By Averitt H.B. No. 1558
77R5207 JMM-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the regulation of certain warrantors of vehicle
1-3 protection products; providing penalties.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Chapter 20, Title 132, Revised Statutes, is
1-6 amended by adding Article 9035 to read as follows:
1-7 Art. 9035. REGULATION OF CERTAIN VEHICLE PROTECTION PRODUCT
1-8 WARRANTORS
1-9 Sec. 1. SHORT TITLE. This article may be cited as the
1-10 Vehicle Protection Product Regulatory Act.
1-11 Sec. 2. DEFINITIONS. In this article:
1-12 (1) "Commission" means the Texas Commission of
1-13 Licensing and Regulation.
1-14 (2) "Commissioner" means the commissioner of licensing
1-15 and regulation.
1-16 (3) "Consumer" means a person in this state who
1-17 purchases or otherwise possesses a vehicle protection product.
1-18 (4) "Department" means the Texas Department of
1-19 Licensing and Regulation.
1-20 (5) "Person" means an individual or a partnership,
1-21 company, corporation, association, or other group, however
1-22 organized.
1-23 (6) "Reimbursement insurance policy" means a policy of
1-24 insurance issued to a warrantor to:
2-1 (A) provide reimbursement to the warrantor under
2-2 the terms of the insured vehicle protection product issued or sold
2-3 by the warrantor; and
2-4 (B) pay on behalf of the warrantor, in the event
2-5 of the warrantor's nonperformance, all covered obligations incurred
2-6 by the warrantor under the terms of the insured vehicle protection
2-7 product issued or sold by the warrantor.
2-8 (7) "Seller" means a person engaged in the business of
2-9 offering a vehicle protection product for sale to a consumer.
2-10 (8) "Vehicle protection product" means a product or
2-11 system, which includes a warranty, that is:
2-12 (A) installed or applied to a vehicle;
2-13 (B) designed to prevent loss or damage to a
2-14 vehicle from a specific cause; and
2-15 (C) subject to the limitation of Section 3 of
2-16 this article.
2-17 (9) "Warrantor" means a person named under the terms
2-18 of a vehicle protection product warranty as the contractual obligor
2-19 to the consumer.
2-20 Sec. 3. APPLICABILITY OF ARTICLE. (a) This article applies
2-21 only to a vehicle protection product under which, after
2-22 installation or application of the vehicle protection product, if
2-23 loss or damage results from the failure of the vehicle protection
2-24 product to perform as represented in the warranty, the warrantor,
2-25 to the extent agreed on as part of the warranty, is required to pay
2-26 expenses to the consumer for the loss or damage to the vehicle.
2-27 (b) Loss or damage to the vehicle under Subsection (a) of
3-1 this section may also include unreimbursed incidental expenses that
3-2 may be incurred by the warrantor, including expenses for a
3-3 replacement vehicle, temporary vehicle rental expenses, and
3-4 registration expenses for replacement vehicles.
3-5 Sec. 4. POWERS AND DUTIES OF COMMISSIONER. (a) The
3-6 commissioner may adopt rules as necessary to implement this
3-7 article.
3-8 (b) The commissioner may conduct investigations of
3-9 warrantors or other persons as reasonably necessary to enforce this
3-10 article and to protect consumers in this state. On request of the
3-11 commissioner, a warrantor shall make the warrantor's records
3-12 maintained under Section 10 of this article regarding vehicle
3-13 protection products sold by the warrantor available to the
3-14 department as necessary to enable the department to reasonably
3-15 determine compliance with this article.
3-16 Sec. 5. VEHICLE PROTECTION PRODUCT WARRANTOR ADVISORY BOARD.
3-17 (a) The Vehicle Protection Product Warrantor Advisory Board is an
3-18 advisory body to the department. The advisory board shall advise:
3-19 (1) the commissioner on adopting rules and enforcing
3-20 and administering this article; and
3-21 (2) the commission on setting fees.
3-22 (b) The advisory board consists of six members appointed by
3-23 the commissioner as follows:
3-24 (1) two members who are officers, directors, or
3-25 employees of a warrantor who has been approved or expects to be
3-26 approved by the department;
3-27 (2) two members who are officers, directors, or
4-1 employees of a retail outlet or other entity located in this state
4-2 that sells vehicle protection products and is approved or expected
4-3 to be approved by the department; and
4-4 (3) two members who are residents of this state and,
4-5 at the time of appointment, are consumers of vehicle protection
4-6 products issued by warrantors registered or expected to be
4-7 registered under this article.
