BILL ANALYSIS Ó
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|Hearing Date:June 17, 2013 |Bill No:AB |
| |480 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Ted W. Lieu, Chair
Bill No: AB 480Author:Ian Calderon
As Amended:March 21, 2013 Fiscal:Yes
SUBJECT: Service contracts.
SUMMARY: Defines "service contract" to also include optical products
thereby requiring a written contract for the performance of services
relating to the maintenance, replacement, or repair of optical
products, thereby making administrators and sellers of those contracts
subject to registration and regulation by the Bureau of Electronic and
Appliance Repair, Home Furnishings and Thermal Insulation.
Existing law:
1)Regulates service contract sellers, service contract administrators,
and electronic service dealers by the Bureau of Electronic and
Appliance Repair, Home Furnishings and Thermal Insulation (Bureau)
in the Department of Consumer Affairs (DCA). The Bureau
additionally regulates appliance service dealers, combination
service dealers and the home furnishings and thermal insulation
industries. (Business and Professions Code (BPC) § 9800 et seq.)
2)Defines certain terms for purposes of the service contract law,
including: (BPC § 9855)
a) "Service contract" as a contract in writing to perform, over a
fixed period time or for a specified duration, services relating
to the maintenance, replacement, or repair of an electronic set
or appliance, as defined, and their accessories, or of 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.
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b) "Service contract administrator" or "administrator" as a
person who performs or arranges, or has an affiliate who performs
or arranges, the collection, maintenance, or payment of money to
compensate any party for claims or repairs under a service
contract, and who performs other activities, as specified, on
behalf of service contract sellers.
c) "Service contract seller" or "seller" as a person who sells or
offers to sell a service contract to a service contract holder,
including a person who is the obligor under a service contract
sold by the seller, manufacturer, or repairer of the product
covered by the service contract. A "service contract seller"
also means a third party, including an obligor who is not the
seller, manufacturer, or repairer of the product, as long as the
obligor obtains a service contract reimbursement insurance policy
for all service contracts.
d) "Obligor" as the entity financially and legally obligated
under the terms of a service contract.
1)Makes it unlawful for any person to act as a service contract
administrator or a service contract seller without first registering
with the Bureau under the Electronic and Appliance Repair Dealer
Registration Law. (BPC § 9855.1)
2)Provides that unless lawfully transacting business as an insurance
agent, a service contract administrator or third-party seller, who
does not have a service contract reimbursement insurance policy
covering all of the service contracts sold, shall be deemed to be
the unlawful transaction of the business of insurance and subject to
specified criminal penalties.
(BPC § 9855.85)
This bill:
1)Includes optical products in the definition of "service contract"
thereby requiring a written contract for the performance of services
relating to the maintenance, replacement, or repair of optical
products, and thus making administrators and sellers of those
contracts subject to registration and regulation by the Bureau.
2)Defines optical products to mean "prescription and nonprescription
eyewear" and "shall not include contact lenses of any kind."
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FISCAL EFFECT: This measure has been keyed "fiscal" by Legislative
Counsel. The April 17, 2013 Assembly Appropriations Committee
analysis indicates that this legislation could add approximately 3,000
additional licensees to the Bureau's 19,000 licensees. "Ongoing costs
associated with those additional licenses would be approximately
$230,000 per year (Electronic and Appliance Repair Fund) which would
be mostly offset by $215,000 in fee revenue. The fund does not have
the resources to cover the on-going additional $15,000 in costs."
COMMENTS:
1.Purpose. This bill is sponsored by the Author to add 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 Electronic
and Appliance Repair Dealer Registration Law and requires them to
register with the Bureau.
2.Background.
a) Service Contacts Explained. Service contracts (also referred
to as protection plans, extended warranties or maintenance
agreements) cover a broad range of electronic and home appliance
products as well as furniture, jewelry, lawn and garden
equipment, power tools, fitness equipment, telephone equipment,
small kitchen appliances and tools, and home health care products
which are collectively governed by the provisions of BPC § 9801
et seq. Service contracts are bought separately from the product
and last for a specific period of time. Similar to insurance
policies, these contracts assure consumers
that should something go wrong with a product their investment is
protected at a fraction of the cost of out-of-pocket repair work.
Those providing service contracts must register with the Bureau and
comply with both the laws and regulations regarding service
contracts and service contract sellers. Service contracts are
also subject to regulation pursuant to the Song-Beverly Warranty
Act which is intended to protect consumers who purchase goods
covered by service contracts and extended warranties by requiring
that certain provisions be included in the contracts and by
obligating the service contract sellers to adhere to certain
standards when providing such contracts or warranties.
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Generally, service contracts cover installation and maintenance of
equipment or burglar alarm systems used in automobiles;
installation, maintenance and repair of telephone and/or
receivers, antennas, rotors and satellite signal devices;
repairing, servicing or maintaining major appliances such as
refrigerators, freezers, ranges, microwave ovens, washers,
dryers, dishwashers, trash compactors and room air conditioners;
repairing, servicing or maintaining television sets, radios,
audio or video machines, recorders, video cameras, video games,
video monitors, computer systems, photocopies, facsimile
machines, or cell phones.
b) History of the Regulation of Service Contracts in California.
