89R14283 SCR-F
By: Phelan H.B. No. 4830
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of service contracts and service
contract providers and administrators.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 1304.002(4), Occupations Code, is
amended to read as follows:
(4) "Consumer" means an individual to whom a service
contract is sold, offered, or marketed [who, for a purpose other
than resale, buys tangible personal property that is:
[(A) distributed in commerce; and
[(B) normally used for personal, family, or
household purposes and not for business or research purposes].
SECTION 2. Sections 1304.003(a)(2) and (4), Occupations
Code, are amended to read as follows:
(2) "Service contract" means an agreement that is
entered into for a separately stated consideration and for a
specified term under which a provider agrees to:
(A) repair, replace, or maintain a product, or
provide reimbursement or payment [indemnification] for the repair,
replacement, or maintenance of a product, for operational or
structural failure, for damage caused by a power surge to a product,
or for damage caused by a defect in materials or workmanship or by
normal wear;
(B) provide identity recovery, if the service
contract is financed under Chapter 348 or 353, Finance Code;
(C) provide compensation to the lessee or buyer
of a vehicle on the total constructive loss under a depreciation
benefit optional member program; [or]
(D) provide a service, reimbursement, or payment
under a residential service contract; or
(E) in conjunction with a leased motor vehicle,
provide for:
(i) the repair, replacement, or maintenance
of property due to:
(a) excess wear and use;
(b) damage for items such as tires,
paint cracks or chips, interior stains, rips or scratches, exterior
dents or scratches, windshield cracks or chips, and missing
interior or exterior parts; or
(c) excess mileage that would result
in a lease-end charge; and
(ii) payment, in an amount not to exceed the
purchase price of the vehicle, for:
(a) the repair, replacement, or
maintenance of property due to excess wear and use, damage for items
described by Subparagraph (i)(b), or excess mileage that would
result in a charge at the end of the lease term; or
(b) any other charge for damage that
is considered as excess wear and use by a lessor under a motor
vehicle lease.
(4) "Residential service contract":
(A) means a service contract, other than a
service contract described by Paragraph (B), of any duration under
which a provider [agrees to], in the event of the operational or
structural failure of, damage caused by a power surge to, a defect
in materials or workmanship of, or damage caused by normal wear to a
structural component, an appliance, or an electrical, plumbing,
heating, cooling, or air-conditioning system of a residential
property that is attached to or located on the residential
property, agrees to:
(i) perform [(A)] service, maintain,
repair, or replace all or any part of the covered items [the
structural component, appliance, or electrical, plumbing, heating,
cooling, or air-conditioning system];
(ii) [(B)] provide incidental payment or
reimbursement [of indemnity] under limited circumstances for the
covered items, including food spoilage; or
(iii) [(C)] provide reimbursement or
payment instead of service, repair, or replacement of the covered
items; and
(B) does not include a service contract offered:
(i) in connection with the retail purchase
of an appliance and the terms of which do not include any other item
listed in Paragraph (A); or
(ii) by a registered provider that covers
appliances attached to or located on residential property and the
terms of which do not include any other item listed in Paragraph (A)
[when a part, structural component, appliance, or service provider
or technician is unavailable].
SECTION 3. Section 1304.003(b), Occupations Code, is
amended to read as follows:
(b) A service contract described by Subsection (a)(2)(A)
may provide for:
(1) incidental payment or reimbursement [indemnity]
under limited circumstances, including towing, rental, and
emergency road service;
(2) the repair or replacement of a product for damage
resulting from [a power surge or for] accidental damage incurred in
handling the product;
(3) identity recovery, if the service contract is
financed under Chapter 348 or 353, Finance Code; or
(4) the replacement of a motor vehicle key or key fob
in the event the key or key fob is inoperable, lost, or stolen.
SECTION 4. Section 1304.004, Occupations Code, is amended
to read as follows:
Sec. 1304.004. EXEMPTIONS. (a) In this section:
(1) "Maintenance agreement" means an agreement that
provides only for scheduled maintenance for a specified [limited]
period. The term does not include coverage for repairs or other
incidental expenses necessitated by an operational or structural
failure due to the breakdown of a part, regardless of whether the
replacement of the part otherwise constitutes scheduled
maintenance.
(2) "Scheduled maintenance" means service performed
at or with reference to a time or wear interval for a device,
appliance, electrical, plumbing, heating, cooling, or
air-conditioning system, or motor vehicle and may include the
replacement of fluids, filters, brake pads, wiper blades, belts,
tires, and other similar parts designed to wear out with normal use
and recommended to be replaced or replenished at designated
intervals.
