1-1     By:  Sibley                                            S.B. No. 714
 1-2           (In the Senate - Filed February 14, 2001; February 15, 2001,
 1-3     read first time and referred to Committee on Business and Commerce;
 1-4     March 1, 2001, reported adversely, with favorable Committee
 1-5     Substitute by the following vote:  Yeas 6, Nays 0; March 1, 2001,
 1-6     sent to printer.)
 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 714                   By:  Sibley
 1-8                            A BILL TO BE ENTITLED
 1-9                                   AN ACT
1-10     relating to the regulation of certain warrantors of vehicle
1-11     protection products; providing penalties.
1-12           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13           SECTION 1.  Chapter 20, Title 132, Revised Statutes, is
1-14     amended by adding Article 9035 to read as follows:
1-15           Art. 9035.  REGULATION OF CERTAIN VEHICLE PROTECTION PRODUCT
1-16     WARRANTORS
1-17           Sec. 1.  SHORT TITLE.  This article may be cited as the
1-18     Vehicle Protection Product Regulatory Act.
1-19           Sec. 2.  DEFINITIONS.  In this article:
1-20                 (1)  "Commission" means the Texas Commission of
1-21     Licensing and Regulation.
1-22                 (2)  "Commissioner" means the commissioner of licensing
1-23     and regulation.
1-24                 (3)  "Consumer" means a person in this state who
1-25     purchases or otherwise possesses a vehicle protection product.
1-26                 (4)  "Department" means the Texas Department of
1-27     Licensing and Regulation.
1-28                 (5)  "Person" means an individual or a partnership,
1-29     company, corporation, association, or other group, however
1-30     organized.
1-31                 (6)  "Reimbursement insurance policy" means a policy of
1-32     insurance issued to a warrantor to:
1-33                       (A)  provide reimbursement to the warrantor under
1-34     the terms of the insured vehicle protection product issued or sold
1-35     by the warrantor; and
1-36                       (B)  pay on behalf of the warrantor, in the event
1-37     of the warrantor's nonperformance, all covered obligations incurred
1-38     by the warrantor under the terms of the insured vehicle protection
1-39     product issued or sold by the warrantor.
1-40                 (7)  "Seller" means a person engaged in the business of
1-41     offering a vehicle protection product for sale to a consumer.
1-42                 (8)  "Vehicle protection product" means a product or
1-43     system, which includes a written warranty, that is:
1-44                       (A)  installed or applied to a vehicle;
1-45                       (B)  designed to prevent loss or damage to a
1-46     vehicle from a specific cause; and
1-47                       (C)  subject to the limitation of Section 3 of
1-48     this article.
1-49                 (9)  "Warrantor" means a person named under the terms
1-50     of a vehicle protection product warranty as the contractual obligor
1-51     to the consumer.
1-52           Sec. 3.  APPLICABILITY OF ARTICLE.  (a)  This article applies
1-53     only to a vehicle protection product under which, after
1-54     installation or application of the vehicle protection product, if
1-55     loss or damage results from the failure of the vehicle protection
1-56     product to perform as represented in the warranty, the warrantor,
1-57     to the extent agreed on as part of the warranty, is required to pay
1-58     expenses to the consumer for the loss of or damage to the vehicle.
1-59           (b)  Loss of or damage to the vehicle under Subsection (a) of
1-60     this section may also include unreimbursed incidental expenses that
1-61     may be incurred by the warrantor, including expenses for a
1-62     replacement vehicle, temporary vehicle rental expenses, and
1-63     registration expenses for replacement vehicles.
1-64           Sec. 4.  POWERS AND DUTIES OF COMMISSIONER.  (a)  The
 2-1     commissioner may adopt rules as necessary to implement this
 2-2     article.
 2-3           (b)  The commissioner may conduct investigations of
 2-4     warrantors or other persons as reasonably necessary to enforce this
 2-5     article and to protect consumers in this state.  On request of the
 2-6     commissioner, a warrantor shall make the warrantor's records
 2-7     maintained under Section 10 of this article regarding vehicle
 2-8     protection products sold by the warrantor available to the
 2-9     department as necessary to enable the department to reasonably
2-10     determine compliance with this article.
2-11           Sec. 5.  VEHICLE PROTECTION PRODUCT WARRANTOR ADVISORY BOARD.
2-12     (a)  The Vehicle Protection Product Warrantor Advisory Board is an
2-13     advisory body to the department.  The advisory board shall advise:
2-14                 (1)  the commissioner on adopting rules and enforcing
2-15     and administering this article; and
2-16                 (2)  the commission on setting fees.
