FTC Imposes Industry Ban On Extended Vehicle Warranty Scammers

The Federal Trade Commission (FTC) building is seen in Washington, D.C., on Sept. 19, 2006. (Paul J. Richards/AFP via Getty Images)

The U.S. Federal Trade Commission (FTC) has instituted an industry ban on operators of an extended vehicle warranty scam that defrauded millions of dollars from Americans.

In February last year, the FTC charged Kole Consulting Group and its owner Daniel Kole as some of the defendants who ran the American Vehicle Protection (AVP) operation and allegedly defrauded consumers of millions of dollars through extended vehicle warranty scams.

The FTC recently voted to ban the defendants from extended automobile warranty marketing and outbound telemarketing in a 3–0 decision.

The FTC has filed the proposed order in the U.S. District Court for the Southern District of Florida. Once the district court judge approves and signs the order, it will have the force of law.

AVP was charged with making unsolicited calls to people, insisting that it was affiliated with vehicle manufacturers, and “deceptively” claiming its products offered comprehensive coverage for vehicles.

“Today’s order bans Kole and his company from the extended auto warranty industry and imposes a monetary judgment of $6.6 million, continuing the Commission’s aggressive crackdown on telemarketing fraud,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.

Extended warranty scammers contact targets through telemarketing calls, social media platforms, text messages, and even door-to-door visits.

In a telemarketing scam, criminals deceive targets by claiming their vehicle’s warranty is about to expire and they have a short period of time to activate the coverage.

Scammers will likely give the impression that they represent the target’s car dealer or manufacturer, according to a March 23 consumer alert by the FTC.

“If you respond, you’re likely to get pressured to give them personal financial information and a down payment right away, before you get any details about the service contract,” the agency warned.

“If you buy a service contract from one of these companies, you may find they won’t be in business when you need to use it.”

ID Spoofing, Protecting Against Scams

A consumer alert issued by the District of Columbia Department of Insurance, Securities, and Banking (DISB) points out that scammers often contact targets through ID spoofing.

This involves deliberately disguising the identity transmitted to the target’s caller ID display. This not only falsifies the scammer’s identity but also their location.

DISB advised consumers not to rely on the caller’s information about their warranty coverage. “Check with your vehicle’s manufacturer or the dealership where you bought it to verify its warranty status,” the department said.

“If an unsolicited call is prerecorded or automated and asks you to press a number to be connected with a live person, hang up,” DISB said.

“If the caller immediately asks, ‘Can you hear me?’ or another generic question, hang up. This is how unsolicited scammers can verify that your number is active. Once a robocall system recognizes your phone number as active, it may place your number on a list for subsequent calls.”

Alleged AVP Fraud

In the AVP case, defendants are accused of having scammed more than $6 million from customers over a four-year period while pretending to represent their car manufacturer or dealer and then providing coverage that was far more limited than what was represented.

The scammers alleged falsely claimed to offer “bumper to bumper” or “full vehicle” coverage for prices ranging from $2,800 to $3,400. The criminals also allegedly falsely assured customers that they can claim a full refund of their payments within 30 days of purchasing the warranty in case they are unhappy about it.

“The truth is that the warranties didn’t come from the manufacturer, didn’t cover the repairs people needed, and weren’t sold legally,” said Mr. Levine in a February 2022 press release.

In March this year, another group of defendants that took part in the AVP scam were banned by the FTC from operating in the extended automobile warranty industry.