4-8 (c) Members of the advisory board serve staggered six-year
4-9 terms, with the terms of two members expiring on February 1 of each
4-10 odd-numbered year. The commissioner shall appoint the initial six
4-11 board members to terms of six years or less in order to create
4-12 staggered terms for the subsequent members of the advisory board.
4-13 (d) The commissioner shall designate one member of the
4-14 advisory board to serve as presiding officer.
4-15 (e) The commissioner or the commissioner's designee serves
4-16 as an ex officio nonvoting member of the advisory board.
4-17 (f) The commissioner shall fill any vacancy on the advisory
4-18 board by appointing an individual who meets the qualifications for
4-19 the vacant advisory board position to serve the remainder of the
4-20 unexpired term.
4-21 (g) The advisory board shall meet at least every six months
4-22 and may meet at other times at the call of the presiding officer or
4-23 commissioner. The advisory board shall meet at a location in this
4-24 state designated by the advisory board.
4-25 (h) A decision of the advisory board is not effective unless
4-26 it receives the affirmative vote of at least four members.
4-27 (i) Advisory board members serve without compensation. A
5-1 member of the advisory board appointed under Subsection (b)(3) of
5-2 this section is entitled to reimbursement for actual and necessary
5-3 expenses incurred in performing functions as a member of the
5-4 advisory board, subject to any applicable limitation on
5-5 reimbursement provided by the General Appropriations Act.
5-6 (j) Chapter 2110, Government Code, does not apply to the
5-7 advisory board.
5-8 Sec. 6. REGISTRATION REQUIREMENTS; EXEMPTIONS. (a) A person
5-9 may not operate as a warrantor or represent to the public that the
5-10 person is a warrantor unless the person is registered with the
5-11 department. A person who sells or solicits a vehicle protection
5-12 product but who is not a warrantor is not required to register with
5-13 the department as a warrantor.
5-14 (b) Each applicant for registration must file an application
5-15 on a form prescribed by the department that includes evidence
5-16 satisfactory to the department of compliance with the financial
5-17 security requirements adopted under Section 7 of this article.
5-18 (c) Each registered warrantor shall pay an annual
5-19 registration fee not to exceed $2,500 as set by the commission to
5-20 cover the costs of administering this article. The department
5-21 shall develop a tiered fee structure under which registration fees
5-22 are assessed on warrantors based on the number of vehicle
5-23 protection products sold within this state in the 12 months
5-24 preceding the date of registration. The information submitted to
5-25 the department under this section regarding the number of vehicle
5-26 protection products sold by a warrantor may only be used by the
5-27 department in determining the tiered fee structure. Information
6-1 concerning the number of vehicle protection products sold by a
6-2 warrantor submitted under this section is a trade secret and
6-3 subject to Section 552.110, Government Code.
6-4 (d) The commissioner shall adopt rules providing for the
6-5 renewal of a warrantor's registration.
6-6 (e) The marketing, selling, offering for sale, issuing,
6-7 making, proposing to make, and administering of vehicle protection
6-8 products are exempt from:
6-9 (1) the Service Contract Regulatory Act (Article 9034,
6-10 Revised Statutes);
6-11 (2) the Insurance Code and other laws of this state
6-12 regulating the business of insurance; and
6-13 (3) Chapter 722, Transportation Code.
6-14 (f) The following contracts and agreements are exempt from
6-15 this article and are only subject to other statutes and laws that
6-16 specifically apply to them:
6-17 (1) warranties or guarantees, other than those
6-18 provided as part of a vehicle protection product;
6-19 (2) service contracts regulated by the Service
6-20 Contract Regulatory Act (Article 9034, Revised Statutes); and
6-21 (3) agreements issued by automobile service clubs
6-22 certified under Chapter 722, Transportation Code.
6-23 (g) A seller is not a warrantor unless, in addition to
6-24 acting as a seller, the person is named under the terms of a
6-25 vehicle protection product warranty as the contractual obligor to
6-26 the consumer.