2-17           (b)  The advisory board consists of six members appointed by
2-18     the commissioner as follows:
2-19                 (1)  two members who are officers, directors, or
2-20     employees of a warrantor who has been approved or expects to be
2-21     approved by the department;
2-22                 (2)  two members who are officers, directors, or
2-23     employees of a retail outlet or other entity located in this state
2-24     that sells vehicle protection products and is approved or expected
2-25     to be approved by the department; and
2-26                 (3)  two members who are residents of this state and,
2-27     at the time of appointment, are consumers of vehicle protection
2-28     products issued by warrantors registered or expected to be
2-29     registered under this article.
2-30           (c)  Members of the advisory board serve staggered six-year
2-31     terms, with the terms of two members expiring on February 1 of each
2-32     odd-numbered year.  The commissioner shall appoint the initial six
2-33     board members to terms of six years or less in order to create
2-34     staggered terms for the subsequent members of the advisory board.
2-35           (d)  The commissioner shall designate one member of the
2-36     advisory board to serve as presiding officer.
2-37           (e)  The commissioner or the commissioner's designee serves
2-38     as an ex officio nonvoting member of the advisory board.
2-39           (f)  The commissioner shall fill any vacancy on the advisory
2-40     board by appointing an individual who meets the qualifications for
2-41     the vacant advisory board position to serve the remainder of the
2-42     unexpired term.
2-43           (g)  The advisory board shall meet at least every six months
2-44     and may meet at other times at the call of the presiding officer or
2-45     commissioner.  The advisory board shall meet at a location in this
2-46     state designated by the advisory board.
2-47           (h)  A decision of the advisory board is not effective unless
2-48     it receives the affirmative vote of at least four members.
2-49           (i)  Advisory board members serve without compensation.  A
2-50     member of the advisory board appointed under Subsection (b)(3) of
2-51     this section is entitled to reimbursement for actual and necessary
2-52     expenses incurred in performing functions as a member of the
2-53     advisory board, subject to any applicable limitation on
2-54     reimbursement provided by the General Appropriations Act.
2-55           (j)  Chapter 2110, Government Code, does not apply to the
2-56     advisory board.
2-57           Sec. 6.  REGISTRATION REQUIREMENTS; EXEMPTIONS.  (a)  A
2-58     person may not operate as a warrantor or represent to the public
2-59     that the person is a warrantor unless the person is registered with
2-60     the department.  A person who sells or solicits a vehicle
2-61     protection product but who is not a warrantor is not required to
2-62     register with the department as a warrantor.
2-63           (b)  Each applicant for registration must file an application
2-64     on a form prescribed by the department that includes evidence
2-65     satisfactory to the department of compliance with the financial
2-66     security requirements adopted under Section 7 of this article.
2-67           (c)  Each registered warrantor shall pay an annual
2-68     registration fee not to exceed $2,500 as set by the commission to
2-69     cover the costs of administering this article.  The department
 3-1     shall develop a tiered fee structure under which registration fees
 3-2     are assessed on warrantors based on the number of vehicle
 3-3     protection products sold within this state in the 12 months
 3-4     preceding the date of registration.  The information submitted to
 3-5     the department under this section regarding the number of vehicle
 3-6     protection products sold by a warrantor may only be used by the
 3-7     department in determining the tiered fee structure.  Information
 3-8     concerning the number of vehicle protection products sold by a
 3-9     warrantor submitted under this section is a trade secret and
3-10     subject to Section 552.110, Government Code.
3-11           (d)  The commissioner shall adopt rules providing for the
3-12     renewal of a warrantor's registration.
3-13           (e)  The marketing, selling, offering for sale, issuing,
3-14     making, proposing to make, and administering of vehicle protection
3-15     products are exempt from:
3-16                 (1)  the Service Contract Regulatory Act (Article 9034,
3-17     Revised Statutes);
3-18                 (2)  the Insurance Code and other laws of this state
3-19     regulating the business of insurance; and
3-20                 (3)  Chapter 722, Transportation Code.
3-21           (f)  The following contracts and agreements are exempt from
3-22     this article and are only subject to other statutes and laws that
3-23     specifically apply to them:
3-24                 (1)  warranties or guarantees, other than those
3-25     provided as part of a vehicle protection product;
3-26                 (2)  service contracts regulated by the Service
3-27     Contract Regulatory Act (Article 9034, Revised Statutes); and
3-28                 (3)  agreements issued by automobile service clubs
3-29     certified under Chapter 722, Transportation Code.
