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Recent FTC Actions

Robert Ebin /

In the past couple of years, we have all probably received a telemarketing call (or ten) about our vehicle’s “extended warranty.” Well, it seems like the FTC is just about as fed up with those calls as we all are, as it announced last month that it has filed an action against a Florida-based group that allegedly has called thousands of consumers to pitch bogus “extended warranties.”  Additionally, the FTC (yes, they have been busy) has also made a press release stating that it issued an opinion and order against a marketing services company and its president for deceptive and unfair motor vehicle-related advertisements that violated the FTC Act and the Truth in Lending Act. This article will explore the facts behind each of these actions and will provide our California dealers with some important takeaway points.

FTC Charges Florida-Based Telemarketers re: “Extended Auto Warranty” Programs


On February 9, 2022, the FTC issued a press release stating that it was taking action against American Vehicle Protection Corp. and related defendants (collectively, AVP) for defrauding thousands of consumers out of more than $6 million over the past few years.  AVP allegedly made false claims that it represented dealers and/or manufacturers and would provide “bumper-to-bumper warranties” or “full vehicle” coverage.  AVP also purportedly claimed that consumers could get a full refund within 30 days of buying the “warranty” if they were not happy with it. In reality, the FTC alleges that such claims were false, that AVP is not (and was never) affiliated with a dealer or manufacturer, and consumers were not actually receiving “bumper-to-bumper” or “full vehicle” coverage.  Specifically, the FTC stated: “AVP blasted consumers with illegal calls and made bogus claims about bumper-to-bumper warranties. 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.”

You can read the full FTC press release here and the complaint here.

Key Takeaways

Remember, a service contract is not a warranty.

A service contract is neither a warranty nor an “extended” warranty. An important distinction is that service contracts generally involve a separate charge over and above the cost of the vehicle, while a warranty comes with the purchase of the vehicle and cannot be sold separately to the customer. Characterizing (or mischaracterizing) them as one or the other does have serious consequences. In a 2004 case, the California Supreme Court ruled that what a service contract is called or advertised as can transform it into a warranty. [See Gavaldon v. Daimler Chrysler Corporation, (2004) 32 Cal. 4th 1246]. Because of this, dealer personnel must avoid calling service contracts “extended warranties,” “warranties,” or “guarantees,” or use other similar terms, when describing service contracts to a customer. Such characterizations can land your dealership in hot water.

You can learn more about service contracts by reading our previous article called A Refresher on Service Contracts.


Do not misrepresent products or make false promises about them.

This point seems quite obvious, but it deserves some attention given the facts in the FTC complaint.  Specifically focusing on service contracts, aside from never calling one a warranty, you also should never make representations about what repairs a service contract covers if you do not know them to be true. For example, you should probably never describe a service contract as having “full vehicle” or “bumper to bumper” coverage, as a typical service contract covers a set list of parts and components and not the entire vehicle.  In fact, it is commonplace for service contracts to have numerous exclusions listed within them. You should also never attempt to sell a service contract to a customer if that service contract would not provide the desired coverage for that customer’s specific vehicle.

FTC Bans Auto Marketing Company from Industry Under Order

The FTC recently issued an Order against a marketing company, Traffic Jam Events, LLC, and its president (collectively, Traffic Jam) for claims related to motor vehicle advertising.

Among the specific allegations was that Traffic Jam sent misleading mailers that enticed consumers to visit auto sales websites by suggesting that these sites were affiliated with a government COVID-19 stimulus program when in fact no such affiliation existed. Some of the mailers issued by Traffic Jam even included a fake check labeled “Stimulus Relief Program.” Other direct mail advertisements sent by Traffic Jam falsely indicated that consumers “won” specific and valuable prizes (including cash prizes of $5,000) that could only be collected if they visited a specific car dealership.  However, when consumers tried claiming their prizes, they would learn that in fact they had not won the prize indicated on the mailer and would, for example, leave the dealership only with “bootlegged AirPods.”

Moreover, the FTC alleges that Traffic Jam’s advertisements also violated TILA and Regulation Z.  Specifically, their advertisements had certain “trigger terms” but failed to set forth all the required financial disclosures under Regulation Z or did not do so in a clear and conspicuous manner.  The advertisements for “closed-end credit” would prominently quote monthly payments but did not provide (or hid in fine print) key finance terms that customers needed in order to determine the true cost of the loan. In other instances, the advertisements would in prominent and colorful type, have a monthly payment and low APR for a vehicle, but the fine print would indicate a different and substantially higher APR.

