The Texas attorney general recently filed a complaint against Credexx Corporation over claims regarding extended warranties. According to the complaint, Credexx advertised and sold vehicle service contracts to consumers, and in its advertising, represented to consumers that they were providing them with an opportunity to extend or reinstate their original "bumper to bumper" warranty coverage. The Texas AG asserts that, in fact, Credexx was not offering consumers an extension or reinstatement of the original vehicle warranty they received from the vehicle manufacturer when the automobiles they purchased were new or remained under warranty. Instead, the products that Defendants were offering were service contracts subject to numerous material restrictions and limitations that were materially different from, and inferior to, the original warranty provided by the vehicle manufacturer. The complaint also asserted that Credexx used a telemarketing campaign, which included calling thousands of consumers whose telephone numbers were on the Texas No Call list and the Federal No Call list. Additionally, Defendant's direct mail campaign allegedly caused confusion by representing that the solicitation was the consumer's "Final Notice to extend or reinstate your bumper to bumper warranty coverage." Instead, the mailer was actually a solicitation to sell a vehicle service contract, not to sell an extended warranty. Additionally, the mailer failed to disclose that although coverages were available "up to 250,000 miles," Credexx limited the value of any repair to the actual cash value of the car at the time of the repair; and the service contracts sold further limited the sum of the value of all repairs under the contract to the value of the vehicle. Finally, the complaint alleges that consumers who purchased a vehicle service contract from Credexx, but later decided to cancel the contract, often encountered extreme difficulty in obtaining refunds, or never received a refund at all.

The complaint alleges Credexx's conduct violated the Telephone Consumer Protection Act (TCPA), the Texas Telemarketing Disclosure and Privacy Act, and the Deceptive Trade Practices Act. The Texas AG is requesting that Credexx be enjoined from stating that its product is a "warranty," and that it be required to clearly disclose the material limitations of the service contract. Additionally, the Texas AG is seeking $500 for each violation of the TCPA, $1,500 for each knowing or willful violation of the TCPA, and $1,000 for each violation of the Texas No Call Act and $3,000 for each knowing or willful violation of the Texas No Call Act.

TIP: Companies should take care when offering extended warranty programs, especially if doing so using direct marketing techniques. Extended warranties are viewed as "service contracts" subject to various complex laws, and the marketing campaigns around those warranties may be closely scrutinized.