FTC says CarShield shielded consumers from the truth about limitations of its vehicle service contracts

If you haven’t caught CarShield’s pervasive ad campaign for vehicle service contracts, you may be one of the few people who should spend more time watching TV. Ubiquity aside, what you really need to know about CarShield’s ads is that the FTC has challenged them as deceptive. A $10 million proposed settlement addresses allegations that the company made misleading claims about what the service contracts cover, deceptively represented that consumers could get repairs at the shop of their choice, used deceptive celebrity and consumer endorsements, and violated the Telemarketing Sales Rule.

The complaint names two related players behind the CarShield promotions. Defendant American Auto Shield determines the purported coverage and eligibility criteria for each vehicle service contract type, ranging from the “Silver” plan all the way up to the “Diamond” plan, with consumers shelling out between $80 to $120 per month. According to the complaint, American Auto Shield is responsible for adjudicating and paying customers’ claims. Defendant CarShield creates the ads and manages the marketing, although the parties’ contract gives American Auto Shield a significant say in the content.

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CarShield’s ads allegedly conveyed that the vehicle service contracts protect consumers from unexpected repair costs after their manufacturer’s warranty has expired. The ads pitched “protection” and “peace of mind,” promising customers “you’ll never pay for expensive car repairs again.” In addition, the ads got specific with the kind of coverage consumers can expect. According to one ad, “CarShield has plans that can help cover major parts and systems for out-of-warranty vehicles. So when they break down, you’re not the one stuck with the bill.” Promising “no big bills,” another ad claimed, “If my car breaks down, I can count on CarShield to cover it for me.”

In addition to touting their own Shield Repair Network of repair facilities, the defendants assured consumers that “When your car needs repair, you take it to your favorite mechanic or even your dealer, and CarShield gets them paid directly.” According to the company, “There are even plans that will pay for your rental car while your car’s in the shop.”

For consumers still on the fence, CarShield featured endorsements by professional athletes, including basketball player Allen Iverson, pro wrestler Ric Flair, and baseball players Walker Buehler, Pete Alonso, and Matt Vierling. Other ads showcased sportscaster Chris Berman and actors Ice-T, Vivica A. Fox, Adrienne Janic, and Ernie Hudson – all of whom were represented to be “customers” or even “real CarShield Customers.”

The ads also highlighted consumers making specific claims about how much money they saved through a CarShield vehicle service contract. According to one consumer, “I’ve been a CarShield customer for close to seven years, had three vehicles covered, and they saved me close to $9,000.” Another consumer claimed that “If I didn’t have CarShield, I would have been out-of-pocket $7,000.”

All the TV ads – as well as promotional mailings – feature a phone number for consumers to call if they have questions or want to enroll. According to the complaint, once telemarketers have consumers on the line, they work from approved scripts to turn up the temperature on the sales pitch. For example, telemarketers promised consumers that with the Diamond plan, “[J]ust like when the vehicle was NEW, this covers your Engine, Transmission, Drive Axle, Suspension, Steering, Fuel System, A/C, and even your Computers and High-Tech Electronics!” Consumers also were told they could “pick the dealer or ASE certified mechanic you want to use, and there is just a $100 deductible for any covered repair!” and that their vehicle service contract includes a rental car “at no extra cost.” According to the complaint, consumers who didn’t sign up during that initial call could expect to get multiple follow-up calls from CarShield telemarketers designed to seal the deal. It was only after buying a vehicle service contract that consumers received a dense 25-30 page document packed with exclusions, terms, and conditions that weren’t disclosed in CarShield’s ads or by its telemarketers.

What happened when the rubber met the road? The FTC says it wasn’t until many consumers’ cars broke down and they tried to exercise their rights under their vehicle service contracts that they learned the defendants deliver substantially less than what was promised. According to the complaint, “In many cases, only after experiencing a vehicle breakdown and attempting to use their [vehicle service contracts] do consumers realize the representations made by CarShield’s advertisements and telemarketers are false or misleading.”

For example, despite the defendants’ assurances, many consumers couldn’t use the facility of their choice for repairs. According to one consumer, “Everyone laughs when I ask if they accept CarShield as coverage.” Another consumer reported, “[I] called around, no shop within reasonable distance will accept CarShield. Answer from each shop has been ‘no, because they don’t pay their bill.’” Other consumers claimed that even some facilities the defendants advertised as members of their Shield Repair Network want nothing to do with CarShield.

