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Anita Ramasastry

Robocalling or Roboharassment? The FTC Sues Car Warranty Telemarketers


Thursday, June 4, 2009

Is your name and phone number on the national Do-Not-Call Registry? Have you nevertheless received computer-dialed, automated "robocalls' from a marketing firm asking you to extend your automobile warranty before it expires? Were you confused by the calls because you thought your warranty either was still in force, or had long ago expired?

If you answered yes, you are far from alone. According to the Federal Trade Commission (FTC), tens of millions of consumers have been put in this situation. In turn, the robocalls have prompted tens of thousands of complaints from consumers who are either on the Do-Not-Call Registry or asked not to be called again, but were called again anyway.

Consumers have received the robocalls at home, at work, and even on their cellphones.. Some of the calls consumed precious cellphone minutes. Even emergency 911 operators have been subjected to the robocalls.

Some of the consumers who responded to the robocalls were reportedly misled into purchasing extended service contracts for their vehicles -- contracts that the FTC says that the telemarketers falsely represented to be extensions of the car manufacturers' original warranties.

Last month, the FTC filed complaints against the telemarketers Voice Touch Inc., and its affiliate Network Foundations, Transcontinental Warranty Inc. – and some of their executives. This month, the FTC added a third company, Voice Foundations, in one of the lawsuits. Ultimately, the FTC suit seeks to block as many as one billion robocalls, freeze the companies' assets, and force the companies to disgorge ill-gotten gains.

Already, the FTC has sought and received a temporary restraining order (TRO) that will last until the next oral argument in the case. The TRO was granted by U.S. District Judge John F. Grady on May 15.

Besides ordering an immediate stop to the robocalls, Judge Grady's order also froze company assets. The FTC alleged in its complaint that the calls were part of a deceptive scheme, and asked the court to assure that the assets will not be lost in case they are needed to repay consumers who have been victimized. The assets could be used to satisfy civil fines if the FTC prevails; until the conclusion of the suit, they will be kept in receivership under a court-appointed agent.

In this column, I'll explain why the FTC suit is likely to succeed.

The FTC Lawsuit's Allegations, and Additional Facts from News Reports

The FTC alleges that both the robocalls and the telephone sales agents falsely represented or implied that they were affiliated with a consumer's auto dealership or manufacturer. In fact, there is no such affiliation, and the robocalls simply targeted every phone number within a particular area code.

One of the robocall messages goes as follows: "By now you should have received your written note regarding your vehicle warranty expiring. This call is to give you a final opportunity to extend coverage before it is too late. Press "1" now to speak to a warranty specialist regarding your options on your vehicle. Vehicles today are over 70-percent electronic which has forced labor rates to increase to over $100 an hour. If you would like to protect yourself from costly repairs and obtain the peace of mind of having your vehicle covered, then press "1" now to speak to a warranty advisor. Press "9' if you would like to have a representative remove you from this offer.'

What happens if a consumer presses "1"? According to the FTC, the consumer is patched through to one of a number of call center "specialists' who then mislead consumers into believing that their company is affiliated with the dealer or manufacturer of the consumer's vehicle. Such sales agents reportedly try to sell consumers a warranty service contract for between $2,000 and $3,000 – with these sales netting the companies a reported $10 million.

According to one news report, "[I]f people call back and agree to buy policies, the companies often don't let them see the contracts until they agree to pay. And some people don't learn until they've spent thousands of dollars that the deals don't cover many types of repairs, according to regulators.'

What if the consumer presses "9"' and asks to be removed from the calling list? Consumers report being subjected to verbal abuse, or simply being hung up on.

The FTC also claims that the companies have "spoofed' their calls by transmitting incorrect and masked Caller ID information so that call recipients do not know the true source of the calls.

Why the FTC Suit Will Likely Succeed: Its Strong Legal Basis

The FTC has put together a strong legal basis for its suit. In addition to the agency's basic power to address unfair, misleading, or deceptive trade practices under Section 5 of the Federal Trade Commission Act, the FTC also invokes the Telephone Solicitation Rules, and the law establishing the National Do-Not-Call Registry.

The FTC files a complaint when it has "reason to believe" that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law. But in this case, if the complaint's allegations can be proven, some clear law violations will be established.

To begin, the practices outlined above, if proven, would surely be unfair, misleading, and deceptive. For instance, the robocalls and the company representatives are, together, alleged to deceptively suggest an inaccurate affiliation -- with the representatives allegedly falsely representing or implying that they are calling on behalf of, or are affiliated with, the consumer's auto manufacturers; that the expiration of a customer's warranty is imminent; and that the caller has specific information about whether the warranty was subject to a recall.

Moreover, the Do-Not-Call Registry claims seem open-and-shut, as the defendant companies can easily ascertain which numbers are on the registry, yet they allegedly chose to call numerous such numbers.

Finally, the FTC also alleges that the defendants violated the federal FTC Telemarketing Sales Rules (TSR) – which apply to them because they have initiated "outbound telephone calls' on behalf of persons who are "sellers," as those terms are defined in the federal regulations. The TSR prohibit telemarketers and sellers from making any false or misleading statement to induce any person to pay for goods or services. The TSR also require telemarketers in an outbound telephone call to disclose truthfully, promptly, and in a clear and conspicuous manner the identity of the seller; the fact that the purpose of the call is to sell goods or services; and the nature of those goods or services. If the FTC's allegations are true, then the TSR, too, have been violated.

Consumers Should Be Careful When Dealing with Phone and Mail Solicitors, Especially with Large Amounts at Stake

For all these reasons, the FTC is likely to prevail in its suit. But how can consumers ensure that they are not similarly victimized in the future – since the FTC sometimes has the power to act only after some harm has already been done?

One good piece of advice is to do some research online to ensure that a caller (or a sender of mail) is authentic and legitimate, before entering into a business transaction – especially one that, like these warranties, involved a payment in the thousands of dollars. And be suspicious of any caller who pressures you to make a commitment immediately while on the phone – giving you no time to research the company or its offer.

Another good tip is to check with sources that you know from experience to be reliable – in this case, your owner's manual, your original warranty, the dealer who sold you the car, and the car manufacturer. Some third-party sellers may be legitimate, but others may not be; your original sellers are likely to know which is which.

And as of September 2009, these calls may stop altogether for most consumers. In August 2008, the FTC amended its TSR, effective so that telemarketers cannot make robocalls unless they have the "the prior express written agreement of the recipient to receive such calls."

Anita Ramasastry, a FindLaw columnist, is the D. Wayne and Anne Gittinger Professor of Law at the University of Washington School of Law in Seattle and a Director of the Shidler Center for Law, Commerce & Technology. She has previously written on business law, cyberlaw, computer data security issues, and other legal issues for this site, which contains an archive of her columns.

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