AG sues Missouri auto company accused of deceptive practices

Updated: Feb. 23, 6:55 a.m. | Posted: Feb. 22, 1:53 p.m.

Minnesota's attorney general is suing a Missouri company, accusing it of misleading consumers into unnecessarily buying coverage for auto repairs.

The lawsuit by Attorney General Lori Swanson was filed Monday in Dakota County against United Auto Defense.

The lawsuit alleges that UAD solicits Minnesotans into buying "vehicle service contracts" that provide third-party coverage for certain auto repairs. It's seeking refunds for Minnesota customers.

The lawsuit says the company misleadingly poses as a manufacturer or dealership and tells consumers via direct mail that there may be issues with their car or that their warranty has expired. The attorney general says some Minnesota consumers bought coverage for as much as $4,750 through UAD.

Swanson said UAD makes the pitch that it offers comprehensive coverage.

"In fact, the contracts don't cover everything. They're often like Swiss cheese. They're full of holes," she said. "They exclude coverage for any breakdown caused by normal wear-and-tear."

Swanson said UAD has even sold service contracts to some people who already had warranties that could pay for repairs.

Brenda Zierden of Eden Prairie purchased a service contract, unaware that a manufacturer warranty on her car was still in effect. She's warning others who might see offers that appear to come from manufacturers.

"Don't fall for it," she said. "It's a hard lesson to learn."

The state attorney general's office has received about two dozen complaints about UAD and so far, the attorney general has determined that at least 170 Minnesotans purchased service contracts from that company.

CEO Gary Primm told The Associated Press Monday he was unaware of the lawsuit. He declined to comment until he learned of the allegations against his company.

Other companies' extended auto service contracts have drawn the attention of the Minnesota Commerce Department.

The department recently fined a Minnesota insurance agent and a Texas firm more than $100,0000 for selling nearly 1,600 vehicle service contracts that were not backed by insurers. Minnesota law requires such backing. The agent has agreed to pay service contract claims.

"These were inappropriate transactions. We have stopped it. We have issued penalties against the individual," said Mike Rothman, Minnesota's commerce commissioner. "Anytime we see an incident like that, we will step into the marketplace."

Consumer Reports has long argued that extended service contracts or warranties on cars aren't worthwhile.

"It's just not a good deal to buy an extended warranty. Focus on buying a reliable vehicle," said deputy auto editor Jonathan Linkov.

He said money that could be spent on buying extended protection is best set aside in a savings account to cover big repairs if they're needed.

And he warns that consumers who do buy extended warranties or service plans need to carefully consider who's backing the plan.

"If you get one from the manufacturer, if you even get one from the dealership, you know pretty much that they're going to be there," he said. "The third-party ones are more fly-by-night. They come and they go. And that's a big problem. They may sound cheap. But there's a reason they're cheap."

The Associated Press contributed to this report.