Scamming 'Your Warranty Will Expire' Calls Lead to Lawsuits

Complaints over annoying robocalls lead to state lawsuits, federal investigation

May 8, 2009, 6:00 PM

May 11, 2009— -- Telemarketers who push shady automobile-service contracts with pestering recorded phone messages angered the wrong guy when they twice called the Indiana attorney general on his cell phone.

"By the time you start calling on the state's attorney general," Attorney General Greg Zoeller told reporters last week, "you've blasted out one too many."

LastTuesday, after receiving some 160 complaints from Indiana residents over several months, Zoeller announced a lawsuit against two companies and an individual that his office claims have blasted unsolicited recorded messages hawking automobile warranties, credit card offers and loans. The calls, he says, violate the state's Do Not Call laws and statutes that prohibit sales calls in the form of automated messages.

These so-called robocalls are not limited to Indiana. Across the country, people are complaining to state authorities, the Federal Trade Commission, which oversees the national Do Not Call registry, and the Better Business Bureau. Attorneys general in at least 30 states are investigating the calls.

On Sunday, Sen. Charles Schumer of New York said he wanted a federal investigation into the "robo-dialer harassment."

"Not only are these calls a nuisance, but they tie up land lines and can eat up a user's cell phone minutes, possibly leading to a higher cell phone bill due to overage charges," said Schumer, a Democrat.

"Thousands of people have called to complain, and more than 100,000 people have contacted the Better Business Bureau to find out if these calls are legitimate," said Alison Southwick, a spokeswoman for the bureau.

The calls, recipients say, are a nuisance. Hundreds of thousands of Americans are estimated to have received the calls, most of which offer car-service contracts by deceptively telling recipients that the warranty on their car is about to expire.

(To listen to samples of recorded calls click HERE and HERE.)

So ubiquitous are the calls that a Congressional sub-committee meeting on health care was interrupted in March with this message, overheard on a member's cell phone speaker: "This is the second notice that the factory warranty on your vehicle may have expired..."

But beyond just being annoying, the calls are sometimes a full-fledged scam. The companies often pose as car manufacturers and convince consumers to buy service contracts with so many loopholes that they are left in the lurch when their cars do break down, Southwick said.

"They're using deceptive sales tactics. The calls say your warranty is about to expire and people believe it's the manufacturer calling them. The companies use names like Dealer Services or Dealer Warranty Division to mislead people. The policies sometimes have so many caveats the consumers later find the contract did not really cover anything," Southwick said.

"There is both a deceptive nature of the solicitation and a false bill of goods," she said.

The calls are not just limited to home numbers, which many Americans have registered on Do Not Call lists, but to work extensions and cell phones too.

Katie Murphy, 25, says she regularly receives recorded calls alerting her that the "factory warranty on her vehicle is about to expire," even though she does not own a car.

The calls, she says, come both to her workplace, the New York City offices of the Ubuntu Education Fund, a South Africa-based charity, and to her mobile phone, which is registered in Connecticut.

"I've received two or three in the past two weeks. The office gets at least one weekly," she said.

"It's really annoying. It's just frustrating. I usually hang up," she said.

Investigators say determining who is behind the calls is difficult. Some companies use false names and mask their phone numbers so recipients can't call back.

The Indiana case, like a similar ongoing case brought against another company by the Missouri attorney general, are both civil cases.

Many of the companies behind the calls are believed to be based in Missouri.

No criminal fraud charges have been brought against any of these companies, according to the Federal Trade Commission.

"Indiana has fairly robust telephone privacy laws," said Molly Butters, spokeswoman for the Indiana attorney general. "Under the state's auto-dialer laws, recipients must opt in and consent to receiving prerecorded messages. We believe these companies also violated the law by calling people on the Do Not Call list."

The Indiana case prosecutes two companies, SVM Inc. based in California, Fortress Secured Inc., based in Nevada, and an individual named Mike Moneymaker, who according to the lawsuit lives in California.

A representative for SVM, who would not give his name, declined to comment, saying only, "We are unable to talk to you."

ABC was unable to locate Mike Moneymaker, who is identified by three other aliases in the lawsuit. Fortress Secured is reportedly no longer in business and is run by Moneymaker.

Moneymaker and Fortress Secured are both also named in a cease-and-desist order filed by the North Dakota attorney general. Moneymaker is listed under an additional alias in that case.

In addition to the states taking legal action, Verizon, one of the country's largest telecommunications company, has also sued the telemarketers. In April, Verizon settled with one company for $50,000.

The Federal Trade Commission says it receives several hundred complaints a month about the calls, but could not comment on them specifically because they are under investigation.

Michael Tankersley, an attorney for the FTC, said the companies take multiple steps to cover their tracks, making them difficult to track down.

"There are a number of things that make it difficult to prosecute these cases. It appears to be not any one entity behind the calls, but a large number of separate entities that have campaigns that are similar. That makes it frustrating for consumers and difficult to trace calls," he said.

Tankersley said under federal law the companies are required to identify themselves. Many companies, he said, use technology that masks or changes the number from where the calls are being placed when they appear on caller ID, which is also a violation of federal law.

Simply having your name on the federal Do Not Call registry, Tankersley said, was not enough to ensure you would not receive calls. States each have their own registries that consumers should add their names to as well, he said.

Furthermore, companies with which consumers have a previous relationship – even something as incidental as signing up for a company-run sweepstakes – are legally permitted to contact consumers whose names are on no-call lists.

A new federal law that kicks in Sept. 1 will prohibit the use of prerecorded calls for marketing campaigns.

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