2019 was a busy legislative year in the vehicle service contract and vehicle protection product warranty industry with 12 states passing legislation directly affecting the laws regulating these products.
Below is a brief summary of the major changes made in each of these states; however, there may be other nuances of each piece of legislation not addressed here. Additionally, these summaries reflect only those laws that made substantive changes and does not include legislation that merely made administrative or technical changes (e.g., Nevada SB 86), service contract legislation that failed to pass, legislation that affected business broadly in a state that happens to also apply to the industry, or service contract legislation that is still pending, such as South Carolina’s HB 4244, Puerto Rico’s PC 2173, or New York’s SB 268, to name a few.
For any questions or more information on how these changes may impact your company’s national compliance strategy, contact Jim Burleson at 850-425-4000 or [email protected].
Delaware – HB 106
House Bill 106, which went into effect on June 26, 2019, defines the coverage a service contract may provide, including but not limited to, mechanical breakdown; accidental damage from handling; paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; and tire and/or wheel repair or replacement. Additionally, House Bill 106 defines the scope of vehicle theft protection product warranties. The law maintains the state’s historical regulatory treatment of these products, expressly exempting all of these products from regulation as insurance or otherwise.
District of Columbia – B22-0584
Originally filed in November 2017, this legislation finally saw passage after approval from the United States Congress in February 2019. While its official effective date was February 22, 2019, its provisions did not become applicable to service contract providers in the District until August 21, 2019. The bill largely follows the Service Contract Industry Council’s Service Contract Model Act which, among other things, requires licensure of and financial responsibility for service contract providers; mandates certain consumer focused disclosures that must be made in the contract; and establishes penalty and enforcement provisions. Additionally, the bill clarifies the scope of what may be included in a service contract, including but not limited to, mechanical breakdown; accidental damage from handling; paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; and tire and/or wheel repair or replacement.
Hawaii – HB 985/SB 1211 and HB 154/SB 809
Hawaii amended its existing service contract framework in two key ways in 2019.
First, House Bill 985, and its companion Senate Bill 1211, removed the requirement to file service contract and vehicle protection product warranty forms with the regulator for approval prior to use. These changes went into effect on July 1, 2019.
Second, House Bill 154 and Senate Bill 809 amended the current service contract framework to codify the state’s treatment of contracts providing paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; and tire and/or wheel repair or replacement as service contracts. Due to logistical issues in the conference committee reviewing these two bills, however, these changes will not officially become part of the law until July 1, 2020.
Iowa – SF 619 and SF 779
Like Hawaii, Iowa also passed two pieces of legislation in 2019 directly affecting its service contract statutes.
First, Senate File 619 (effective May 16, 2019) amended the regulatory scheme for vehicle service contracts in several ways. This legislation (1) clarified that contracts providing paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; or tire and/or wheel repair or replacement shall be treated as service contracts; (2) removed the requirements that sellers of vehicle service contracts (such as motor vehicle dealers selling service contracts) be registered with the Iowa Insurance Division; removed the requirement to proactively file service contract forms; and made various other revisions to the investigation of and penalization for violations of the service contract act.
Second, Senate File 779 (effective July 1, 2019) dictated that where a service or warranty contract does not specify a fee amount for nontaxable services or taxable personal property, the sales tax shall be imposed upon an amount equal to the sales price of the contract. Previously, the sales tax was imposed upon an amount equal to one-half of the sales price of such a contract.
Mississippi – HB 925
With House Bill 925, Mississippi amended its current vehicle service contract framework to codify the state’s treatment of contracts providing paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; and tire and/or wheel repair or replacement as service contracts. The bill, which went into effect on July 1, 2019, also expressly permits vehicle service contracts to provide “incidental payment or indemnity under limited circumstances, including, but not limited to, towing, rental and emergency road service.”
