Minn. AG’s Lawsuit Against EFG Dismissed

PAUL, Minn. — Minnesota Attorney General Lori Swanson’s lawsuit against EFG Companies regarding its direct-to-consumer sales of vehicle service contracts was dismissed on Dec. 24, 2014, 90 days after it was filed in the Fourth Judicial District Court.

On Sept. 24, 2014, the attorney general charged the F&I product provider with violating three consumer-protection laws for the way it handled cancellations and refunds on service contracts sold through third-party sellers. But an internal audit conducted by EFG showed that its distributors paid 96% of all consumer refunds within the 45-day period required by Minnesota law.

“As part of the dismissal, there was no finding of fault, no finding that EFG did anything wrong, and no civil penalty or fines were imposed,” John Pappanastos, president and CEO of EFG Companies, said in a statement issued to F&I and Showroom magazine. “The resolution of the Minnesota case within 90 days is evidence of the AG’s understanding that EFG is a consumer-centric company that acts with high integrity to ensure that consumers are treated respectfully and fairly.”

The executive noted that the company “moved quickly in accordance with its normal operating procedures” to pay the remaining refunds that fell outside of the 45-day period.

Swanson’s office did not return calls seeking comment. The attorney general, who was reelected to her third term this past November, had charged EFG with violating the state’s Service Contract Law, the Consumer Fraud Act and the Uniform Deceptive Trade Practices Act for not delivering on its promise of issuing full refunds to consumers in a timely manner if they canceled their service contract within 30 days.

“Minnesotans are bombarded with postcard mailers claiming that their auto warranties are about to expire, and people need to know that not all of these companies play fair,” Swanson warned in a press release her office issued at the time of the lawsuit’s filing. The release and a bulletin that warned consumers about service-contract sales no longer appear on the attorney general’s website.

Speaking to F&I and Showroom this past September, Pappanastos said EFG was first contacted by Swanson’s office in December 2013. The attorney general gave no indication that EFG was at the center of what her office described as a “broad-reaching” investigation. The executive added that Swanson indicated at the time that multiple providers were being investigated. That last communication EFG had with the attorney general before the lawsuit was filed was in June 2014.

“Up until the lawsuit, they never said what the nature of the investigation was,” Pappanastos told F&I and Showroom in September. “And somehow, the press was privy to the lawsuit before us.”

Customers who cancel their EFG contract within 30 days of purchase are instructed to contact the seller for a refund. Typically, that refund consists of the purchaser’s down payment, which is collected solely by the seller. EFG, Pappanastos noted back in September, does not transmit funds on contracts until after the first 30 days, which means it would not have an enforceable contract in its system until after that period. That means EFG would have no record of the sold contracts if that was the case with the consumers involved in the complaint. But the company could not confirm if that was the case because Swanson’s office refused to release the names of the affected consumers.

Since 2009, according to the attorney general’s lawsuit, EFG has sold 3,700 service contracts to Minnesota residents. Its complaint rate, Pappanastos touted in September, was less than 1%.

“The audit confirmed there was no systemic or methodical intent to delay refunds, and the amount of money in question proved nominal,” read Pappanastos statement, in part. “We want to thank all of our stakeholders for your support of EFG during this situation, and for your steadfast confidence in the fact that EFG operates with the highest level of integrity.

“EFG applauds the efforts of attorneys general across the nation for ensuring that consumers are treated fairly in accordance with their state laws,” he added. “As you know, EFG holds itself to a very high standard and we would like to see the entire industry held to such a standard.”