Sears customers told to continue paying for worthless extended warranties
Scotiabank says it doesn't have 'any of the obligations associated with the warranties'
Imagine making a purchase and being told it won't be delivered but you still have to pay.
Refuse to pay? Then you'll be getting a call from debt collectors.
That's what's happening to former Sears Canada customers now that the department store chain has gone out of business.
They're being forced to pay for extended warranties that are no longer being serviced.
Mike Albani of Richmond Hill, Ont., bought four high-end kitchen appliances from Sears in September 2015 and took delivery in March 2016.
He said he was encouraged to buy a 48-month extended warranty, at a cost of $724.28 including HST, and that the salesperson told him if he didn't use the warranty, the amount would be refunded in Sears gift cards when it expired.
At zero per cent interest, Albani decided he had nothing to lose and financed the total amount on his Sears credit card.
But then Sears announced it was closing its doors and informed customers they had to keep paying for extended warranties — even though they would not be honoured.
At the time, Sears assured CBC News that customers would be refunded for the cost of the extended warranties at the end of their financing term.
"Monthly payments will remain the same, but the amount equivalent to future payments for protection agreements will be reduced at the end of the obligation," a Sears spokesperson told CBC News by email on Oct. 9, 2017.
But Scotiabank, which now owns the Sears credit card accounts, is threatening to send Albani's account to collections.
'Just pay the bill'
Albani said he's willing to pay for the warranty for the seven months he owned the appliances while Sears was in business, and he wrote to Scotiabank on Oct. 31, 2017, enclosing a cheque for that amount. But he doesn't believe he should have to pay the remaining $618.48 for extended warranty coverage in the months after Sears went out of business.
"[Scotiabank] suggested I could just pay this and the issue would go away," he said. "The same with their collections company. They said, 'Just pay the bill and it will be no more of a headache.'"
Scotiabank is telling him his credit history is going to be damaged if he doesn't pay at least a minimum bill for the extended warranty by Dec. 19.
Albani said he can't understand the ethics of charging for something that Sears acknowledged it would never deliver.
"I'd like Scotiabank [to] admit that they are not providing service," he said.
Scotiabank spokesperson Brynne Moore said in an email to CBC News that the bank has no responsibility to provide service under the extended warranty.
"When Scotiabank purchased the Chase/Sears' credit card operation in 2015, we did not purchase the extended warranties or any of the obligations associated with the warranties," Moore said.
"Those extended warranties and associated obligations are the responsibility of Sears."
She said customers will have to resolve the issue directly with Sears. But customers can't reach anyone at Sears now that the company is liquidating.
It's unknown how many extended warranties were impacted by Sears' closure, or the value of those warranties.
Calls kept coming
Holly MacIntosh and Alan Benninger of Dundee, N.S., faced a similar situation. Even after Sears said it would remove their extended warranty charges, they continued to be contacted by the company that held the account, Easy Financial.
For the past year they have received calls and emails about the extended warranty — in some cases, accompanied by a statement showing their balance as zero — telling them their account will be sent to collections. Easy Financial also contacted Benninger's employer about the alleged outstanding amount.
The couple said they continued to make payments, on time, on their purchase (less the amount of the extended warranty), and in February they wrote company, asking not to be contacted again. But the emails and calls kept coming.
CBC News contacted Easy Financial last week. The company subsequently wrote off the remainder of the account, including the amount of their purchase even though the couple did not dispute owing that. Easy Financial has promised the couple will not hear from them again.
'We expect people to keep their word'
Chris MacDonald, who teaches ethics at the Ted Rogers School of Management at Toronto's Ryerson University, said it's hard for people to understand these situations.
"Ethically, it makes sense to me, and I think it would make sense to the average consumer, to say, 'Look, you're buying up these warranty obligations, you're inheriting with it whatever legal obligations the company you're buying them from had,"' he said.
MacDonald said consumers trust the companies where they do business.
"We expect people to keep their word," he said.
But in cases of insolvency, there is no motivation for the company to do that because they're effectively gone from the marketplace.
He said it's unclear whether Sears' unkept promise to deduct the warranty amount was the result of questionable ethics, a communications issue or paperwork problem, but "it's pretty clearly unfair."
MacDonald said cases like this tend to erode consumer trust in business.
"It's the kind of story that amplifies the standard worries about what business is all about … worries that companies are really only out for the bottom line and don't care that much about their customers so I think it's unfortunate in that way," he said
Out of pocket for repairs
Albani says his appliances are now breaking down and he's paying for repairs out of pocket. He's been told it will cost up to $300 just to have someone come to his home and diagnose the problem.
But he isn't giving up his fight. He said he will pay Scotiabank to preserve his credit rating if he has to, but plans to take them to small claims court to recover the money.
"I don't think it's fair," Albani said, not just for himself but for many others who bought from Sears who are in the same situation.
"I don't think Scotiabank is treating anybody fair with any of this. It's not ethical to charge people for service that's not been provided now or in the future," Albani said.
On its website, the company handling the Sears liquidation, FTI Consulting, tells extended warranty holders they are considered "unsecured creditors" and they must wait for the courts to approve a claims process before learning their fate.
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