The Federal Trade Commission (FTC) has reached a settlement with three companies over an alleged telemarketing scam involving extended automobile warranties. In addition to imposing a penalty of $6.6 million, which is largely suspended based on the companies’ inability to pay, the stipulated order includes a lifetime ban from the extended automobile warranty industry and from all outbound telemarketing. Also, if the companies are found to have misrepresented their financial status, the full judgment would be immediately payable.

According to the complaint, the Florida companies and their owners violated both the FTC Act and the Telemarketing Sales Rule (TSR) by calling consumers, many of whom were on the Do Not Call Registry, and attempting to sell them extended warranties. Specifically, the FTC alleged that the companies made the following misrepresentations: they were or were affiliated with the consumers’ vehicle manufacturer or dealer; their warranty provided “bumper to bumper” or “full vehicle” coverage for prices ranging between $2,800 and $3,400; and that consumers could get a full refund with no conditions or restrictions if the consumer requested within 30 days of purchasing or receiving the warranty. The FTC alleged that, contrary to these representations: the companies were not affiliated in any way with any automobile manufacturers or dealers; the warranties have significant restrictions and exceptions to coverage; and the companies did not provide refunds as promised.

Our Take: The settlement shows the intersection of FTC points of focus, on telemarketing and vehicle add-on products. It also shows the FTC seeking maximal remedies, here including a permanent ban on the three companies ever participating in outbound telemarketing.