BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 480 (I. Calderon) - Service contracts: optical products.
Amended: June 25, 2013 Policy Vote: BP&ED 10-0
Urgency: No Mandate: Yes
Hearing Date: July 1, 2013 Consultant: Mark McKenzie
This bill does not meet the criteria for referral to the
Suspense File.
Bill Summary: AB 480 would require the administrators and
sellers of service contracts for optical products to be
registered and regulated by the Bureau of Electronics and
Appliance Repair, Home Furnishings, and Thermal Insulation
(Bureau).
Fiscal Impact:
Increased licensing and enforcement workload requiring 1.5
positions and $102,000 in 2014-15, 2.3 positions and
$167,000 in 2015-16, and 2.9 positions and $231,000 ongoing
(Electronic and Appliance Repair Fund).
Estimated registration fee revenues of $109,000 in 2014-15,
and $218,000 ongoing (Electronic and Appliance Repair Fund).
This estimate assumes 2,900 new licenses would be issued as
a result of the bill, each paying a registration fee of $75
annually.
Background: Existing law, within the Electronic Appliance Repair
Dealer Registration (EARDR) Law, 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. Service contracts, otherwise known as protection
plans, extended warranties, or maintenance agreements, are
purchased separately from the tangible product. These contracts
function similar to supplemental insurance policies, providing
protection to consumers against loss or damage at a fraction of
the cost of repair or replacement of their product.
AB 480 (I.Calderon)
Page 1
The Bureau currently registers and regulates approximately
40,000 licensees, of which approximately 9,300 are registered as
sellers and administrators of service contracts for the repair
of consumer electronics, appliances, and other specified
products in California. Existing law requires service
contractors to pay a $75 registration fee annually. Service
contractors, other than insurance agents, who do not have a
service contract insurance policy covering all of the service
contracts sold, are deemed to be unlawfully transacting the
business of insurance and subject to specified criminal
penalties. Violators of the EARDR Law are subject to specified
fines and/or suspension or revocation of registration. The
EARDR Law provides additional consumer protection by requiring
service contractors to provide the service guaranteed in the
written contract.
Proposed Law: AB 480 would add optical products (prescription
and nonprescription eyewear, not including contact lenses) to
the definition of service contracts, which makes the
administrators and sellers of those contracts subject to
registration and regulation by the Bureau. The bill would also
specify that a contract in which a consumer agrees to pay a
provider of vision care services for a discount on optical
products or contact lenses for a specified duration would be
excluded from the definition of service contract for purposes of
the EARDR Law.
Related Legislation: This bill is substantially similar to AB
1926 (Solorio), which was held on this Committee's Suspense File
last year.
Staff Comments:
The fiscal impact noted above assumes a new population of
approximately 2,900 service contractors would be subject to
registration and regulation by the Bureau. Many retailers who
may provide service contracts for optical products as a result
of this bill are already registered as service contractors
because they provide service contracts on other products they
sell. As such, there would be no new registration requirements
for those retailers, but they would be subject to additional
regulation related to service contracts sold for optical
products.
AB 480 (I.Calderon)
Page 2
Staff notes that the Electronic and Appliance Repair Fund, which
supports the operations of the Bureau, is in a declining
condition. Expenditures from the fund have been outpacing
revenues by about $130,000 to $410,000 annually, and the fund's
reserve has declined from $1.9 million at the end of 2011-12, to
a projected $1.3 million at the end of 2013-14. Assuming the
projected budget year revenues and expenditures, and without
corrective action or additional revenues, the fund will likely
be insolvent sometime during the 2017-18 fiscal year. According
to DCA, this bill would exacerbate the shortfalls in the fund in
the out years.
Staff notes that this bill could result in some retailers paying
licensing fees to several Department of Consumer Affairs boards
and bureaus simultaneously, and subject those retailers to
regulation by different boards and bureaus, depending on the
product or service provided. For example, an optometrist who
wishes to provide service contracts for optical products would
be subject to payment of an annual optometric licensing fee of
up to $425 and regulation by the Board of Optometry, and subject
to payment of an annual registration fee of $75 and regulation
by the Bureau of Electronics and Appliance Repair, Home
Furnishings, and Thermal Insulation.
By expanding the definition of service contract, this bill would
expand the scope of a crime and, thus, would impose a
non-reimbursable state mandated local program.