6-27 Sec. 7. FINANCIAL SECURITY REQUIREMENTS. (a) To ensure the
7-1 adequate performance of a warrantor's obligations to a consumer,
7-2 each warrantor shall comply with financial security requirements
7-3 by:
7-4 (1) insuring its vehicle protection products under a
7-5 reimbursement insurance policy issued by an insurer authorized to
7-6 engage in the business of insurance in this state or under a
7-7 surplus lines insurance policy issued by an insurer eligible to
7-8 place coverage in this state as regulated under Article 1.14-2,
7-9 Insurance Code; or
7-10 (2) providing any other form of comparable financial
7-11 security approved by the commissioner.
7-12 (b) The department may not require any other financial
7-13 security requirements or financial standards for warrantors.
7-14 Sec. 8. REIMBURSEMENT INSURANCE POLICY. (a) In order for a
7-15 warrantor to comply with Section 7(a)(1) of this article, the
7-16 warrantor's insurance policy must state that:
7-17 (1) the insurer that issued the policy shall reimburse
7-18 or pay on behalf of the warrantor any covered amounts the warrantor
7-19 is legally obligated to pay or shall provide the service that the
7-20 warrantor is legally obligated to perform according to the
7-21 warrantor's obligations under the insured vehicle protection
7-22 product issued or sold by the warrantor; and
7-23 (2) if the covered amounts are not paid or the covered
7-24 service is not provided by the warrantor to a consumer before the
7-25 61st day after the date the consumer provides proof of loss,
7-26 payment shall be made or the service shall be provided directly
7-27 from the reimbursement insurer to the consumer.
8-1 (b) An insurer who issues a reimbursement insurance policy
8-2 under this article may not cancel the policy until the insurer
8-3 delivers to the warrantor a written notice of cancellation that
8-4 complies with the requirements adopted for those notices under
8-5 Articles 21.49-2A and 21.49-2B, Insurance Code. The warrantor
8-6 shall forward a copy of the cancellation notice to the department
8-7 not later than the 15th business day after the date the notice is
8-8 delivered to the warrantor.
8-9 (c) The cancellation of a reimbursement insurance policy
8-10 does not reduce the insurer's responsibility for vehicle protection
8-11 products issued by the warrantor and insured under the policy
8-12 before the date of the cancellation.
8-13 (d) For purposes of this section, a warrantor is considered
8-14 to be the representative of the insurer who issues the
8-15 reimbursement insurance policy for purposes of obligating the
8-16 insurer to consumers in accordance with the vehicle protection
8-17 product and this article.
8-18 Sec. 9. GENERAL WARRANTOR OPERATION REQUIREMENTS. (a) A
8-19 warrantor may appoint a designee to be responsible for any or all
8-20 of the administration of vehicle protection products and for
8-21 compliance with this article.
8-22 (b) A vehicle protection product may not be issued, sold, or
8-23 offered for sale in this state unless at the time of sale the
8-24 warrantor provides to the consumer:
8-25 (1) a copy of the vehicle protection product warranty;
8-26 or
8-27 (2) a receipt for, or other written evidence of, the
9-1 purchase of the vehicle protection product.
9-2 (c) A warrantor who complies with Subsection (b)(2) of this
9-3 section shall within a reasonable time after the date of purchase
9-4 provide to the consumer a copy of the vehicle protection product
9-5 warranty.
9-6 (d) A warrantor shall indemnify a seller who pays or is
9-7 obligated to pay a consumer any money the warrantor is obligated to
9-8 pay under the terms of the vehicle protection product warranty,
9-9 including damages, attorney's fees, and costs.
9-10 Sec. 10. WARRANTOR RECORDS. (a) Each warrantor shall
9-11 maintain accurate accounts, books, and other records regarding
9-12 transactions regulated under this article. The warrantor's records
9-13 must include:
9-14 (1) a copy of the warranty for each unique form of
9-15 vehicle protection product sold;
9-16 (2) the name and address of each consumer;
9-17 (3) a list of the locations where the warrantor's
9-18 vehicle protection products are marketed, sold, or offered for
9-19 sale; and
9-20 (4) files that contain at least the dates and
9-21 descriptions of payments to consumers related to the vehicle
9-22 protection product.
