BILL ANALYSIS Ó
AB 480
Page 1
Date of Hearing: April 2, 2013
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Richard S. Gordon, Chair
AB 480 (Ian Calderon) - As Amended: March 21, 2013
SUBJECT : Service contracts.
SUMMARY : Includes optical products in the current definition
of a retail service contract, which would require agreements for
pre-paid services relating to the replacement, maintenance or
repair of prescription and non-prescription eyewear to be in a
written contract, among other duties. Specifically, this bill:
1)Adds optical products to the existing definition of a service
contract.
2)Defines optical products to mean "prescription and
nonprescription eyewear" and "shall not include contact lenses
of any kind."
3)States that no reimbursement is required by this bill pursuant
to Section 6 of Article XIIIB of the California Constitution
because the only costs that may be incurred by a local agency
or a school district will be incurred because this bill
creates a new crime or infraction, eliminates a crime or
infraction, or changes the penalty for a crime or infraction
within the meaning of Section 17556 of the Government Code, or
changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
EXISTING LAW
1)Defines a service contract as "a contract in writing to
perform, over a fixed period of time or for a specified
duration, services relating to the maintenance, replacement,
or repair of an electronic set or appliance, and their
accessories; furniture; jewelry; lawn and garden equipment;
power tools; fitness equipment; telephone equipment; small
kitchen appliances and tools; or home health care products;
and may include provisions for incidental payment of indemnity
under limited circumstances, as specified. (Business and
Professions Code Section (BPC) 9855)
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a) Defines a service contract administrator as "a person
who performs or arranges for the collection, maintenance,
or disbursement of moneys to compensate any party for the
claims or repairs," as specified. (BPC 9855)
b) Defines a service contract seller as "a person who sells
or offers to sell a service contract to a service contract
holder," as specified. (BPC 9855)
c) Defines an "obligor" as the entity financially and
legally obligated under the terms of a service contract.
(BPC 9855)
2)Provides that it is unlawful for any person to act as a
service contractor in this state unless that person first
registers with the Bureau of Electronic and Appliance Repair,
Home Furnishings and Thermal Insulation (Bureau) under the
Electronic and Appliance Repair Dealer Registration Law
(EARDRL). (BPC 9855.1)
3)Prohibits a service contract seller from offering, selling, or
issuing for sale a service contract unless the obligor under
the service contract has complied with specified requirements.
(BPC 9855.2)
FISCAL EFFECT : Unknown
COMMENTS :
1)Purpose of this bill . This bill adds optical products to the
current definition of service contracts (also known as
extended warranties, protection plans, and service agreements)
so that retailers and manufacturers can sell service contracts
for prescription and nonprescription eyewear. Additionally,
it subjects the administrators and sellers of such contracts
to the EARDRL and requires them to register with the Bureau.
This bill is author sponsored.
2)Author's statement . According to the author, "Optical
products are not included in the definition of service
contracts, so the [Bureau] does not have the ability to
authorize the sale of service contracts covering optical
products?optical service contracts have become a popular
product in virtually every state with one in three customers
opting to purchase coverage. This national trend underscores
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the need for the inclusion of optical products within the
definition of service contracts so that a wider range of
products commonly purchased by consumers may be protected
against damage or loss."
3)Service contracts . Service contracts generally provide for
the pre-paid repair or replacement of specified consumer
products. These contracts may be for a fixed period of time or
a specified duration, and are usually paid for on a monthly or
annual basis. Service contracts are commonly marketed as
extended warranties, service agreements, maintenance
agreements or protection plans. Service contract agreements
may be offered and sold by the manufacturer or retailer of the
product, but due to the complexity of administering a service
plan, retailers often engage third-party firms to handle the
day-to-day responsibilities of managing service contracts and
providing assistance to consumers.