(3) [(2)] "Warranty" means an undertaking made solely
by the manufacturer or importer of a product or the seller of a
product, structural component, system, or service that:
(A) guarantees [indemnity for] a [defective
part, mechanical or electrical breakdown, or labor cost or
guarantees another] remedial measure in the event of a defect in or
performance failure of the covered item. The remedial measure may
include reimbursement for costs related to the defect or failure,
[including] the repair or replacement of the product, component,
system, or part, or the repetition of service;
(B) is made without payment of additional
consideration;
(C) is not negotiated or separated from the sale
of the product or service; and
(D) is incidental to the sale of the product or
service.
(b) This chapter does not apply to:
(1) a warranty;
(2) a maintenance agreement;
(3) a service contract sold or offered for sale to a
person concerning property purchased for other than personal,
family, or household purposes [who is not a consumer];
(4) an agreement issued by an automobile service club
that holds a certificate of authority under Chapter 722,
Transportation Code;
(5) a service contract sold by a motor vehicle dealer
on a motor vehicle sold by that dealer, if the dealer:
(A) is the provider;
(B) is licensed as a motor vehicle dealer under
Chapter 2301; and
(C) covers its obligations under the service
contract with a reimbursement insurance policy; or
(6) a contract offered by a local exchange telephone
company that provides for the repair of inside telephone wiring,
if:
(A) the contract term does not exceed one month;
and
(B) the consumer can terminate the contract
before a new contract term begins without liability except for
payment of charges for the term that has begun.
SECTION 5. Section 1304.0041, Occupations Code, is amended
to read as follows:
Sec. 1304.0041. CERTAIN EXEMPT AGREEMENTS. This chapter
does not apply to:
(1) a performance guarantee offered by [:
[(A)] the builder of a residential property[; or
[(B) the manufacturer or seller of an appliance
or other system or component of a residential property];
(2) a residential service contract executed before
August 28, 1979; or
(3) [a guarantee or warranty that is:
[(A) designed to guarantee or warrant the repair
or service of an appliance, system, or component of a residential
property; and
[(B) issued by a person who sells, services,
repairs, or replaces the appliance, system, or component at the
time or before the guarantee or warranty is issued;
[(4) a service or maintenance agreement or a warranty
that:
[(A) is sold, offered for sale, or issued by a
manufacturer or merchant who manufactures or sells a product or
part of a product, including a structural component, an appliance,
or an electrical, plumbing, heating, cooling, or air-conditioning
system of a building or residence; and
[(B) provides for, warrants, or guarantees the
maintenance, repair, replacement, or performance of the product or
part of the product; or
[(5)] home warranty insurance as defined by Section
2005.001, Insurance Code.
SECTION 6. Section 1304.051(b), Occupations Code, is
amended to read as follows:
(b) On request of the executive director, a provider or
administrator shall make the records required by Section 1304.155
available to the executive director as necessary to enable the
executive director to reasonably determine compliance with this
chapter.
SECTION 7. Section 1304.101(b), Occupations Code, is
amended to read as follows:
(b) Except for the requirements [registration requirement]
of this chapter and Chapter 51, a provider, seller, administrator,
or other person who markets, sells, issues, or offers to sell
service contracts is exempt from any licensing requirement of this
state that relates to an activity regulated under this chapter.
SECTION 8. Section 1304.151(b-4), Occupations Code, is
amended to read as follows:
(b-4) The amount of the security deposit required under
Subsection (b) may not be less than $25,000 for a provider of a
residential service contract. This subsection does not apply to a
service contract described by Section 1304.003(a)(4)(B) offered by
a residential service contract provider.
SECTION 9. Section 1304.1531, Occupations Code, is amended
by amending Subsections (a), (b), and (d) and adding Subsection (e)
to read as follows:
(a) A provider or administrator may employ or contract with
a seller to be responsible for:
(1) all or any part of the sale or marketing of service
contracts for the provider; and
(2) compliance with this chapter in connection with
the sale or marketing of service contracts.
(b) The hiring of or contracting with a seller under this
section does not affect a provider's or administrator's
responsibility to comply with this chapter.
(d) A seller shall process a service contract application
and a payment from a consumer in accordance with this chapter and
with any sales agreement or contract between the provider or
administrator and the seller or administrator.
(e) A seller that violates this chapter is liable for
administrative or civil penalties under this chapter and Chapter
51.
SECTION 10. Section 1304.154, Occupations Code, is amended
to read as follows:
Sec. 1304.154. PROVIDER OR ADMINISTRATOR REQUIREMENTS. (a)
A provider may not sell, offer for sale, or issue a service contract
in this state unless the provider gives the service contract
holder:
(1) a receipt for, or other written evidence of, the
purchase of the contract; and
(2) a copy of the contract within a reasonable period
after the date of purchase.