9-23 (b) Except as provided by Subsection (d) of this section,
9-24 each warrantor shall retain all records required under Subsection
9-25 (a) of this section until at least the first anniversary of the
9-26 expiration date of the obligations under the vehicle protection
9-27 product warranty.
10-1 (c) The records required to be maintained under this section
10-2 may be maintained in an electronic medium or through another
10-3 recordkeeping technology. If a record is maintained in a format
10-4 other than paper, the warrantor must be able to reformat the record
10-5 into a legible paper copy at the request of the department.
10-6 (d) A warrantor who discontinues business in this state
10-7 shall maintain the warrantor's records until the date the warrantor
10-8 provides the department with proof satisfactory to the department
10-9 that the warrantor has discharged all obligations to consumers in
10-10 this state.
10-11 (e) The commissioner shall adopt rules governing how a
10-12 warrantor shall protect nonpublic personal information provided by
10-13 a consumer to the warrantor.
10-14 Sec. 11. REQUIRED DISCLOSURES. (a) Each vehicle protection
10-15 product warranty marketed, sold, offered for sale, issued, made,
10-16 proposed to be made, or administered in this state must be written,
10-17 printed, or typed, in clear, understandable, and easy to read
10-18 language, and must disclose the applicable requirements set forth
10-19 in this section.
10-20 (b) The obligations of a vehicle protection product warranty
10-21 that are insured under a reimbursement insurance policy must
10-22 contain a statement substantially similar to the following:
10-23 "Obligations of the warrantor under this vehicle protection
10-24 product are insured under a reimbursement insurance policy."
10-25 (c) The vehicle protection product warranty must state the
10-26 name and address of the insurer and state that if a covered service
10-27 is not provided by the warrantor before the 61st day after the date
11-1 the consumer provides proof of loss, the consumer may apply for
11-2 reimbursement directly to the vehicle protection product's
11-3 reimbursement insurance company.
11-4 (d) The obligations of a vehicle protection product warranty
11-5 that are not insured under a reimbursement insurance policy must
11-6 contain a statement in the warranty substantially similar to the
11-7 following:
11-8 "Obligations of the warrantor under this vehicle protection
11-9 product are backed by the full faith and credit of the warrantor."
11-10 (e) Each vehicle protection product warranty must state the
11-11 name, address, and phone number of the warrantor. All warrantors
11-12 shall report to the department before the 31st day after the date
11-13 of any change in the information required to be provided in this
11-14 subsection.
11-15 (f) Each vehicle protection product warranty must identify
11-16 any administrator, if different from the warrantor, the vehicle
11-17 protection product seller, and the consumer, if the name of the
11-18 consumer has been provided by the consumer. The identities of
11-19 those persons are not required to be preprinted on the warranty and
11-20 may be added to the warranty at the time of sale.
11-21 (g) Each vehicle protection product warranty must state the
11-22 product's purchase price, or the warrantor's suggested purchase
11-23 price, and the terms under which the product is sold. The purchase
11-24 price is not required to be preprinted on the vehicle protection
11-25 product warranty and may be negotiated with the consumer at the
11-26 time of sale.
11-27 (h) Each vehicle protection product warranty must:
12-1 (1) specify the products and services to be provided
12-2 and any limitations, exceptions, or exclusions;
12-3 (2) specify any restrictions governing the
12-4 transferability of the vehicle protection product;
12-5 (3) state the duties of the consumer, including any
12-6 duty to protect against any further damage and any requirement to
12-7 follow the warranty's instructions;
12-8 (4) state the name, mailing address, and telephone
12-9 number of the department; and
12-10 (5) include a statement that unresolved complaints
12-11 concerning a registered warrantor or questions concerning the
12-12 regulation of a warrantor may be addressed to the department.
12-13 (i) The requirements of Subsections (h)(4) and (5) of this
12-14 section may be stamped on the vehicle protection product warranty.
12-15 Sec. 12. CANCELLATION OF WARRANTY. (a) Each vehicle
12-16 protection product warranty must state the terms, restrictions, or
12-17 conditions, if any, governing cancellation of the warranty by the
12-18 warrantor before the expiration date of the warranty. Cancellation
12-19 may only occur under this section for:
12-20 (1) nonpayment by the consumer for the vehicle
12-21 protection product;
12-22 (2) a material misrepresentation by the consumer to
12-23 the seller or warrantor;
12-24 (3) fraud by the consumer; or
12-25 (4) a substantial breach of duties by the consumer
12-26 relating to the warranty.
