FTC declares war on car warranty 'robocalls'

Federal regulators file lawsuits to shut down a telemarketing scam targeting millions of consumers with phony auto warranties.

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By Parija B. Kavilanz, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The Federal Trade Commission is attempting to shut down three companies that the agency alleges have bombarded millions of consumers since 2007 with deceptive "robocalls" to sell them phony extensions to their original vehicle warranties.

The FTC filed two lawsuits in federal courts Thursday against Florida-based Voice Touch Inc., Illinois-based Network Foundations LLC and Florida-based Transcontinental Warranty Inc.

Consumers who answered the pre-recorded calls hear a message telling them that their original vehicle warranty is about to expire and that they should "extend coverage before it is too late."

The companies then try to sell a false service contract for between $2,000 and $3,000, which is portrayed as an extension of the vehicle's original warranty.

FTC spokesman Peter Kaplan said the agency became aware of these calls in 2007. Since then, the companies have already made more than 1 billion unsolicited calls and allegedly have raked in more than $10 million on the sale of these deceptively marketed service contracts, the agency said.

"This is one of the most aggressive telemarketing schemes the FTC has ever encountered," chairman Jon Leibowitz said in a statement.

"I'm not sure which is worse, the abusive telemarketing tactics of these companies or the way they try to deceive people once they get them on the phone," Leibowitz said. "Either way, we intend to shut them down."

The FTC said these unsuspecting consumers, including those on the federal Do Not Call registry, received these robocalls at home, work and on their cell phones. Businesses, government offices and even 911 dispatchers have also been subjected to the calls, the agency said.

Consumers who asked that the calls be stopped often were met with "abusive behavior" or were simply hung up on, the agency said.

The agency said in its lawsuits that the companies "deceptive practices" violated the FTC Act and the agency's Telemarketing Sales Rule by calling consumers whose numbers were on the national Do Not Call Registry.

The FTC has asked for temporary restraining orders to halt the illegal robocalls and said it will seek financial compensation from the companies that can be used to pay back victims of the scam.

A Network Foundations Inc. spokesperson, who did not want to be named, said the FTC's lawsuit against his company "is a misunderstanding."

"We are a hosting company. We have nothing to do with call centers and we are going to court today to state our case," the person said.

Voice Touch Inc. and Transcontinental Warranty Inc. could not be reached for comment.

Beginning Sept. 1, marketers won't be allowed to make robocalls to consumers unless they opt to receive these calls, said Kaplan.

"Obviously if you are already on the Do Not Call registry, you should not be getting robocalls from commercial marketers," he said.

Regarding the effectiveness of the Do Not Call registry, which the Federal Communications Commission created six years ago, Kaplan said it's still an effective mechanism that protects consumers against unsolicited calls from marketers.

"Most telemarketers are abiding by the rules," Kaplan said. "Those that don't will be brought enforcement against." To top of page

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