Sellers of Extended Auto Warranties Agree to Lifetime Telemarketing Ban To Avoid Trial In Case Alleging Deceptive Sales Practices

The Federal Trade Commission (FTC) continues to focus on the automotive and related industries, with the FTC announcing on March 24, 2023 that it had entered into an agreement settling claims against operators of a telemarketing scam selling expensive “extended automobile warranties” to consumers using deceptive and misleading sales practices in violation of federal law.

In a lawsuit filed by the FTC in February 2022 in federal court in Florida, the FTC alleged that American Vehicle Protection Corp. (“AVP”) and its owners bilked car owners out of over $6 million. According to the complaint, AVP telemarketers would call car owners using a script in which they claimed to be affiliated with the manufacturer of a vehicle owned by the recipient of the call.  The telemarketers would then offer to sell the consumer “bumper-to-bumper” extended warranty coverage on their vehicle, fraudulently assuring the consumer they could obtain a refund if not fully satisfied with the coverage.  But AVP was not in any way affiliated with vehicle manufacturers; the coverage was not comprehensive; and consumers did not receive refunds after canceling their coverage.

AVP moved to dismiss the FTC’s claims, arguing that the FTC was aware at the time it filed its complaint that AVP already had taken remedial measures and that the FTC lacked authority to bring the lawsuit in federal court. The court rejected AVP’s argument in an October 2022 order and set an aggressive discovery and trial schedule. With a trial date looming in the case, AVP and two of its owners recently stipulated to a lifetime telemarketing ban and injunction barring them from misrepresenting the terms of any extended warranty policies. They also agreed to entry of a $6.5 million judgment against them, although the FTC waived payment of virtually the entire amount because of the claimed inability of the defendants to pay.  The claims against remaining defendants are scheduled for trial in late July 2023.

The action demonstrates the FTC’s continuing focus on the automobile industry and the abuses suffered by car buyers through aggressive and deceptive sales practices in connection with the retail sale of vehicles and aftermarket products.  In June 2022, the FTC announced that it has initiated the process to adopt regulations for dealers in connection with the advertising and sale of new cars. The public comment period on those proposed rules closed in September 2022, and the FTC has reported that it is in the process of reviewing the nearly 27,000 comments it received.