The Federal Trade Commission announced that it reached a settlement with CarShield, a marketer of vehicle service contracts, along with the contract administrator American Auto Shield, resolving charges that CarShield misled consumers – though the use of misleading ads and deceptive celebrity and consumer endorsements – about what those service contracts actually cover. The companies paid $10 million to settle the charges.
In announcing the settlement, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, "The FTC will hold advertisers accountable for using false or deceptive claims to exploit consumers' financial anxieties."
False Advertising
According to the FTC, CarShield sells vehicle service contracts costing approximately $80 to $120 per month. The FTC said that, in its advertising, CarShield promises consumers "peace of mind" and "protection," making claims such as "you won't get stuck with another high repair bill" and "you'll never pay for expensive car repairs again." In addition, the FTC alleged that CarShield advertised that consumers can choose their own repair shop and will receive a rental car when their car breaks down. The FTC said that these claims were false and misleading, however, because not only are many repairs not covered, but many consumers don't get a rental car and aren't allowed to choose where their repairs will be done.
The important take-away here is that if you're advertising a product or a service, and there are material limitations on how it may be used, you'd better be upfront with consumers about that in your advertising. Don't make big, broad promises in your advertising, and then spring lots of fine print on consumers down the road.
Celebrity Endorsements
The FTC also charged the companies with using false and misleading celebrity endorsements. The FTC said that the ads featured celebrity endorsements – such as from Ice-T and Dodgers pitcher Walker Buehler – who are portrayed as actual CarShield customers. In one ad, for example, Buehler claimed, "when it came to protecting myself from expensive car repairs, I called the all-star team at CarShield." In other ad, Ice-T said that CarShield gets "expensive car repairs taken care of, so I don't have to." The FTC alleged, however, that these celebrities, and others used by CarShield, weren't actual CarShield customers.
When using a celebrity endorsement, the FTC's Guides Concerning the Use of Endorsements and Testimonials in Advertising say that the endorsement "must reflect the honest opinions, findings, beliefs, or experiences of the endorser." In other words, if an endorser gives an opinion, it must be the endorser's honest opinion. And, if you hold out an endorser as an actual customer, then that endorser must, in fact, be a user of the product.
Consumer Endorsements
In addition, the FTC alleged that CarShield's advertisements feature consumer endorsements who claimed to have saved a specific amount of money through the use of their vehicle service contracts. One consumer, for example, claimed, "I've been a CarShield customer for close to seven years, had three vehicles covered, and they saved me close to $9,000." The FTC alleged, however, that consumers didn't actually save the amount that they claimed to have saved.
When using consumer endorsements, not only do those endorsements need to be truthful, of course, but they must also be "representative of what consumers will generally achieve with the advertised product in actual, albeit variable, conditions of use." So, don't promote a consumer endorsement unless that consumer is telling the truth, and unless that consumer's experience represents the performance that consumers can typically expect to achieve.
"The FTC will hold advertisers accountable for using false or deceptive claims to exploit consumers' financial anxieties"
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