There are numerous consumer products for which service
contracts are available, including furniture, electronics,
appliances, home healthcare products, jewelry, and fitness
equipment, among many others. Currently, optical products
such as prescription and non-prescription eyeglasses,
sunglasses, or goggles are not included in the definition of a
service contract and consumers therefore are unable to buy a
service contract for them.
Optical products may come with their own manufacturer's
warranty, but those could be for a limited period of time or
include only limited product parts. Technically speaking, a
service contract is different from a manufacturer's warranty
in that it is an additional item purchased separately from the
product. As opposed to covering only the manufacturers'
defects, the service contract may cover other incidents such
as sitting on your eyeglasses or dropping them by mistake. A
warranty is typically included in the price of the item,
whereas a service contract comes at an additional cost.
4)Types of service contracts . Most service contracts fall into
one of six basic types: 1) date of purchase plans, which begin
on the date the customer purchases the product and the service
plan; 2) extension plans, which extend a manufacturer's
warranty for a specified time period; 3) major component
programs, also known as "primary protection" plans, which
protect the major product component such as the picture tube
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in the television; 4) comprehensive programs, which cover all
parts and labor for a specified period of time, such as one or
five years; 5) replacement programs, which guarantee product
replacement if the item should fail during the term of the
plan; and, 6) deductible programs, which require the consumer
to be responsible for a deductible, such as the first $50 in
repairs, after which the program covers any additional repair
costs.
5)Contract return policy . Under current law, consumers can
cancel a service contract within 30 days of purchase for a
full refund, minus any claims that may have been paid. After
30 days, a consumer may receive a prorated refund and the
seller may charge an administrative fee for the contract
cancellation.
6)EARDRL & The Bureau of Electronic & Appliance Repair . The
EARDRL regulates service contracts relating to the maintenance
or repair of specified appliances, and makes it unlawful for a
person to act as a service contract seller or administrator
without first registering with the Bureau. The law further
protects consumers by requiring that service contractors
provide the service guaranteed in the contract. Additionally,
service contractors must provide financial backing for the
service contracts issued.
The Bureau regulates registered service contractors who sell
service contracts for the repair of consumer electronics and
appliances in California. The Bureau can fine violators, or
revoke or suspend their registration. Retailers are required
to hold a valid Bureau registration in order to act as a
service contract seller. Retailers with multiple locations
are required to have a separate registration for each location
that sells service contracts. Further, companies offering a
contract via the internet must also have a registration for
contracts sold to California residents. The registration fee
is $75 per location and is renewed annually.
With the inclusion of optical products in the definition of a
service contract, this bill will require retailers who wish to
offer these contracts to register with the Bureau and submit
the appropriate registration materials. If a company is
already registered as a service contract provider, this bill
will not require it to register again, unless its optical
division is a separate business entity within the company.
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7)Optical products . The types of optical products covered by
this bill are prescription and non-prescription eyeglasses,
reading glasses, which possibly include ski goggles and other
non-prescriptive optical products sold at sunglass/glass
retailers, sporting goods stores, pharmacies and other
locations. The cost of eyeglasses can vary depending on the
manufacturer, retailer, prescription, and the purpose of use,
but prices can range from $20 to $700 or more.
8)Previous legislation . AB 1926 (Solorio) of 2012 would have
required optical products to be included in the definition of
service contracts. This bill was held in Senate
Appropriations Committee. There was no opposition registered
for this bill.
AB 2111 (Smyth), Chapter 543, Statutes of 2010, expanded the
number of parties who may sell service contracts, required a
service contract reimbursement insurance policy for all
service contracts, and eliminated an exemption for certain
products in service contract law.
AB 1553 (Wesson and Bermudez), Chapter 75, Statutes of 2003,
expanded the scope of what a consumer goods "service contract"
may cover and gave service contract sellers a new means to
fulfill existing financial reserve requirements.
REGISTERED SUPPORT / OPPOSITION :
Support
NewAsurion
Opposition
None on file.
Analysis Prepared by : Elissa Silva / B.,P. & C.P. / (916)
319-3301