bill rewriting the service contract law

The text as introduced · 2,758 words

89R14283 SCR-F

By: Schwertner
S.B. No. 2584

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of service contracts and service

contract providers and administrators.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 1304.002(4), Occupations Code, is

amended to read as follows:

(4) "Consumer" means an individual to whom a service

contract is sold, offered, or marketed [ who, for a purpose other

than resale, buys tangible personal property that is:

[ (A) distributed in commerce; and

[ (B) normally used for personal, family, or

household purposes and not for business or research purposes ].

SECTION 2. Sections 1304.003(a)(2) and (4), Occupations

Code, are amended to read as follows:

(2) "Service contract" means an agreement that is

entered into for a separately stated consideration and for a

specified term under which a provider agrees to:

(A) repair, replace, or maintain a product, or

provide reimbursement or payment [ indemnification ] for the repair,

replacement, or maintenance of a product, for operational or

structural failure , for damage caused by a power surge to a product,

or for damage caused by a defect in materials or workmanship or by

normal wear;

(B) provide identity recovery, if the service

contract is financed under Chapter 348 or 353, Finance Code;

(C) provide compensation to the lessee or buyer

of a vehicle on the total constructive loss under a depreciation

benefit optional member program; [ or ]

(D) provide a service, reimbursement, or payment

under a residential service contract ; or

(E) in conjunction with a leased motor vehicle,

provide for:

(i) the repair, replacement, or maintenance

of property due to:

(a) excess wear and use;

(b) damage for items such as tires,

paint cracks or chips, interior stains, rips or scratches, exterior

dents or scratches, windshield cracks or chips, and missing

interior or exterior parts; or

(c) excess mileage that would result

in a lease-end charge; and

(ii) payment, in an amount not to exceed the

purchase price of the vehicle, for:

(a) the repair, replacement, or

maintenance of property due to excess wear and use, damage for items

described by Subparagraph (i)(b), or excess mileage that would

result in a charge at the end of the lease term; or

(b) any other charge for damage that

is considered as excess wear and use by a lessor under a motor

vehicle lease .

(4) "Residential service contract" :

(A) means a service contract , other than a

service contract described by Paragraph (B), of any duration under

which a provider [ agrees to ], in the event of the operational or

structural failure of, damage caused by a power surge to, a defect

in materials or workmanship of, or damage caused by normal wear to a

structural component, an appliance, or an electrical, plumbing,

heating, cooling, or air-conditioning system of a residential

property that is attached to or located on the residential

property , agrees to :

(i) perform [ (A) ] service, maintain,

repair, or replace all or any part of the covered items [ the

structural component, appliance, or electrical, plumbing, heating,

cooling, or air-conditioning system ];

(ii) [ (B) ] provide incidental payment or

reimbursement [ of indemnity ] under limited circumstances for the

covered items , including food spoilage; or

(iii) [ (C) ] provide reimbursement or

payment instead of service, repair, or replacement of the covered

items; and

(B) does not include a service contract offered:

(i) in connection with the retail purchase

of an appliance and the terms of which do not include any other item

listed in Paragraph (A); or

(ii) by a registered provider that covers

appliances attached to or located on residential property and the

terms of which do not include any other item listed in Paragraph (A)

[ when a part, structural component, appliance, or service provider

or technician is unavailable ].

SECTION 3. Section 1304.003(b), Occupations Code, is

amended to read as follows:

(b) A service contract described by Subsection (a)(2)(A)

may provide for:

(1) incidental payment or reimbursement [ indemnity ]

under limited circumstances, including towing, rental, and

emergency road service;

(2) the repair or replacement of a product for damage

resulting from [ a power surge or for ] accidental damage incurred in

handling the product;

(3) identity recovery, if the service contract is

financed under Chapter 348 or 353, Finance Code; or

(4) the replacement of a motor vehicle key or key fob

in the event the key or key fob is inoperable, lost, or stolen.

SECTION 4. Section 1304.004, Occupations Code, is amended

to read as follows:

Sec. 1304.004. EXEMPTIONS. (a) In this section:

(1) "Maintenance agreement" means an agreement that

provides only for scheduled maintenance for a specified [ limited ]

period. The term does not include coverage for repairs or other

incidental expenses necessitated by an operational or structural

failure due to the breakdown of a part, regardless of whether the

replacement of the part otherwise constitutes scheduled

maintenance.

(2) "Scheduled maintenance" means service performed

at or with reference to a time or wear interval for a device,

appliance, electrical, plumbing, heating, cooling, or

air-conditioning system, or motor vehicle and may include the

replacement of fluids, filters, brake pads, wiper blades, belts,

tires, and other similar parts designed to wear out with normal use

and recommended to be replaced or replenished at designated

intervals.

