BILL ANALYSIS �
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|Hearing Date:June 11, 2012 |Bill No:AB |
| |1926 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 1926Author:Solorio
As Introduced: February 22, 2012 Fiscal:Yes
SUBJECT: Service contracts.
SUMMARY: 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, 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 more than 9,000 service contract sellers, 23 service
contract administrators, and 5,400 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 of 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
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and tools, or home health care products, and may include
provisions for incidental payment of indemnity under limited
circumstances.
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
unlawfully transacting the business of insurance and subject to
specified criminal penalties. (BPC � 9855.85)
This bill: 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, thereby making administrators and sellers of those
contracts subject to registration and regulation by the Bureau.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
April 18, 2012 cites that it is estimated that this legislation could
add over 7,600 additional licensees under the Bureau's oversight.
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On-going costs associated with those additional licenses would be
approximately $200,000 per year (Electronic and Appliance Repair
Fund), which would be fully offset by fees.
COMMENTS:
1.Purpose. This bill is sponsored by the Author . The Author states
the bill is intended to include in the definition of service
contract 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 with the Bureau and other requirements of the act.
The Author further states:
"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).
"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.
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."
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
and are collectively governed by the provisions of BPC � 9801 et
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seq. 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.
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.
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 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 excerpted 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
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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 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 Legislation. AB 2111 (Smyth, Chapter 543, Statutes of
2010) revised the service contract law to expand the number of
parties who may sell service contracts, require a service contract
reimbursement insurance policy (SCRIP) for all service contracts
(SC), permit electronic sets, appliances and their accessories to
be covered by SCs, excluding contracts for structural wiring
associated with the delivery of cable, telephone, or broadband
services from the definition of SC; and exempt certain financial
institutions and specified electrical device manufacturer or
contractors from the definition of "service contract seller."
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.
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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 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. This bill is supported by NEWAsurion who
writes that service contracts provide a low cost means of
protecting investments in consumer products and, as such, have
become extremely important to consumers. However, Optical products
are not included in 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 solves this
arbitrary limitation by expanding the definition of service
contracts to include optical products, thereby authorizing the sale
of optical service contracts in California. NEWAsurion argues that
the bill 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.
SUPPORT AND OPPOSITION:
Support:
NEWAsurion
Opposition:
None received as of June 6, 2012.
Consultant:G. V. Ayers
AB 1926
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