12-27 (b) A warrantor shall mail written notice of cancellation to
13-1 the consumer at the last address of the consumer contained in the
13-2 records of the warrantor before the fifth day preceding the
13-3 effective date of the cancellation. The notice must state the
13-4 effective date of the cancellation and the reason for the
13-5 cancellation.
13-6 Sec. 13. LIMITATIONS ON USE OF WARRANTOR'S NAME. (a) A
13-7 warrantor may not use:
13-8 (1) in its name the word "casualty," "surety,"
13-9 "insurance," or "mutual" or any other word descriptive of the
13-10 casualty, insurance, or surety business; or
13-11 (2) a name deceptively similar to the name or
13-12 description of any insurance company, surety corporation, or other
13-13 warrantor.
13-14 (b) A warrantor may use the word "guaranty" or a similar
13-15 word in the warrantor's name.
13-16 Sec. 14. PROHIBITED ACTS. (a) A warrantor or a warrantor's
13-17 representative may not, in the warrantor's vehicle protection
13-18 product warranty or in an advertisement or literature for the
13-19 warranty:
13-20 (1) make, permit, or cause to be made any false or
13-21 misleading statement; or
13-22 (2) deliberately omit a material statement that would
13-23 be considered misleading if omitted.
13-24 (b) A warrantor may not require as a condition of sale or
13-25 financing that a retail purchaser of a motor vehicle purchase a
13-26 vehicle protection product that is not installed on the motor
13-27 vehicle at the time of sale.
14-1 Sec. 15. SANCTIONS; ADMINISTRATIVE PENALTY. (a) On a
14-2 finding that a ground for disciplinary action exists under this
14-3 article, the commissioner may impose appropriate administrative
14-4 sanctions on a warrantor, including administrative penalties as
14-5 provided by Subchapter F, Chapter 51, Occupations Code.
14-6 (b) An administrative penalty imposed under this section may
14-7 not exceed $1,000 for each violation or $10,000 in the aggregate
14-8 for all violations of a similar nature.
14-9 Sec. 16. INJUNCTION; CIVIL PENALTY. (a) The commissioner
14-10 may bring an action against a warrantor for injunctive relief under
14-11 Section 51.352, Occupations Code, for a threatened or existing
14-12 violation of this article or of the commissioner's orders or rules
14-13 adopted under this article.
14-14 (b) The commissioner may also bring an action against a
14-15 warrantor for civil penalties as provided by Section 51.352,
14-16 Occupations Code. A civil penalty assessed under this subsection
14-17 may not exceed $1,000 for each violation or $50,000 in the
14-18 aggregate for all violations of a similar nature.
14-19 (c) For purposes of this section and Section 15 of this
14-20 article, violations are of a similar nature if the violations
14-21 consist of the same or a similar course of conduct, action, or
14-22 practice, regardless of the number of times the conduct, act, or
14-23 practice determined to be a violation of this article occurred.
14-24 SECTION 2. (a) Article 9035, Revised Statutes, as added by
14-25 this Act, takes effect September 1, 2001, and applies only to a
14-26 vehicle protection product purchased on or after January 1, 2002. A
14-27 vehicle protection product purchased before January 1, 2002, and
15-1 transferred to a subsequent consumer on or after January 1, 2002,
15-2 is not required to comply with Article 9035, Revised Statutes.
15-3 (b) A person regulated under Article 9035, Revised Statutes,
15-4 as added by this Act, is not required to comply with that article
15-5 until January 1, 2002, but may implement the requirements of that
15-6 article before January 1, 2002. The failure of a warrantor or
15-7 other person to comply with that article or otherwise to administer
15-8 a vehicle protection product in the manner required by that article
15-9 before January 1, 2002, is not admissible in any court,
15-10 administrative, arbitration, or alternative dispute resolution
15-11 proceeding and may not otherwise be used to prove that the action
15-12 of any person or the affected vehicle protection product was
15-13 unlawful or otherwise improper.