CarShield and American Auto Shield (AAS), the administrator of its vehicle service contracts (VSCs), will pay $10 million to settle Federal Trade Commission charges that its advertisements and telemarketing are deceptive and misleading.

Many purchasers found that a large number of repairs weren’t covered despite making payments of up to $120 per month, an FTC press release says.

The FTC also alleges CarShield’s celebrity and consumer endorsers made false statements in its ads.

The stipulated order that settles FTC’s complaint also bars CarShield and AAS from making deceptive and misleading statements in the future. The companies are required to ensure their endorsers’ testimonials are truthful, accurate, and not deceptive, according to the release.

“For many consumers, a personal vehicle is one of their most valuable assets and a vital lifeline for getting to work, taking their kids to school, and obtaining medical care. Instead of delivering the ‘peace of mind’ promised by its advertisements, CarShield left many consumers with a financial headache,” said Samuel Levine, FTC Bureau of Consumer Protection director, in the release. “Worse still, CarShield used trusted personalities to deliver its empty promises. The FTC will hold advertisers accountable for using false or deceptive claims to exploit consumers’ financial anxieties.”

The order also applies to NRRM LLC, the company CarShield conducts business under. It is a Missouri-based company that advertises VSCs to consumers throughout the U.S. AAS, based in Lakewood, Colorado, designs and administers the VSCs.

According to the FTC’s complaint, CarShield advertises and sells VSCs that cost $80-$120 per month. CarShield’s ads often feature celebrities, such as sports commentator Chris Berman and actor Ice-T. These endorsers are depicted as real customers and try to assure consumers that buying a CarShield service plan will provide them with “peace of mind” and “protection” from the cost and inconvenience of vehicle breakdowns, which will inevitably occur, the release says.

On CarShield’s website homepage, Ice-T is quoted as saying, “Nobody likes it when their check engine light comes on, especially when your car is out of warranty. That can mean expensive repair bills. That’s why I have CarShield.”

CarShield states on its site that it covers more than 2 million vehicles and has paid over $1 billion in administrator claims.

The complaint alleges many ads say that all repairs or repairs to certain systems, such as the engine and transmission, will be covered and use language that makes consumers believe CarShield will pay for all necessary repairs.

“For example, one ad that ran 18,000 times on television stated, ‘With CarShield’s administrators, they make sure you don’t get stuck with expensive car repair bills like this,'” the release says. “It also touts CarShield VSCs as ‘your best line of defense against expensive breakdowns.’

“The company sells its plans using telemarketers who answer inbound calls and make outbound calls responding to consumers, including those who make web inquiries. Using scripted statements written by CarShield and cleared by AAS, the telemarketers pitch the VSCs and tell consumers that, whether they use a dealer or local mechanic for the repair work, ‘there is just a $100 deductible for any covered repair.'”

The FTC alleges that CarShield’s ads deceptively represent that: all repairs or repairs to covered vehicle systems will be paid for under the plans, consumers will receive a rental car at no cost when their car breaks down, and consumers can use the repair facility of their choice for repairs.

“Specifically, many consumers could not use the repair facility of their choice, as many do not accept the VSCs,” the release states. “Many consumers also find that repairs they thought were covered are not. In fact, none of CarShield’s VSCs cover all repairs or even repairs to ‘covered’ vehicle systems. Instead, the plans contain myriad exclusions. Consumers with denied claims receive no rental car, while many consumers with ‘approved’ claims must pay a portion of their rental car costs.”

CarShield ads also deceptively feature consumer endorsers who claim to have saved a specific amount of money using their plans but have not saved that amount, according to the FTC.

The proposed order to settle the complaint addresses the defendants’ alleged violations of the FTC Act.

It prohibits CarShield from making the misrepresentations described in the complaint and any other misrepresentations related to any good or service. CarShield and AAS must make required disclosures and follow FTC’s Telemarketing Sales Rule, according to the order.

The order bars CarShield from misrepresenting any endorser’s ownership, use of, or experience with any product or service and requires AAS to inform third-party marketers of the order and to review and monitor their advertising and marketing. The order also imposes a standard reporting and compliance provision that will remain in place for up to 10 years.

The $10 million monetary judgment against CarShield and AAS will be used to provide refunds to defrauded consumers, the FTC said.

In a statement to Reuters, CarShield General Counsel Michael Carter said the company disagreed with many FTC claims but was committed to helping consumers understand what they are paying for, including on its website.

He also said CarShield is “making very clear that all spokespeople in our ads are actual CarShield customers,” according to Reuters.

The FTC files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the commission that a proceeding is in the public interest. Stipulated final injunctions/orders have the force of law when approved and signed by a District Court judge.

FTC provides more information on consumer topics at consumer.ftc.gov. Suspected fraud, scams, and bad business practices can be reported at ReportFraud.ftc.gov.

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Featured image: Stock photo of telemarketers provided by Jacob Wackerhausen/iStock