(3) [ (2) ] "Warranty" means an undertaking made solely

by the manufacturer or importer of a product or the seller of a

product , structural component, system, or service that:

(A) guarantees [ indemnity for ] a [ defective

part, mechanical or electrical breakdown, or labor cost or

guarantees another ] remedial measure in the event of a defect in or

performance failure of the covered item. The remedial measure may

include reimbursement for costs related to the defect or failure ,

[ including ] the repair or replacement of the product , component,

system, or part, or the repetition of service;

(B) is made without payment of additional

consideration;

(C) is not negotiated or separated from the sale

of the product or service; and

(D) is incidental to the sale of the product or

service.

(b) This chapter does not apply to:

(1) a warranty;

(2) a maintenance agreement;

(3) a service contract sold or offered for sale to a

person concerning property purchased for other than personal,

family, or household purposes [ who is not a consumer ];

(4) an agreement issued by an automobile service club

that holds a certificate of authority under Chapter 722,

Transportation Code;

(5) a service contract sold by a motor vehicle dealer

on a motor vehicle sold by that dealer, if the dealer:

(A) is the provider;

(B) is licensed as a motor vehicle dealer under

Chapter 2301; and

(C) covers its obligations under the service

contract with a reimbursement insurance policy; or

(6) a contract offered by a local exchange telephone

company that provides for the repair of inside telephone wiring,

if:

(A) the contract term does not exceed one month;

and

(B) the consumer can terminate the contract

before a new contract term begins without liability except for

payment of charges for the term that has begun.

SECTION 5. Section 1304.0041, Occupations Code, is amended

to read as follows:

Sec. 1304.0041. CERTAIN EXEMPT AGREEMENTS. This chapter

does not apply to:

(1) a performance guarantee offered by [ :

[ (A) ] the builder of a residential property[ ; or

[ (B) the manufacturer or seller of an appliance

or other system or component of a residential property ];

(2) a residential service contract executed before

August 28, 1979; or

(3) [ a guarantee or warranty that is:

[ (A) designed to guarantee or warrant the repair

or service of an appliance, system, or component of a residential

property; and

[ (B) issued by a person who sells, services,

repairs, or replaces the appliance, system, or component at the

time or before the guarantee or warranty is issued;

[ (4) a service or maintenance agreement or a warranty

that:

[ (A) is sold, offered for sale, or issued by a

manufacturer or merchant who manufactures or sells a product or

part of a product, including a structural component, an appliance,

or an electrical, plumbing, heating, cooling, or air-conditioning

system of a building or residence; and

[ (B) provides for, warrants, or guarantees the

maintenance, repair, replacement, or performance of the product or

part of the product; or

[ (5) ] home warranty insurance as defined by Section

2005.001, Insurance Code.

SECTION 6. Section 1304.051(b), Occupations Code, is

amended to read as follows:

(b) On request of the executive director, a provider or

administrator shall make the records required by Section 1304.155

available to the executive director as necessary to enable the

executive director to reasonably determine compliance with this

chapter.

SECTION 7. Section 1304.101(b), Occupations Code, is

amended to read as follows:

(b) Except for the requirements [ registration requirement ]

of this chapter and Chapter 51 , a provider, seller, administrator,

or other person who markets, sells, issues, or offers to sell

service contracts is exempt from any licensing requirement of this

state that relates to an activity regulated under this chapter.

SECTION 8. Section 1304.151(b-4), Occupations Code, is

amended to read as follows:

(b-4) The amount of the security deposit required under

Subsection (b) may not be less than $25,000 for a provider of a

residential service contract. This subsection does not apply to a

service contract described by Section 1304.003(a)(4)(B) offered by

a residential service contract provider.

SECTION 9. Section 1304.1531, Occupations Code, is amended

by amending Subsections (a), (b), and (d) and adding Subsection (e)

to read as follows:

(a) A provider or administrator may employ or contract with

a seller to be responsible for:

(1) all or any part of the sale or marketing of service

contracts for the provider; and

(2) compliance with this chapter in connection with

the sale or marketing of service contracts.

(b) The hiring of or contracting with a seller under this

section does not affect a provider's or administrator's

responsibility to comply with this chapter.

(d) A seller shall process a service contract application

and a payment from a consumer in accordance with this chapter and

with any sales agreement or contract between the provider or

administrator and the seller or administrator .

(e) A seller that violates this chapter is liable for

administrative or civil penalties under this chapter and Chapter

51.

SECTION 10. Section 1304.154, Occupations Code, is amended

to read as follows:

Sec. 1304.154. PROVIDER OR ADMINISTRATOR REQUIREMENTS. (a)

A provider may not sell, offer for sale, or issue a service contract

in this state unless the provider gives the service contract

holder:

(1) a receipt for, or other written evidence of, the

purchase of the contract; and

(2) a copy of the contract within a reasonable period

after the date of purchase.