SB 2075 (Chapter 1075, Statutes of 1998) required the DCA to
conduct an in-depth study of the evolving marketplace related to
home service contracts and to include recommendations regarding
regulation of home service contracts. On August 31, 1999, the
DCA released its report titled, The Service Contract Industry in
California - Market Trends and Policy Issues (Service Contract
Report). The following background information regarding the
regulation of service contracts is extracted from that report:
Formerly known as the Bureau of Electronic and Appliance
Repair, the Bureau was established in 1963, as a result of the
enactment of the Electronic Repair Dealer Registration Law.
At the time, the stated intent of the law was to provide
protection to California consumers against fraud and
negligence in the repair business for home electronics. Home
electronics consisted mainly of radios and television sets,
although the law also regulated the repair of stereo
components. The most prevalent fraud and negligence was in
the television repair industry. By the 1960's, it was
becoming increasingly common for consumers to complain of
repair businesses charging too much for repair services; or
charging for services that were unnecessary, performed poorly,
or not performed at all. Safety was a concern, since
negligent repair could lead to fire, shock, picture tube
implosion, and other safety hazards. In response, the
legitimate repair industry and consumer groups sought
regulatory protection from the State. Over the years, the
Legislature has continued to assign responsibility to the
Bureau for a number of other types of products and appliances.
The Bureau was given regulatory responsibility regarding
"service contracts" in 1994, with the passage of the Service
Contractor Registration Act. The reason for this was that
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many of these service contracts provided for the maintenance,
repair and/or replacement of electronics and appliances by
service dealers that Bureau already regulated. The main force
behind California's regulation of service contracts was the
occurrence of defaulting on contracts by service contract
providers. In the early 1990s, consumer complaints about
defaults by service contract companies increased considerably.
A number of service contract companies simply went out of
business or moved out of state, leaving consumers without the
protection for which they paid. Consumers also complained
that contracts sold to them simply duplicated repair services
already covered by the manufacturer's warranty. By
duplicating coverage, service contract providers were charging
consumers extra money for services that were already included
in their purchases, since manufacturers' warranties are
included in the purchase prices of products.
3.Related and Prior Legislation. AB 1926 (Solorio, 2012) also
sponsored by NEWAsurion was similar to this bill. That bill would
have included optical products in the definition of service
contracts, but did not define "optical products" as done in this
bill. There was no opposition registered to the bill. ( Status :
This bill was held on suspense in the Senate Appropriations
Committee.)
AB 2111 (Smyth, Chapter 543, Statutes of 2010) revised the service
contract law to expand the number of parties who may sell service
contracts and specified the following: require a service contract
reimbursement insurance policy for all service contracts; permit
electronic sets, appliances and their accessories to be covered by
service contracts; exclude contracts for structural wiring
associated with the delivery of cable, telephone, or broadband
services from the definition of service contracts; and, exempt
certain financial institutions and specified electrical device
manufacturer or contractors from the definition of "service contract
seller."
(Note : As approved by this Committee on June 21, 2010, AB 2111 also
included "optical products" in the list of those who may sell
service contracts. However amendments were made on the Senate Floor
to remove optical products from the bill.)
AB 1553 (Wesson, Chapter 775, Statutes of 2003) expanded the scope of
what a consumer goods "service contract" may cover to include
furniture, jewelry, lawn and garden equipment, power tools,
equipment, telephone equipment, small kitchen appliances, tools, and
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home health care products; established an alternative means for
service contract sellers to fulfill existing financial reserve
requirements by filing a current recent audited and certified
financial statement reflecting a net worth of not less than $100
million.
4.Arguments in Support. In sponsoring the bill, NEWAsurion states that
service contracts provide a low cost means of protecting investments
in such products and have become extremely important to consumers.
Optical products, however, are excluded from the list of products
covered under the definition of service contracts. Consequently,
service contracts insuring optical products cannot be sold in
California even though every other state in the nation authorizes
their sale. The Sponsor further argues: "The fact that one in
three consumers of optical products nationwide chooses to buy
coverage indicates strong consumer demand for optical service
contracts, and underscores the need to permit the sale of optical
service contracts in California. AB 480 would solve this arbitrary
limitation by expanding the definition of service contracts to
include optical products, thereby authorizing the sale of optical
service contracts in California."
The Sponsor contends that the bill would not only benefit businesses
offering this service, but also provide consumers greater protection
by allowing a wider range of in-demand products entering the
marketplace to be insured against damage or loss.
California Retailers Association (CRA) indicates that by adding optical
products to the definition of a service contract, the bill would
allow consumers access to replacement, maintenance and repair
services for their prescription and non-prescription eyewear.
Retailers who wish to offer this type of service contract would be
required to register annually with the Bureau. CRA believes that
the additional annual license fee revenue will more than offset any
state costs that may result from the bill.
SUPPORT AND OPPOSITION:
Support:
NEWAsurion
California Retailers Association
Opposition:
AB 480
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None received as of June 12, 2013.
Consultant:G. V. Ayers