?

When the consumer sells his car or needs to cancel the warranty for any reason:

Scenario 1

Consumer put the additive in his car.

- He is told that the contract can't be canceled or refunded because he can't return the product he bought. Warranties are nonrefundable.

Scenario 2

Consumer's car dealer told him not to use the additive. It sits on a shelf in his garage.

- He is told he must return the product within 30 days - per his contract - to get a full refund.

Scenario 3

Consumer discarded the unopened bottle.

- He is told he cannot cancel because he is unable to return the additive.

Two BBB Complaints

Denied for not using the product - On July 10, a woman from Indianapolis complained that an engine-repair claim was rejected. In November, she paid Consumer Protection Services in full for a $2,495 product warranty for her 1998 Hyundai Accent.

"They said they would not pay for the repair because I did not use the additive," said the woman's Better Business Bureau complaint. "I never received an oil additive."

The company told the BBB it did ship the product. Andrew Hillin owns the St. Louis company, also known as Carhill Enterprises. Hillin said in an e-mail that he wouldn't discuss product warranties with the Post-Dispatch.

Can't cancel without returning the product - A man from Maryland tried to cancel the $3,175 product warranty he ordered for his 2004 Mitsubishi Endeavor from St. Peters-based US Auto Warranty just 26 days earlier, according to his March 18 BBB complaint: "(I) was told I could not cancel because I used the oil additive they sent me."

The man thought he was entitled to $560 - the down payment, minus the company's $75 cancellation fee. The company's said, "The contract clearly states that you must return (the additive) unopened in order to receive a refund."

US Auto Warranty co-owner Paul Benenati told the Post-Dispatch that the company informed consumers about its cancellation policy. "We pride ourselves about that," he said.