Direct-to-consumer sales potentially take business away from dealerships that sell extended-service contracts, according to the Service Contract Industry Council, a trade group based in Tallahassee, Fla.
Fraud cases also may hurt the reputation of extended-service contracts in general, the group said. There have been several other cases, including the high-profile bankruptcy last year of another direct marketer, U.S. Fidelis in Wentzville, Mo. A couple of former U.S. Fidelis executives also have been indicted on criminal charges.
According to court documents, automated "robo calls" from Transcontinental reached the attorney general of Indiana, a U.S. senator (on his personal cell phone), consumers who had registered on the "Do Not Call" list, and thousands of consumers and businesses who didn't even own cars.
Transcontinental often misled consumers into thinking they were dealing with the manufacturer that made their car, a prosecutor said.
Many consumers believed they were somehow "reinstating" or extending the original-equipment warranty, when in fact they were buying an extended-service contract from an unrelated third party, court documents said.
Prosecutors said millions of consumers received phone calls from Transcontinental, and "tens of thousands" of customers bought contracts as a result of the deceptive sales pitch, from a generic-sounding "Warranty Service Center."