3-30           (g)  A seller is not a warrantor unless, in addition to
3-31     acting as a seller, the person is named under the terms of a
3-32     vehicle protection product warranty as the contractual obligor to
3-33     the consumer.
3-34           Sec. 7.  FINANCIAL SECURITY REQUIREMENTS.  (a)  To ensure the
3-35     adequate performance of a warrantor's obligations to a consumer,
3-36     each warrantor shall comply with financial security requirements
3-37     by:
3-38                 (1)  insuring its vehicle protection products under a
3-39     reimbursement insurance policy issued by an insurer authorized to
3-40     engage in the business of insurance in this state or under a
3-41     surplus lines insurance policy issued by an insurer eligible to
3-42     place coverage in this state as regulated under Article 1.14-2,
3-43     Insurance Code; or
3-44                 (2)  providing any other form of comparable financial
3-45     security approved by the commissioner.
3-46           (b)  The department may not require any other financial
3-47     security requirements or financial standards for warrantors.
3-48           Sec. 8.  REIMBURSEMENT INSURANCE POLICY.  (a)  In order for a
3-49     warrantor to comply with Section 7(a)(1) of this article, the
3-50     warrantor's insurance policy must state that:
3-51                 (1)  the insurer that issued the policy shall reimburse
3-52     or pay on behalf of the warrantor any covered amounts the warrantor
3-53     is legally obligated to pay or shall provide the service that the
3-54     warrantor is legally obligated to perform according to the
3-55     warrantor's obligations under the insured vehicle protection
3-56     product issued or sold by the warrantor; and
3-57                 (2)  if the covered amounts are not paid or the covered
3-58     service is not provided by the warrantor to a consumer before the
3-59     61st day after the date the consumer provides proof of loss,
3-60     payment shall be made or the service shall be provided directly
3-61     from the reimbursement insurer to the consumer.
3-62           (b)  An insurer who issues a reimbursement insurance policy
3-63     under this article may not cancel the policy until the insurer
3-64     delivers to the warrantor a written notice of cancellation that
3-65     complies with the requirements adopted for those notices under
3-66     Articles 21.49-2A and 21.49-2B, Insurance Code.  The warrantor
3-67     shall forward a copy of the cancellation notice to the department
3-68     not later than the 15th business day after the date the notice is
3-69     delivered to the warrantor.
 4-1           (c)  The cancellation of a reimbursement insurance policy
 4-2     does not reduce the insurer's responsibility for vehicle protection
 4-3     products issued by the warrantor and insured under the policy
 4-4     before the date of the cancellation.
 4-5           (d)  For purposes of this section, a warrantor is considered
 4-6     to be the representative of the insurer who issues the
 4-7     reimbursement insurance policy for purposes of obligating the
 4-8     insurer to consumers in accordance with the vehicle protection
 4-9     product and this article.
4-10           Sec. 9.  GENERAL WARRANTOR OPERATION REQUIREMENTS.  (a)  A
4-11     warrantor may appoint a designee to be responsible for any or all
4-12     of the administration of vehicle protection products and for
4-13     compliance with this article.
4-14           (b)  A vehicle protection product may not be issued, sold, or
4-15     offered for sale in this state unless at the time of sale the
4-16     warrantor provides to the consumer:
4-17                 (1)  a copy of the vehicle protection product warranty;
4-18     or
4-19                 (2)  a receipt for, or other written evidence of, the
4-20     purchase of the vehicle protection product.
4-21           (c)  A warrantor who complies with Subsection (b)(2) of this
4-22     section shall within a reasonable time after the date of purchase
4-23     provide to the consumer a copy of the vehicle protection product
4-24     warranty.
4-25           (d)  A warrantor shall indemnify a seller who pays or is
4-26     obligated to pay a consumer any money the warrantor is obligated to
4-27     pay under the terms of the vehicle protection product warranty,
4-28     including damages, attorney's fees, and costs.
4-29           Sec. 10.  WARRANTOR RECORDS.  (a)  Each warrantor shall
4-30     maintain accurate accounts, books, and other records regarding
4-31     transactions regulated under this article.  The warrantor's records
4-32     must include:
4-33                 (1)  a copy of the warranty for each unique form of
4-34     vehicle protection product sold;
4-35                 (2)  the name and address of each consumer;
4-36                 (3)  a list of the locations where the warrantor's
4-37     vehicle protection products are marketed, sold, or offered for
4-38     sale; and
4-39                 (4)  files that contain at least the dates and
4-40     descriptions of payments to consumers related to the vehicle
4-41     protection product.
