BILL ANALYSIS �
AB 1926
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Date of Hearing: March 27, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 1926 (Solorio) - As Introduced: February 22, 2012
SUBJECT : Service contracts.
SUMMARY : Adds a written contract for the performance of
services related to the maintenance, replacement, or repair of
optical products to the definition of service contract, thereby
subjecting the administrators and sellers of those contracts to
the Electronic Appliance Repair Dealer Registration Law (EARDRL)
and requiring them to register with the Bureau of Electronic and
Appliance Repair, Home Furnishings and Thermal Insulation
(Bureau).
EXISTING LAW :
1)Regulates service contracts relating to the maintenance or
repair of specified sets and appliances by the Bureau.
2)Prohibits any person to act as a service contract
administrator or service contract seller without first
registering with the Bureau.
3)Provides that a violation of EARDRL provisions is deemed to be
unlawfully transacting the business of insurance, and
therefore subject to specified criminal penalties.
4)Defines "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.
5)Provides that "service contract" does not include a contract
in writing to maintain structural wiring associated with the
delivery of cable, telephone, or other broadband
communications services.
AB 1926
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FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "While most
states do not specify in statute the categories of products
falling under service contracts, California has gradually
developed the laundry list of product categories identified
above. This means that when a new product is developed, a
revision to the statute is required in order for a service
contract insuring that product to be sold. To illustrate,
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 (e.g.
eyeglasses).
"AB 1926 solves this problem by broadening the statutory
definition of service contracts to include optical products,
thereby enabling these types of service contracts to be sold.
Optical service contracts have become a popular product in
virtually every state with one in three customers opting to
purchase the coverage. This national trend underscores 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."
Background . Service contracts, sometimes called extended
warranties or maintenance agreements, are bought separately from
the product. 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.
Initially, service contracts were offered and sold by the
manufacturer of the product, or by the retailer who sold the
product. However, due to the complexity of administering an
extended service plan, a growing number of retailers and
manufacturers have turned to third-party firms to handle the
programs. These firms are paid by retailers and manufacturers
to handle the day-to-day responsibilities of managing service
contracts and providing assistance to the consumer.
The Bureau regulates service contractors who sell service
contracts for the repair of consumer electronics and appliances
AB 1926
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in California. The Bureau can fine violators or revoke or
suspend their registration. EARDRL further protects consumers
by requiring that service contractors provide the service
guaranteed in the service contract. An additional protection
for consumers requires that service contractors provide
financial backing for the service contracts issued.
Support . In support of this bill, NEWAsurion writes, "Business
and Professions Code Section 9855 defines 'service contract' as
a contract in writing to perform services relating to the
maintenance, replacement, or repair of various types of products
including, but not limited to, electronics, kitchen appliances,
lawn and garden equipment, furniture, power tools, and jewelry.
"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 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 1926 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. AB 1926 would not only benefit businesses offering
this valuable 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."
Previous legislation . AB 2111 (Smyth), Chapter 543, Statutes of
2010, revises the service contract law, and makes conforming
changes to implement these changes.
AB 1553 (Wesson and Bermudez), Chapter 775, Statutes of 2003,
expands the scope of what a consumer goods "service contract"
may cover, and gives service contract sellers a new means to
fulfill existing financial reserve requirements.
REGISTERED SUPPORT / OPPOSITION :
AB 1926
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Support
NEWAsurion
Opposition
None on file.
Analysis Prepared by : Rebecca May / B.,P. & C.P. / (916)
319-3301