New Mexico – SB 350
Unique from the other bills directly impacting service contract laws this year, New Mexico’s Senate Bill 350 created a new section in the service contract act governing automatic renewal provisions. This new section applies to a provision of a service contract that causes the contract to automatically renew after the end of the original term for a renewal term greater than two months. The bill, which went into effect July 14, 2019, establishes certain disclosures that must be made clearly and conspicuously in the contract and sets standards for renewal notices to be provided to consumers. Finally, the bill also added a right for consumers to cancel a service contract at any time and receive a prorated refund—a right that did not previously exist under New Mexico’s service contract law beyond the initial period for voiding a service contract.
New York – SB 2848/AB 7080
With Senate Bill 2848 and Assembly Bill 7080 amended New York’s current service contract law to expressly permit contracts providing for the replacement of a vehicle key fob that was lost, stolen, or became inoperable to be offered as service contracts. The bill went into effect immediately upon signature by Governor Cuomo on September 6, 2019.
Ohio – SB 273
Much like the District of Columbia, Ohio’s Senate Bill 273 reflects legislation filed in 2018 that did not see passage until early 2019. The bill, which became effective March 20, 2019, amends Ohio’s ancillary protection product law to combine it with the similarly structured motor vehicle road hazard statute into a single section of law. The law also defines “motor vehicle service contracts” and clarifies that such contracts are exempt from regulation, and further clarifies that contracts providing the replacement of lost, stolen, or inoperable vehicle key-fobs may be offered under the existing ancillary protection product framework. The bill also adopted the majority of the National Association of Insurance Commissioner’s Insurance Data Security Model Act.
Rhode Island – SB 458/HB 5674
Similar to Delaware, Rhode Island’s service contract legislation, which will go into effect on January 1, 2020, defines the coverage a service contract may provide, including but not limited to mechanical breakdown; accidental damage from handling; paintless dent repair; replacement of a lost, stolen, or inoperable vehicle key fob; windshield repair or replacement; and tire and/or wheel repair or replacement. Additionally, the legislation defines the scope of vehicle theft protection products. The law maintains the states’ historical regulatory treatment of these products, expressly exempting all of these products from regulation as insurance or otherwise
Texas – SB 1778/HB 2847 and HB 4120
As one of the first pieces of legislation of its kind in the country, Texas Senate Bill 1778 and its companion bill, HB 2847, authorizes lease-end excess wear and use waivers as non-insurance contracts. The legislation requires consumer-focused notices that the waiver is optional and not required as a condition of lease and disclosure of pricing. This legislation went into effect on September 1, 2019.
Additionally, House Bill 4120 amended the minimum security requirements for a dealer-obligated service contract program utilizing a funded reserve. In past years, the minimum amount of the reserve for all providers was $25,000; however, legislation several years ago increased the number to $250,000. House Bill 4120 reduced the minimum amount for dealer-obligated programs back to the original $25,000 effective September 1, 2019.
Virginia – HB 2038/SB 1188
With this legislation, effective July 1, 2019, Virginia removed the requirement that all service contract provides maintain a bond in the Commonwealth regardless of any other financial security in place. Previously, providers were required to maintain this bond even if the provider also maintained a reimbursement insurance policy to back their obligations in the Commonwealth. Along with this change, the legislation addresses the regulators ability to examine and penalize violators of the statute and requires a new disclosure that must be added to all service contracts offered for sale in the Commonwealth.
Washington – HB 1001
Washington’s House Bill 1001—effective July 28, 2019—makes a number of key changes to the financial regulation of service contract providers. Namely, the bill establishes a minimum net worth or stockholder’s equity of $200,000; allows the Commissioner to immediately suspend the registration of a licensee that does not maintain the required minimum net worth; and removes references to the commissioner’s authority to suspend a license for a more general “financial condition.” Additionally, the bill permits service contract programs and protection product guarantee programs flexibility in the accounting method they elect to use (GAAP or statutory) under certain circumstances. Finally, House Bill 1001 also amends various exemptions available in the statute, such as those for motor vehicle manufacturers and their wholly owned subsidiaries.