4-42           (b)  Except as provided by Subsection (d) of this section,
4-43     each warrantor shall retain all records required under Subsection
4-44     (a) of this section until at least the first anniversary of the
4-45     expiration date of the obligations under the vehicle protection
4-46     product warranty.
4-47           (c)  The records required to be maintained under this section
4-48     may be maintained in an electronic medium or through another
4-49     recordkeeping technology.  If a record is maintained in a format
4-50     other than paper, the warrantor must be able to reformat the record
4-51     into a legible paper copy at the request of the department.
4-52           (d)  A warrantor who discontinues business in this state
4-53     shall maintain the warrantor's records until the date the warrantor
4-54     provides the department with proof satisfactory to the department
4-55     that the warrantor has discharged all obligations to consumers in
4-56     this state.
4-57           (e)  The commissioner shall adopt rules governing how a
4-58     warrantor shall protect nonpublic personal information provided by
4-59     a consumer to the warrantor.
4-60           Sec. 11.  REQUIRED DISCLOSURES.  (a)  Each vehicle protection
4-61     product warranty marketed, sold, offered for sale, issued, made,
4-62     proposed to be made, or administered in this state must be written,
4-63     printed, or typed, in clear, understandable, and easy to read
4-64     language, and must disclose the applicable requirements set forth
4-65     in this section.
4-66           (b)  The obligations of a vehicle protection product warranty
4-67     that are insured under a reimbursement insurance policy must
4-68     contain a statement substantially similar to the following:
4-69           "Obligations of the warrantor under this vehicle protection
 5-1     product are insured under a reimbursement insurance policy."
 5-2           (c)  The vehicle protection product warranty must state the
 5-3     name and address of the insurer and state that if a covered service
 5-4     is not provided by the warrantor before the 61st day after the date
 5-5     the consumer provides proof of loss, the consumer may apply for
 5-6     reimbursement directly to the vehicle protection product's
 5-7     reimbursement insurance company.
 5-8           (d)  The obligations of a vehicle protection product warranty
 5-9     that are not insured under a reimbursement insurance policy must
5-10     contain a statement in the warranty substantially similar to the
5-11     following:
5-12           "Obligations of the warrantor under this vehicle protection
5-13     product are backed by the full faith and credit of the warrantor."
5-14           (e)  Each vehicle protection product warranty must state the
5-15     name, address, and phone number of the warrantor.  All warrantors
5-16     shall report to the department before the 31st day after the date
5-17     of any change in the information required to be provided in this
5-18     subsection.
5-19           (f)  Each vehicle protection product warranty must identify
5-20     any administrator, if different from the warrantor, the vehicle
5-21     protection product seller, and the consumer, if the name of the
5-22     consumer has been provided by the consumer.  The identities of
5-23     those persons are not required to be preprinted on the warranty and
5-24     may be added to the warranty at the time of sale.
5-25           (g)  Each vehicle protection product warranty must state the
5-26     product's purchase price, or the warrantor's suggested purchase
5-27     price, and the terms under which the product is sold.  The purchase
5-28     price is not required to be preprinted on the vehicle protection
5-29     product warranty and may be negotiated with the consumer at the
5-30     time of sale.
5-31           (h)  Each vehicle protection product warranty must:
5-32                 (1)  specify the products and services to be provided
5-33     and any limitations, exceptions, or exclusions;
5-34                 (2)  specify any restrictions governing the
5-35     transferability of the vehicle protection product;
5-36                 (3)  state the duties of the consumer, including any
5-37     duty to protect against any further damage and any requirement to
5-38     follow the warranty's instructions;
5-39                 (4)  state the name, mailing address, and telephone
5-40     number of the department; and
5-41                 (5)  include a statement that unresolved complaints
5-42     concerning a registered warrantor or questions concerning the
5-43     regulation of a warrantor may be addressed to the department.
5-44           (i)  The requirements of Subsections (h)(4) and (5) of this
5-45     section may be stamped on the vehicle protection product warranty.