(b) A residential service contract provider or
administrator, as applicable, shall exercise reasonable care to
ensure that:
(1) any repairs provided to the service contract
holder are performed by persons licensed to perform the type of
work, if the work requires a license; and
(2) under normal circumstances, not later than 48
hours after the contract holder requests services, the provider or
administrator:
(A) initiates the performance of services; or
(B) furnishes the contract holder a documented
explanation for failure to provide the requested service.
(c) A residential service contract provider or
administrator is presumed to have exercised reasonable care under
Subsection (b)(1) with respect to air conditioning or electrical
work if:
(1) the provider or administrator notes on any work
order or in the claim file the name and license number of the air
conditioning and refrigeration contractor licensed under Chapter
1302 or the electrical contractor licensed under Chapter 1305 under
whose supervision the work will be performed; or
(2) the provider or administrator:
(A) selects the service provider from a regularly
updated roster of licensed service providers that:
(i) is maintained by the provider or
administrator; and
(ii) includes the license numbers of the
service providers; and
(B) makes the roster available to the department
for inspection on request.
SECTION 11. Section 1304.155(a), Occupations Code, is
amended to read as follows:
(a) A provider shall maintain accurate accounts, books, and
other records regarding transactions regulated under this
chapter. The provider's records must include:
(1) a copy of each unique form of service contract
sold;
(2) the name and address of each service contract
holder who provided the holder's name and address;
(3) a list of each location at which the provider's
service contracts are marketed, sold, or offered for sale; and
(4) written claims files that contain at least:
(A) the date; [and]
(B) a description of each claim related to the
service contracts;
(C) a copy of any claim-related correspondence
with the service contract holder; and
(D) documentation of any reason for the denial of
a claim.
SECTION 12. Section 1304.157, Occupations Code, is amended
to read as follows:
Sec. 1304.157. RESIDENTIAL SERVICE CONTRACTS. (a) A
person may not sell, offer to sell, arrange or solicit the sale of,
or receive an application for a residential service contract unless
the person is:
(1) employed by a residential service contract
provider or an administrator [of a residential service contract]
who is registered [licensed] under this chapter; or
(2) licensed as a real estate sales agent, real estate
broker, mobile home dealer, or insurance agent in this state.
(b) Notwithstanding Subsection (a), a person compensated by
a residential service contract provider or administrator, but who
is not employed by that provider or administrator, may sell, offer
to sell, arrange or solicit the sale of, or receive an application
for a residential service contract if the contract contains the
following statement in at least 10-point boldface type: "NOTICE:
THIS COMPANY PAYS PERSONS NOT EMPLOYED BY THE PROVIDER FOR THE SALE,
ADVERTISING, INSPECTION, OR PROCESSING OF A RESIDENTIAL SERVICE
CONTRACT UNDER CHAPTER 1304, OCCUPATIONS CODE." For purposes of
Subsection (a) and this subsection, a person is employed by a
residential service contract provider or administrator if, in
connection with the person selling, offering to sell, arranging or
soliciting the sale of, or receiving applications for residential
service contracts, the provider or administrator:
(1) directs and controls the person's performance; and
(2) is responsible for representations made by the
person when acting within the scope of the person's employment.
(c) Notwithstanding Section 1304.151(a)(1), a residential
service contract provider [of a residential service contract] may
use a reimbursement insurance policy issued by a captive insurance
company as defined by Section 964.001, Insurance Code, to insure
the provider's [residential] service contracts if the provider
maintains a funded reserve equal to not less than an amount computed
by subtracting the amount of any claims paid from the product of 25
percent and the gross consideration the provider received from
consumers from the sale of all the provider's service contracts
issued and outstanding in this state. The department shall
prescribe a calculation form to be used by a provider to calculate
the minimum amount required to be maintained in the provider's
reserve account under this subsection. A reimbursement insurance
policy issued to a residential service contract provider in
accordance with this subsection:
(1) is not subject to Section 1304.152; and
(2) is considered to satisfy the requirements of
Sections 1304.1025 and 1304.151(a)(1) for purposes of this chapter.
SECTION 13. Section 1304.161(a), Occupations Code, is
amended to read as follows:
(a) A provider, administrator, seller, or other
representative of the provider may not, in the provider's service
contracts or literature or in any oral or written communication
with a consumer concerning a proposed or executed service contract:
(1) intentionally, knowingly, or recklessly make,
permit, or cause to be made any false, deceptive, or misleading
statement; or
(2) deliberately omit a material statement if the
omission would mislead a reasonable consumer [be considered
misleading].
SECTION 14. Section 1304.1521, Occupations Code, is
repealed.
SECTION 15. The changes in law made by this Act apply only
to a service contract entered into on or after the effective date of
this Act. A service contract entered into before the effective date
of this Act is governed by the law in effect on the date the contract
was entered into, and the former law is continued in effect for that
purpose.
SECTION 16. This Act takes effect September 1, 2025.