(b) A residential service contract provider or

administrator, as applicable, shall exercise reasonable care to

ensure that:

(1) any repairs provided to the service contract

holder are performed by persons licensed to perform the type of

work, if the work requires a license; and

(2) under normal circumstances, not later than 48

hours after the contract holder requests services, the provider or

administrator:

(A) initiates the performance of services; or

(B) furnishes the contract holder a documented

explanation for failure to provide the requested service.

(c) A residential service contract provider or

administrator is presumed to have exercised reasonable care under

Subsection (b)(1) with respect to air conditioning or electrical

work if:

(1) the provider or administrator notes on any work

order or in the claim file the name and license number of the air

conditioning and refrigeration contractor licensed under Chapter

1302 or the electrical contractor licensed under Chapter 1305 under

whose supervision the work will be performed; or

(2) the provider or administrator:

(A) selects the service provider from a regularly

updated roster of licensed service providers that:

(i) is maintained by the provider or

administrator; and

(ii) includes the license numbers of the

service providers; and

(B) makes the roster available to the department

for inspection on request.

SECTION 11. Section 1304.155(a), Occupations Code, is

amended to read as follows:

(a) A provider shall maintain accurate accounts, books, and

other records regarding transactions regulated under this

chapter. The provider's records must include:

(1) a copy of each unique form of service contract

sold;

(2) the name and address of each service contract

holder who provided the holder's name and address;

(3) a list of each location at which the provider's

service contracts are marketed, sold, or offered for sale; and

(4) written claims files that contain at least :

(A) the date ; [ and ]

(B) a description of each claim related to the

service contracts ;

(C) a copy of any claim-related correspondence

with the service contract holder; and

(D) documentation of any reason for the denial of

a claim .

SECTION 12. Section 1304.157, Occupations Code, is amended

to read as follows:

Sec. 1304.157. RESIDENTIAL SERVICE CONTRACTS. (a) A

person may not sell, offer to sell, arrange or solicit the sale of,

or receive an application for a residential service contract unless

the person is:

(1) employed by a residential service contract

provider or an administrator [ of a residential service contract ]

who is registered [ licensed ] under this chapter; or

(2) licensed as a real estate sales agent, real estate

broker, mobile home dealer, or insurance agent in this state.

(b) Notwithstanding Subsection (a), a person compensated by

a residential service contract provider or administrator, but who

is not employed by that provider or administrator, may sell, offer

to sell, arrange or solicit the sale of, or receive an application

for a residential service contract if the contract contains the

following statement in at least 10-point boldface type: "NOTICE:

THIS COMPANY PAYS PERSONS NOT EMPLOYED BY THE PROVIDER FOR THE SALE,

ADVERTISING, INSPECTION, OR PROCESSING OF A RESIDENTIAL SERVICE

CONTRACT UNDER CHAPTER 1304, OCCUPATIONS CODE." For purposes of

Subsection (a) and this subsection, a person is employed by a

residential service contract provider or administrator if, in

connection with the person selling, offering to sell, arranging or

soliciting the sale of, or receiving applications for residential

service contracts, the provider or administrator:

(1) directs and controls the person's performance; and

(2) is responsible for representations made by the

person when acting within the scope of the person's employment.

(c) Notwithstanding Section 1304.151(a)(1), a residential

service contract provider [ of a residential service contract ] may

use a reimbursement insurance policy issued by a captive insurance

company as defined by Section 964.001, Insurance Code, to insure

the provider's [ residential ] service contracts if the provider

maintains a funded reserve equal to not less than an amount computed

by subtracting the amount of any claims paid from the product of 25

percent and the gross consideration the provider received from

consumers from the sale of all the provider's service contracts

issued and outstanding in this state. The department shall

prescribe a calculation form to be used by a provider to calculate

the minimum amount required to be maintained in the provider's

reserve account under this subsection. A reimbursement insurance

policy issued to a residential service contract provider in

accordance with this subsection:

(1) is not subject to Section 1304.152; and

(2) is considered to satisfy the requirements of

Sections 1304.1025 and 1304.151(a)(1) for purposes of this chapter.

SECTION 13. Section 1304.161(a), Occupations Code, is

amended to read as follows:

(a) A provider, administrator, seller, or other

representative of the provider may not, in the provider's service

contracts or literature or in any oral or written communication

with a consumer concerning a proposed or executed service contract :

(1) intentionally, knowingly, or recklessly make,

permit, or cause to be made any false, deceptive, or misleading

statement; or

(2) deliberately omit a material statement if the

omission would mislead a reasonable consumer [ be considered

misleading ].

SECTION 14. Section 1304.1521, Occupations Code, is

repealed.

SECTION 15. The changes in law made by this Act apply only

to a service contract entered into on or after the effective date of

this Act. A service contract entered into before the effective date

of this Act is governed by the law in effect on the date the contract

was entered into, and the former law is continued in effect for that

purpose.

SECTION 16. This Act takes effect September 1, 2025.