5-46           Sec. 12.  CANCELLATION OF WARRANTY.  (a)  Each vehicle
5-47     protection product warranty must state the terms, restrictions, or
5-48     conditions, if any, governing cancellation of the warranty by the
5-49     warrantor before the expiration date of the warranty.  Cancellation
5-50     may only occur under this section for:
5-51                 (1)  nonpayment by the consumer for the vehicle
5-52     protection product;
5-53                 (2)  a material misrepresentation by the consumer to
5-54     the seller or warrantor;
5-55                 (3)  fraud by the consumer; or
5-56                 (4)  a substantial breach of duties by the consumer
5-57     relating to the warranty.
5-58           (b)  A warrantor shall mail written notice of cancellation to
5-59     the consumer at the last address of the consumer contained in the
5-60     records of the warrantor before the fifth day preceding the
5-61     effective date of the cancellation.  The notice must state the
5-62     effective date of the cancellation and the reason for the
5-63     cancellation.
5-64           Sec. 13.  LIMITATIONS ON USE OF WARRANTOR'S NAME.  (a)  A
5-65     warrantor may not use:
5-66                 (1)  in its name the word "casualty," "surety,"
5-67     "insurance," or "mutual" or any other word descriptive of the
5-68     casualty, insurance, or surety business; or
5-69                 (2)  a name deceptively similar to the name or
 6-1     description of any insurance company,  surety corporation, or other
 6-2     warrantor.
 6-3           (b)  A warrantor may use the word "guaranty" or a similar
 6-4     word in the warrantor's name.
 6-5           Sec. 14.  PROHIBITED ACTS.  (a)  A warrantor or a warrantor's
 6-6     representative may not, in the warrantor's vehicle protection
 6-7     product warranty or in an advertisement or literature for the
 6-8     warranty:
 6-9                 (1)  make, permit, or cause to be made any false or
6-10     misleading statement; or
6-11                 (2)  deliberately omit a material statement that would
6-12     be considered misleading if omitted.
6-13           (b)  A warrantor may not require as a condition of sale or
6-14     financing that a retail purchaser of a motor vehicle purchase a
6-15     vehicle protection product that is not installed on the motor
6-16     vehicle at the time of sale.
6-17           Sec. 15.  SANCTIONS; ADMINISTRATIVE PENALTY.  (a)  On a
6-18     finding that a ground for disciplinary action exists under this
6-19     article, the commissioner may impose appropriate administrative
6-20     sanctions on a warrantor, including administrative penalties as
6-21     provided by Subchapter F, Chapter 51, Occupations Code.
6-22           (b)  An administrative penalty imposed under this section may
6-23     not exceed $1,000 for each violation or $10,000 in the aggregate
6-24     for all violations of a similar nature.
6-25           Sec. 16.  INJUNCTION; CIVIL PENALTY.  (a)  The commissioner
6-26     may bring an action against a warrantor for injunctive relief under
6-27     Section 51.352, Occupations Code, for a threatened or existing
6-28     violation of this article or of the commissioner's orders or rules
6-29     adopted under this article.
6-30           (b)  The commissioner may also bring an action against a
6-31     warrantor for civil penalties as provided by Section 51.352,
6-32     Occupations Code.  A civil penalty assessed under this subsection
6-33     may not exceed $1,000 for each violation or $50,000 in the
6-34     aggregate for all violations of a similar nature.
6-35           (c)  For purposes of this section and Section 15 of this
6-36     article, violations are of a similar nature if the violations
6-37     consist of the same or a similar course of conduct, action, or
6-38     practice, regardless of the number of times the conduct, act, or
6-39     practice determined to be a violation of this article occurred.
6-40           SECTION 2.  (a)  Article 9035, Revised Statutes, as added by
6-41     this Act, takes effect September 1, 2001, and applies only to a
6-42     vehicle protection product purchased on or after January 1, 2002.
6-43     A vehicle protection product purchased before January 1, 2002, and
6-44     transferred to a subsequent consumer on or after January 1, 2002,
6-45     is not required to comply with Article 9035, Revised Statutes.
6-46           (b)  A person regulated under Article 9035, Revised Statutes,
6-47     as added by this Act, is not required to comply with that article
6-48     until January 1, 2002, but may implement the requirements of that
6-49     article before January 1, 2002.  The failure of a warrantor or
6-50     other person to comply with that article or otherwise to administer
6-51     a vehicle protection product in the manner required by that article
6-52     before January 1, 2002, is not admissible in any court,
6-53     administrative, arbitration, or alternative dispute resolution
6-54     proceeding and may not otherwise be used to prove that the action
6-55     of any person or the affected vehicle protection product was
6-56     unlawful or otherwise improper.
6-57                                  * * * * *