If consumers were able to find a repair shop willing to accept CarShield vehicle service contacts, in numerous cases, American Auto Shield has invoked a host of exclusions that aren’t clearly disclosed in CarShield’s ads or by its telemarketers. In fact, none of CarShield’s service contracts cover all repairs or even repairs to “covered” vehicle systems. The upshot: the FTC says many consumers who paid big money for vehicle service contracts were left holding the bag – and paying the bill – for pricey repairs the defendants had led them to believe would be covered.

The complaint alleges that the defendants violated the FTC Act by making misleading claims about what their vehicle service contracts covered, by falsely promising consumers could use the repair shop of their choice, and by making deceptive promises that customers would have access to rental cars. The FTC also says the defendants’ testimonials were deceptive in that the celebrities either weren’t actual customers or had never used a CarShield vehicle service contract. According to the complaint, the consumer testimonials were misleading because the people didn’t actually save the depicted dollar amounts. In addition, the FTC alleges the defendants’ misrepresentations and omissions violated multiple provisions of the Telemarketing Sales Rule and that American Auto Shield also assisted and facilitated TSR violations.

In addition to $10 million in redress for consumers, the proposed settlement prohibits CarShield from making misrepresentations related to any goods or services, prohibits misrepresentations about endorsers’ experience with a product or service, and requires American Auto Shield to tell third-party marketers about the order and to monitor their advertising. The settlement also requires compliance with the Telemarketing Sales Rule. 

The action offers across-the-board compliance advice for other businesses.

Explain the details of the deal up front. A vehicle service contract is no different from any other consumer transaction. It’s the company’s responsibility to be crystal clear about material terms and conditions before the consumer makes the purchase. According to the FTC, the defendants had ample warning that consumers were surprised by the numerous exclusions. In addition to public alerts issued by two BBBs, CarShield reached settlements with Missouri and Georgia regarding their practices. The FTC lawsuit also cites internal corporate communications about a “pattern of . . . complaints regarding coverage misunderstandings.” Of course, the wisest course of action is to make sure the details of the deal are clear from the outset. But conscientious companies also monitor consumer complaints and discontinue tactics that cause confusion.

Has your company received a Notice of Penalty Offenses from the FTC? Take it seriously. In September 2022, the FTC sent CarShield a Notice of Penalty Offenses Concerning Endorsements, identifying certain practices the Commission has determined to be deceptive or unfair – specifically, falsely representing an endorser as an actual user of a product or service. But even after receiving the Notice, CarShield allegedly continued to deceptively describe certain athletes and celebrities as customers or users. If your company has received any of the FTC’s Notices of Penalty Offenses, conduct a compliance check to make sure your practices comport with the law.

Review your obligations under the Telemarketing Sales Rule. “But we don’t cold call random people during the dinner hour, so the Telemarketing Sales Rule doesn’t apply to us.” We’ve heard that from too many businesses that have ignored the broad scope of the TSR, which defines “telemarketing” in part as “a plan, program, or campaign . . . to induce the purchase of goods or services.” Certainly, those unwanted and annoying calls consumers complain so much about are subject to the Rule, but as the FTC complaint establishes, many types of calls are covered.

• Outbound calls initiated by telemarketers are subject to the TSR. No matter why a telemarketer places a call – whether in response to a consumer’s online inquiry, a consumer’s request for a callback, or for any other reason – the TSR requires telemarketers to tell the truth. CarShield called consumers who filled out online quote requests. It also made follow-up calls to consumers who declined to buy a vehicle service contract during an earlier call. Some of those consumers may have even asked to be called back, but because the calls were initiated by CarShield, they were subject to the TSR’s prohibitions against deception.
• Some inbound calls initiated by consumers are also covered. The TSR exempts calls by consumers in response to direct mail ads that are addressed to particular recipients only if the ads clearly disclose – among other things – all material restrictions, limitations, or conditions. Because CarShield’s direct mail ads were addressed to specific consumers, but lacked the required disclosures, inbound calls made by consumers who received those ads were covered by the TSR.
• Upselling, including many common retention techniques, is covered by the TSR. When consumers called CarShield to cancel, a retention agent tried to persuade them to keep their contracts by sweetening the deal with discounts. This form of upselling falls within the TSR, whether it takes place during an inbound or an outbound call.

If your business makes or receives these types of calls, familiarize yourself with the Telemarketing Sales Rule, especially its prohibitions against deceptive conduct. These prohibitions are separate from the Do Not Call provisions and apply even when the call itself is permitted by the TSR. Businesses that violate the Rule can face hefty civil penalties, so compliance is cost-effective. Consult FTC resources on the Telemarketing page.