A recent Federal Trade Commission action against a company marketing warranties by phone has some lessons for car dealers. The description of the FTC action below comes mostly from an FTC press release on the matter.
At the FTC’s request, a federal court has issued a temporary restraining order against Fereidoun “Fred” Khalilian and his company, The Dolce Group Worldwide, LLC, doing business as, My Car Solutions. The FTC halted the Florida-based telemarketing operation it alleged was deceptively promoting so-called “extended auto warranties” to consumers nationwide. The FTC’s complaint seeks to permanently stop the defendants’ allegedly illegal conduct.
Khalilian and the FTC have tangled before. A 2001 settlement with the agency banned him from all travel-related telemarketing and required him to pay $185,000 in consumer redress for making deceptive pitches for travel packages.
The FTC’s June 2nd complaint against Khalilian and Dolce Group alleged that since 2009, they have marketed purported “extended” auto warranties by blasting prerecorded phone messages, or robocalls, to consumers. The complaint says that the call warned the consumer that his or her car’s warranty was about to expire and instructed the consumer to “press one” to talk with a representative. According to the complaint, consumers were then transferred to telemarketers who identified themselves as from the “service contract department,” and stated that they would “verify” information about the consumers’ cars and “confirm” other information, including the consumers’ zip codes.
The telemarketers then transferred consumers to a “senior specialist” who allegedly made more misrepresentations about the company’s affiliation with the consumer’s car manufacturer or dealer. The complaint says the “senior specialists” often went to great lengths to convince consumers that they were affiliated with car companies or dealers, making claims such as, “I’m from Honda,” or “I’m from your authorized Honda dealer.”
The FTC’s charged that only after consumers bought the supposed warranties did they discover that My Car Solutions was not affiliated with their car manufacturer. When they received their warranties in the mail, they also learned that, contrary to what the marketers promised, the warranties did not cover “the entire engine,” did not provide “bumper-to-bumper” coverage, and excluded certain “pre-existing conditions.” Consumers who tried to get their money back—typically between $1,300 and $2,485 per warranty—found it nearly impossible, due to the company’s stonewalling.
The complaint charged the defendants with violating the FTC Act by falsely representing that: they were calling on behalf of consumers’ car dealers or manufacturers; they knew that consumers’ original auto warranties were about to expire; they were offering extensions of consumers’ original auto warranties; and their products provided complete and/or specified coverage for automobile repair.
Before we go any further, you should note that the FTC charges are, at this point, just that—charges that the FTC must prove in court. The defendants haven’t been heard from yet and it’s possible that there is another side to this story. If the FTC’s characterization of the facts is correct, however, it isn’t too soon to learn some lessons from this proceeding, since some dealers do telemarketing for car sales and service, and some of them are involved in the telemarketing sale of service contracts.
First, outright false statements (“I’m with Honda,” or “the warranty covers everything,” when it doesn’t) don’t begin to pass the smell test. Dealers should script any telemarketing pitches, have them reviewed by counsel, and then monitor those involved in the marketing to make sure they stick with the scripts. Also note that the FTC objected to the defendants’ statements that they were affiliated with dealers or manufacturers, and they also seemed to object to the defendants’ “misdirection”—asserting that they were with “the service department,” and asserting that their salespeople were “senior specialists.” The same script drafting, legal review, and monitoring should target that sort of conduct as well.
Thomas B. Hudson, Esq., ([email protected]) a partner in the firm of Hudson Cook, LLP, is the author of CARLAW®, and CARLAW® II, Street Legal. For information, call 410-865-5411 or visit www.counselorlibrary.com.
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