MEMPHIS, TN (WMC) - The City of Memphis is lending its credibility -- and city seal -- to a company that officials in six states accused of misleading and deceiving consumers.
While the company denied any wrongdoing, city officials admit they were unaware of the allegations until WMC Action News 5 brought them to their attention.
SEAL OF APPROVAL
It’s been a year since Memphis residents started receiving home warranty offers with the City of Memphis' seal stamped right at the top. But the offers are not actually from the City of Memphis; they’re from a commercial home warranty company called HomeServe USA.
The offers encourage homeowners to sign up for a protection plan for as little as $6 a month to cover problems, including emergencies, associated with water and sewer lines that run from a home to the street. Those pipes are a homeowner’s responsibility and typically not covered by basic homeowners insurance.
“You have a lot of citizens who aren’t aware of what they are responsible for,” said Memphis Public Works Director Robert Knecht.
Knecht says HomeServe approached the city about a potential partnership in 2017. For $100,000 up front HomeServe bought the rights to use the City's official seal to put on their mailings. HomeServe bought residential contact information (i.e. addresses) from a third party, but the City agreed to help HomeServe update its customer list.
The company then promised to give the City 12 percent of the revenue it made from Memphis customers who bought a plan. Mayor Jim Strickland signed off on it.
“As you know, most cities are tasked with finding new sources of revenue without increasing taxes or fees, so this was we thought a pretty innovative way to raise a new stream of revenue,” said Knecht.
But the city has never allowed a private company to use the city’s official seal. Why did HomeServe get the honors? Knecht said the company was put through an “extensive” vetting process, where city leaders reached out to counterparts in several other cities with similar HomeServe agreements, like Atlanta and Baltimore.
“So, for the most part it was positive,” said Knecht.
But that’s as far as the vetting went.
Knecht said the city did not reach out to any consumers in those cities to ask about their experience with HomeServe. If they had, they might've discovered complaints from people felt they'd been tricked into signing up for coverage they didn't need.
According to a 2016 report in the Washington Post, HomeServe paid out more than $400,000 to settle allegations it misled homeowners in six states, including Maryland, where the settlement agreement shows the state’s attorney general accused the company of deceiving consumers, by misrepresenting itself and its policies and by requiring customers to release the company from liability for any damages caused by HomeServe contractors.
"Consumers were tricked into signing up for coverage they might not have needed because of ads that looked like they came from a local government or were endorsed by a government," said Maryland Attorney General Frosh. "Businesses must be truthful in their advertisements and cannot misrepresent their status or affiliations."
In a statement on its website, HomeServe said the settlements were "voluntary" and "not an admission of guilt or wrongdoing."
The company also said, "Shortly after the questions arose in 2010, HomeServe changed its marketing materials nationwide to address the concerns. Since then, HomeServe has undergone a successful marketing review with the Better Business Bureau as part of its accreditation process to ensure the company is in line with best practice regarding marketing transparency. Today, the company enjoys both BBB Accreditation and an A+ rating."
Knecht said the city was not aware of the settlements, but "heard there was negatives" and "seen there had been challenges."
However, Myles Meehan, the chief communications officer with HomeServe, said the company did share the information with Memphis city officials.
"Although these events happened nearly 9 years ago, HomeServe believes in transparency and so we did review the background and information related to the AG concerns with city leadership," said Meehan.
But the complaints didn't end with those settlements.Through a records request, WMC Action News 5 obtained hundreds of pages from the State of Tennessee detailing consumer complaints about HomeServe, including from customers like James Speed, who accused the company of ripping him off.
Speed said HomeServe would not repair a leak on his property, leaving him $900 in the hole.
"They're just out there taking people's money," said Speed.
According to records provided by the state, HomeServe said Speed's leak stemmed from a branched line, which was not covered by his policy.
Nearly all the complaints filed with the state happened before HomeServe's partnership with Memphis.Since Memphis got into business with HomeServe, city officials say they're aware of only one complaint so far.
MEMPHIS WOMAN’S ‘HEADACHE’
When Memphis resident Stephanie Toney's husband died in 2017, she signed up for a home warranty plan offered by HomeServe.
“It was $28 a month, so I was like ‘Okay, let me get that,’” said Toney.
But after HomeServe sent a plumber to clear a backup, Toney said she smelled sewage coming from the vent underneath her kitchen.
"It was a month later I called back and said 'Look, it's stinking in here and this smell is bad,'" said Toney. "They said, 'We don't come out for smells' and I said, 'There's something going on here.'"
That smell got worse.After weeks of pleading, she says HomeServe finally sent a contractor and fixed the problem. But she said they left her with a bigger problem.She said a HomeServe contractor destroyed her kitchen floor, leaving behind a giant hole.
HomeServe said this type of damage was not covered in Toney's plan, but the company gave her $1,000 in "goodwill" to help defray the cost of repairing the floor.
Toney said the actual cost to repair the floor is much higher, $5,000 to 8,000.
Knecht and HomeServe said most Memphis customers, more than 6,400, are satisfied.
HomeServe said it has performed 607 repairs for these Memphis residents since February and saved them over $569,000.
The City's partnership with HomeServe expires in 2022 and Knecht said they can end the partnership at any time.
And for those who feel they've been taken advantage of?Knecht says homeowners should do their homework."You need to do your due diligence as a consumer," said Knecht. "You buy a car, you buy a house, you should be very vetted on your research on that process before you sign up."
It’s a lesson Toney said she learned the hard way."I’m doing all the leg work. I’m reading, I’m asking questions, I’m investigating before I spend another dime on anything," said Toney. “It’s a headache.”