BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 63
Assemblymember Mendoza
As Introduced
Hearing Date: June 9, 2009
Civil Code
KB
SUBJECT
Service Contracts: Retailers
DESCRIPTION
This bill would require retailers that sell service contracts to
do one of the following during the period that the service
contract is in effect: (1) maintain contract information that
includes a description of the terms and conditions of the
service contract and provide that information to the purchaser
upon request; or (2) obtain a copy of the service contract and
provide that copy to the requester within 10 business days after
receiving the request.
This bill would not apply to a vehicle service contract that
covers the repair, replacement, or maintenance of a motor
vehicle or watercraft, as specified.
BACKGROUND
Service contracts, sometimes referred to as extended warranties
or maintenance agreements, are traditionally purchased
separately from the consumer product. At the most basic level,
these contracts assure consumers that their products will be
repaired or, in some cases replaced, if and when their product
fails to perform properly.
Initially, the majority of service contracts were offered and
sold by the manufacturer or by the retailer. Due to the
complexity of administering an extended service plan, a growing
number of retailers and manufacturers began to turn to
third-party firms to handle their service obligations. These
(more)
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third-party firms are paid by the retailer or manufacturer to
handle the everyday responsibility of managing their service
contracts and for providing assistance to the consumer.
Although the service contract industry was relatively small at
the outset it began to expand by the mid-1990's as major
technological advances were created and provided at the retail
level. At the time, the San Francisco Chronicle reported that
Californians were spending approximately $500 million annually
on some form of service warranties. However, in 1993 it was
found that only 50 percent of consumers who purchased service
contracts could seek recourse under existing state laws when
they encountered problems with their agreements. Moreover,
retail sellers were disclosing little information about the
third party responsible for the performance of the contract.
Overall, it was widely reported that consumers were not
receiving the benefits or the services in the agreements they
were buying from retailers.
Based on consumer complaints, the Legislature passed SB 798
(Rosenthal, Ch. 1265, Stats. 1993) which provided the Bureau of
Electronic and Appliance Repair (BEAR) the authority to enforce
regulations for the conduct of service contractors and for the
general enforcement of retail service contract law.
Additionally, SB 798 required more thorough disclosure of the
parties responsible for the services contained in the contract,
as well as detailed procedures that the buyer can follow in
order to obtain performance of any obligation under the
contract.
Despite the expanded regulation of the service contract
industry, consumers are once again facing various problems in
obtaining detailed information about their service agreements.
The problem is due in part to the fact that the amount and types
of service contracts sold to consumers has also expanded. For
instance, BEAR currently lists six different categories of
service contracts on its Web site, with each containing their
own subgroups of services. (See Consumer Guide to Service
Contracts.)
In order to improve consumer access to service contract
information AB 63 would require retailers that sell service
contracts to do one of the following during the period that the
service contract is in effect: (1) maintain contract information
that includes the terms and conditions of the service contract
and provide that information to the purchaser upon request; or
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(2) obtain a copy of the service contract and provide that copy
to the requester within 10 business days after receiving the
request.
CHANGES TO EXISTING LAW
Existing law , the Song-Beverly Consumer Warranty Act,
establishes a number of requirements for the sale and purchase
of express warranties and service contracts sold in lieu of a
warranty. (Civ. Code Sec. 1790 et seq.)
Existing law permits the sale of a service contract in lieu of a
warranty to a buyer if that contract fully and conspicuously
discloses in simple and readily understood language the terms,
conditions, and exclusions of that contract, except for a home
protection contract issued by a home protection company. (Civ.
Code Sec. 1794.4 et seq.)
Existing law also obligates the service contractor to provide to
the buyer of the product all of the services and functional
parts that may be necessary to maintain proper operation of the
entire product under normal operation and service for the
duration of the service contract and without additional charge.
(Civ. Code Sec. 1794.4(b).)
Existing law requires a service contract sold in lieu of a
warranty to include:
A clear description and identification of the covered product.
The point in time or event when the term of the service
contract commences, and its duration measured by elapsed time
or an objective measure of use.
