Dealers Warranty LLC (a.k.a. Federal Auto Protection) and Warranty Finance LLC might have engaged in systematic, wrongful conduct in connection with their sale and service of so-called “extended warranty” contracts for automobiles.

This is an ongoing investigation and pending class action lawsuit against Dealers Warranty LLC (a.k.a. Federal Auto Protection) and Warranty Finance LLC for alleged wrongful practice in connection with their sale and service of so-called “extended warranty” contracts for automobiles.

Extended warranty contracts are offered to automobile owners to warrant against certain automobile problems once the original dealer warranty expires.

In this class action lawsuit, the consumer claims that he purchased a policy from Dealers Warranty in 2007, with flat monthly payments to last 60 months. On cancelling his policy, he was charged hundreds of dollars in "interest" and "marketing" fees that he claims were undisclosed. These fees totaled 25% of the value of the policy. "These charges came out of nowhere," Mr. Sahim, the proposed class representative stated. "My contract said nothing about 'interest' or 'marketing fees,' so I was completely shocked when the company charged me $175 for 'interest' and a $142 'marketing fee." Mr. Sahim added that the company would not provide him with a written explanation for how they had calculated his refund. He found out about these hidden costs only after calling up the company to demand an explanation.

The consumer class action lawsuit goes on to allege Dealer Warranty engaged in an ongoing, wrongful scheme to extract hidden interest charges and penalties from consumers who cancel their service contracts before the term of coverage expires. The class action lawsuit alleges that Dealer Warranty and Warranty Finance make a practice of heavily penalizing car owners with large interest charges and marketing fees that are not spelled out in their contracts, in violation of the Federal Truth in Lending Act and the Illinois Consumer Fraud Act.

This is at least the second time that these warranty companies have violated the law. According to the class action complaint, Dealer Warranty and Warranty Finance recently entered a consent decree to stop violating the national "no-call" law after being sued by national phone companies for engaging in mass automated telephone blitzes.