'Extended Warranty' Promoters Bilked Consumers Out of $6 Million, Feds Charge
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Cars Insurance Scams

'Extended Warranty' Promoters Bilked Consumers Out of $6 Million, Feds Charge

James R. Hood
James R. Hood

Just about everyone with a phone is hounded constantly by people hawking "extended auto warranties" despite the efforts of the Federal Trade Commission and other federal, state and local regulators to put them out of business.

In the latest such attempt, the FTC is charging that American Vehicle Protection Corp. (AVP) of Pompano Beach, Fla., called hundreds of thousands of consumers with various deceptive offers.

In many cases, they allegedly said the consumer's car warranty was about to expire and the call was their last chance to extend it.

“AVP blasted consumers with illegal calls and made bogus claims about bumper-to-bumper warranties,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The truth is that the warranties didn’t come from the manufacturer, didn’t cover the repairs people needed, and weren’t sold legally. We are holding AVP accountable.”

If it's not free, it's not a warranty

The internet is full of articles claiming to hold the secret for telling which extended auto warranty offers are legit. The truth is that no telephone or internet offer of an "extended warranty" is valid.

Here's why: A warranty is issued by the manufacturer of a product at no cost to the consumer. It guarantees the product will perform as intended for the time period covered by the warranty. (The Magnuson-Moss Act sets federal standards for warranties and empowers the FTC to enforce them).

So, if you have a 2018 Hupmobile whose original warranty is about to expire, that's the end of your warranty. You can buy a service contract to cover certain, specified things that might go wrong with your car. Your manufacturer may have offered a service contract at the time you bought your car, although it's unlikely. More likely, your dealer sold it to you and built the cost into your loan, thus boosting his margin and saddling you with extra debt.

This may sound like semantics but it's important. Just to say it again, a warranty is only issued by the manufacturer and is free to all buyers. Once it expires, you may want to buy a service contract to replace it. Anyone who says he is selling a warranty is not being truthful.

Warranties and service contracts 101
Ever wonder about the difference between a warranty and a service contract?

Service contracts can be OK in some cases

Service contracts are suitable for many consumers. Their chief benefit is that they can protect you from large, unexpected repair expenses – transmission replacement, for example. They can also help you budget for routine maintenance expenses by spreading maintenance costs over the life of the contract.

It's quite likely that the cost of the service contract will be a bit more than if you paid for the repairs yourself. But some consumers prefer the security they think the contract offers.

What's important to note is that there are many companies selling service contracts and they all offer a range of products. Some cover only big-ticket items, some are "bumper-to-bumper" and cover just about anything that can go wrong. There are also mid-range plans that fall somewhere in-between.

Consumers who are well off probably don't need a service contract but those who live from paycheck to paycheck – and who aren't good at budgeting – may benefit from one that suits their specific situation.

It's essential that consumers examine the options offered by major, reputable service contract providers. Check the reviews on established consumer sites like ConsumerAffairs, USNews and Money.com.

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More about American Vehicle Protection

In its complaint against AVP, the FTC charges that the company violated both the FTC Act and the Commission’s Telemarketing Sales Rule (TSR) by calling consumers, many of whom were on the Do Not Call Registry, and attempting to sell them the warranties.

In addition to misrepresenting that they were associated with the consumers’ vehicle manufacturer or dealer, the defendants’ telemarketers have made false promises that they can provide “bumper to bumper” or “full vehicle” coverage for prices ranging between $2,800 and $3,400, according to the complaint.

They also allegedly falsely claimed that consumers can get a full refund of their down payment or full payment within 30 days of buying the warranty if they are not happy with it.

Service contracts versus warranties: What’s the difference?
What to consider before purchasing a service contract.


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