Under this Order, Traffic Jam will be banned from the auto industry for 20 years. The order also prohibits Traffic Jam from misrepresenting any material fact while marketing any product or service of any kind, as well as from any further violations of TILA’s disclosure requirements. The FTC also notes that violation of this order may result in a civil penalty of up to $46,517 per violation.

You can read the FTC press release here, the FTC’s Opinion here, and the full Order here.

Key Takeaways

Your advertisements should not have any untrue or misleading statements.

If something isn’t true, or if it can be construed as misleading in any way, do not say it in your advertisements.  Also, remember that reliance by a consumer and/or actual damages resulting from the false advertisement are unnecessary to prove an advertising violation. Here are some potentially problematic statements seen in advertisements by dealers in the past:

  • Invoice price
  • Dealer’s invoice
  • Liquidation sale
  • Wholesale price
  • Easy financing
  • Credit relief sale
  • No credit? No problem
  • Let’s trade keys

Although subjective claims, or puffery, are generally allowed in advertisements, claims that are quantifiable and verifiable (i.e., “the best gas mileage in its class” or “the faster car”) must be true in order to be presented in the ad.


The advertisement cannot, as a whole, be misleading.

The “net impression” of the advertisement must not be misleading. Sometimes, the advertised statement may be literally true, but the general impression of the ad is misleading. In this connection, many attempt to combat this by having disclaimers on their advertisements.  However, any such disclaimer must be clear and conspicuous.  When creating a visual disclaimer on an advertisement, remember the four “Ps”:

  • Prominence (i.e., is the disclosure big enough to read?)
  • Presentation (i.e., is the disclosure easy to understand?)
  • Placement (i.e., is the disclosure in a place where people would look for it?)
  • Proximity (i.e., is the disclosure near the claim?)

Additionally, the use of any deceptive envelope or offer format that leads a consumer to believe the offer comes from a government agency or bill collecting agency is prohibited.  [Business and Professions Code § 17537.1(g)(1)].


Your finance advertisements must comply with Regulation Z requirements.

Remember not to forget all required finance disclosures on advertisements. Regulation Z requires that if the downpayment, number of payments, amount of any payment, or the amount of any finance charge is advertised, then the advertisement must disclose all of the following:

  1. the amount or percentage of the downpayment;
  2. the terms of repayment (i.e., XX monthly payments of $XXXX per month per $1,000 financed); and
  3. the annual percentage rate (APR). [12 CFR § 226.24(c); Vehicle Code § 11713.16(d)].


Your lease advertisements must comply with Regulation M and California requirements.

Regulation M and California Civil Code § 2985.71 require that if an advertisement of a closed-end lease states either the amount of a payment or a statement of capitalized cost reduction (or other payment) required when the lease starts (or that no payment is required), then the ad must also state:

  1. That the transaction is a lease;
  2. The total amount due at signing;
  3. The total number of payments;
  4. Whether or not a security deposit is required;
  5. The total miles included during the lease term and the penalty per excess mile; and
  6. The statement “plus tax” after the monthly payment amount.


Your advertisements cannot contain simulated checks.

Simulated checks should not be used in California for any purpose. California law is crystal clear about this prohibition because it is mentioned in multiple code sections.  Vehicle Code section 11713.1(w) states that it is unlawful for a dealer to “use a simulated check . . . in an advertisement for the sale or lease of a vehicle.”  Similarly, Business and Professions Code section 22433(b) states that “[n]o person shall produce, advertise, offer for sale, sell distribute, or otherwise transfer for use in this state any simulated check.” In other words, do not even think about having a simulated check in an advertisement.


You cannot advertise free goods or services contingent upon a vehicle purchase.

Although many of you may know this already, dealers must not advertise or offer free goods or services conditioned upon the purchase (or lease) of a vehicle. [Vehicle Code § 11713.1(h)]. Note that this prohibition does not apply to free goods or services as an incentive to visit the dealer.  The prohibition also does not apply where goods or services are “included with the purchase” of a vehicle so long as these items are reasonably related to a vehicle sale (i.e., they should not be a free iPhone or a trip to Hawaii).


Always make sure you keep tabs on your advertising or marketing firm (if you use one).

If you are using an advertising or marketing firm, always remember to review their advertisements for compliance before publishing.  In my experience, some of these firms are not based in California and may not know about some (or many) of California’s stringent automotive advertising regulations.  Even if your dealership does not use a firm, you must still review all advertisements for compliance beforehand as well.


If you have any questions regarding this, or any other situation that may arise in your sales or service departments, hotline clients are invited to contact us at (800) 785-2880 (then press “4” for hotline) or

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