HBA-JEK S.B. 714 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 714 By: Sibley Licensing & Administrative Procedures 3/21/2001 Engrossed BACKGROUND AND PURPOSE Vehicle protection products are products or systems designed to prevent loss or damage to a vehicle, and include auto alarms, steering wheel locking devices, and vehicle identification numbers etched onto vehicle windows. Some vehicle protection products are under warranty to minimize the losses that may occur from any failure of the product. The sale of vehicle protection products and warranties is currently unregulated in Texas. Senate Bill 714 provides for the registration and regulation of certain warrantors of vehicle protection products. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of licensing and regulation in SECTION 1 (Sections 4, 5, 6, and 10, Article 9035, V.T.C.S.) of this bill. ANALYSIS Senate Bill 714 amends law to establish provisions that apply to a vehicle protection product under warranty (warranty) that fails to perform as represented in its warranty, resulting in loss or damage to the vehicle. The bill may be cited as the Vehicle Protection Product Regulatory Act if it is enacted (Sec. 1, Art. 9035). Powers and Duties of the Commissioner S.B. 714 authorizes the commissioner of licensing and regulation (commissioner) to adopt rules as necessary to implement the provisions of the bill. The bill authorizes the commissioner to conduct investigations of warrantors or other persons as reasonably necessary to enforce these provisions and protect consumers in this state. The bill requires a warrantor to make the records regarding vehicle protection products it sells available to the Texas Department of Licensing and Regulation (TDLR) on the request of the commissioner (Sec. 4, Art. 9035). Advisory Board S.B. 714 establishes the Vehicle Protection Product Warrantor Advisory Board (advisory board) and sets forth provisions regarding the composition, terms of members, meeting schedule, and procedures of the advisory board. The bill requires the advisory board to advise the Texas Commission of Licensing and Regulation (TCLR) on setting fees and the commissioner on adopting rules and enforcing and administering the provisions of this bill. The bill also provides that the statutes regarding state agency advisory committees do not apply to the advisory board (Sec. 5, Art. 9035). Registration Requirements S.B. 714 prohibits a person from operating as a warrantor or representing himself or herself as a warrantor to the public unless the person is registered with TDLR. A person who sells or solicits a vehicle protection product but who is not a warrantor is not required to register (Sec. 6, Art. 9035). The bill sets forth provisions relating to the filing of an application for registration, the application form, and required fees (Sec. 6, Art 9035). S.B. 714 requires the commissioner to adopt rules providing for the renewal of a warrantor's registration. The bill exempts the marketing, selling, offering for sale, issuing, making, proposing to make, and administering of vehicle protection products from the Service Contract Regulatory Act, the Transportation Code, and the Insurance Code and other state laws regulating the business of insurance. The bill also exempts specified contracts and agreements from the provisions of this bill (Sec. 6, Art. 9035). Financial Security Requirements The bill requires each warrantor to comply with financial security requirements by insuring its vehicle protection products under a reimbursement or surplus lines insurance policy issued by an authorized insurer or by providing any other form of comparable financial security approved by the commissioner (Sec. 7, Art. 9035). The bill specifies the information that a warrantor's insurance policy must include (Sec. 8, Art. 9035). The bill prohibits TDLR from requiring any other financial security requirements or financial standards for warrantors (Sec. 7, Art. 9035). Reimbursement Insurance Policy S.B. 714 prohibits an insurer who issues a reimbursement insurance policy under this bill from canceling the policy until the insurer delivers a written notice of the cancellation to the warrantor that complies with the requirements adopted for the cancellation and nonrenewal of certain liability insurance coverage, property, or casualty policies (Sec. 8, Art. 9035). General Warrantor Operation Requirements S.B. 714 authorizes a warrantor to appoint a designee to be responsible for any or all of the administration of vehicle protection products and for compliance with the provisions of this bill. The bill prohibits a vehicle protection product from being issued, sold, or offered for sale in this state unless the warrantor at the time of sale provides a copy of the warranty, or a receipt or other written evidence of the purchase of the product. The bill requires a warrantor to indemnify a seller who pays or is obligated to pay a consumer any money the warrantor is obligated to pay under the warranty terms (Sec. 9, Art. 9035). Warrantor Records S.B. 714 requires each warrantor to maintain accurate accounts, books, and other records regarding regulated transactions and specifies the information the records must include. The bill requires each warrantor to retain these records until at least the first anniversary of the expiration date of the obligations under the warranty. The bill requires a warrantor who discontinues business in this state to maintain these records until the date the warrantor provides TDLR with satisfactory proof that the warrantor has discharged all obligations to consumers in this state. The bill requires the commissioner to adopt rules governing a warrantor's protection of nonpublic personal information provided by a consumer to the warrantor (Sec. 10, Art. 9035). Required Disclosures S.B. 714 provides that each warranty marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this state must disclose information regarding the insurer, warrantor, and other information related to the warranty and the sale of a product (Sec. 11, Art. 9035). Cancellation of Warranty S.B.714 provides that each warranty must state any applicable terms, restrictions, or conditions governing cancellation of the warranty by the warrantor before the warranty's expiration date. The bill only authorizes cancellation under this provision for the consumer's failure to pay for the vehicle protection product, a material misrepresentation by the consumer to the seller or warrantor, fraud by the consumer, or a substantial breach of duties by the consumer relating to the warranty (Sec. 12, Art. 9035). Limitations on Use of the Warrantor's Name S.B. 714 prohibits a warrantor from using the word "casualty," "surety," "insurance," "mutual," or any other word descriptive of the casualty, insurance, or surety business in the warrantor's name. The bill also prohibits a warrantor from using a name deceptively similar to the name or description of any insurance company, surety corporation, or other warrantor, but authorizes the warrantor to use the word "guaranty" or a similar word in the warrantor's name (Sec. 13, Art. 9035). Prohibited Acts and Penalties S.B. 714 prohibits a warrantor or a warrantor's representative from deliberately omitting a material statement that would be considered misleading if omitted or from making, permitting, or causing to be made any false or misleading statement in the warranty or in an advertisement or literature for the warranty. The bill prohibits a warrantor from requiring as a condition of sale or financing that a retail purchaser of a motor vehicle purchase a vehicle protection product that is not installed on the vehicle at the time of sale (Sec. 14, Art. 9035). The bill authorizes the commissioner to impose sanctions and administrative penalties or injunctions and civil penalties against a warrantor that violates the provisions of this bill (Secs. 15 and 16, Art. 9035). EFFECTIVE DATE September 1, 2001. The Act applies only to a vehicle protection product purchased on or after January 1, 2002. A person regulated under the Act is not required to comply with the Act until January 1, 2002, but may implement the requirements of the Act before January 1, 2002.