A description of the limits on transfer or assignment of the
service contract.
A statement of the general obligation of the service
contractor.
Any additional services that the service contractor will
provide.
Whether the obligation of the service contractor includes
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preventive maintenance and, if so, the nature and frequency of
the preventive maintenance that the service contractor will
provide.
Whether the buyer has an obligation to provide preventive
maintenance or perform any other obligations.
A step-by-step explanation of the procedure that the buyer
should follow in order to obtain performance of any obligation
under the service contract.
An explanation of the steps that the service contractor will
take to carry out its obligations under the service contract.
A description of any right to cancel the contract if the buyer
returns the product or the product is sold, lost, stolen, or
destroyed, or, if there is no right to cancel or the right to
cancel is limited, a statement of the fact.
Information respecting the availability of any informal
dispute settlement process. (Civ. Code Sec. 1794.4(c).)
This bill would require a retailer that sells a service contract
pursuant to Section 1794.4 to do either of the following during
the period that the service contract is in effect: (1) maintain
contract information that includes the terms and conditions of
the service contract and provide that information to the
purchaser of the service contract, or other beneficiary upon
request; or (2) upon request from the purchaser of the service
contract, or other beneficiary, to obtain a copy of the service
contract and provide that copy to the requester within 10
business days after receiving the request.
This bill would not apply to a vehicle service contract that
covers the repair, replacement, or maintenance of a motor
vehicle or watercraft, or the indemnification thereof, as
defined in subdivision (c) of Section 12800 of the Insurance
Code.
COMMENT
1.Need for the bill
The author asserts that many retailers do not maintain service
contract information and instead place the responsibility on the
consumer to retain documentation of the contract. Part of the
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problem, the author asserts, is that consumers regularly lose
the physical service contract agreement during the period that
the contract is in effect. Because some service contracts can
cover up to five years or more of a product's life, it is
unreasonable, the author argues, to only expect the consumer to
maintain the physical agreement. Therefore, the author asserts
that the retail seller of the service contract should share the
responsibility of maintaining the agreement during the period it
is in effect or at least obtain a copy of the contract and
provide it to the consumer upon request.
2.The bill would supplement Song-Beverly's requirements for
service contracts
Pursuant to the Song-Beverly Consumer Warranty Act (Song-Beverly
Act), manufacturers and retailers are required to maintain and
disclose specific information regarding express warranties that
are sold to consumers. (Civ. Code Sec. 1790 et seq.) Also,
within the Song-Beverly Act are regulations that cover the
conduct of service contractors and the required disclosure of
service contract information sold in lieu of a warranty. (Civ.
Code Sec. 1794.4 et seq.) This bill would supplement the
Song-Beverly Act requirements for service contracts sold in lieu
of a warranty. Specifically, the bill would require retailers
to either maintain information regarding consumer service
contracts, or obtain a copy of the service contract within ten
business days upon request by the consumer.
The retail seller of the service contract is generally the
"middle person" between the consumer and the guarantor of the
contract which can create an additional obstacle for the
consumer in seeking information or remedies under their
contract. Because the retail seller acts as the middle person,
they arguably are in a better position to retain the service
contract information, and should have little complication in
providing it to the consumer when it is needed.
It is important to note that the author does not intend to
extend the provisions of this bill to vehicle service contracts
that cover the repair, replacement, or maintenance of a motor
vehicle or watercraft, because such contracts are already
governed by the Insurance Code and other portions of the
Song-Beverly Act. (See Ins. Code Sec. 12800 et seq; see also
Civ. Code Sec. 1790 et seq.)
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Support : Consumer Federation of California; American Federation
of State, County, and Municipal Employees (AFSCME), AFL, ALF-CIO
Opposition :None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : AB 1866 (Mendoza) of 2008 was an identical
bill that the Governor vetoed without comment as to its merit
due to the delay in passage of the 2007-2008 state budget.
Prior Vote :
Assembly Business & Professions Committee (Ayes 6, Noes 4)
Assembly Floor (Ayes 50, Noes 28)
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