UPDATE – Senate Bill 132, was delivered to the Governor on May 26, 2011 and is expected to be signed.   If signed, the new law will be effective January 1, 2012 and will require licensure of any retail seller of a motor vehicle service contract (VSC), on behalf of a registered VSC provider, unless such seller is already a manufacturer of motor vehicles, a federally-insured depository institution or a lender.  Such licensure can be in the form of either a licensed motor vehicle dealer holding an organizational credit entity license, or a limited lines insurance producer’s license for the newly amended limited line of insurance that would include motor vehicle extended service contracts.    This licensure requirement would extend to an administrator if that administrator is also sells or solicits the sale of VSCs on behalf of a registered obligor provider.

The final version of this legislation makes it unlawful for a motor vehicle extended service contract provider to fail to deliver a fully executed VSC to the consumer within a “commercially feasible time period” which is defined as no more than 45 days from the date of purchase. A prior version of this bill allowed for only 30 days.  The legislation also makes it unlawful for any provider, administrator, or retail seller who sells such contracts to fail to deliver an unsigned copy (sample) of the VSC to the consumer, if requested, prior to the sale.  Sellers would be permitted to direct the consumer to a website containing an unsigned copy of the VSC. 

The legislation modifies the “free look” period provision for reviewing a VSC by requiring that every contract contain a free look provision that allows the purchaser to return the contract to the provider within 20 business days of the mailing date of the contract, or the purchase date if the contract is executed and delivered at the time of sale.  If a claim is made under the contract during the free look period, the provider must refund the full purchase price less any claims that have been paid. The legislation also provides that a VSC must state that a service contract holder may cancel the contract after the free look period at any time and the provider must refund 100% of the unearned pro rata cost of the VSC, less any claims paid. A reasonable administrative fee may be surcharged by the provider in an amount not to exceed $50.  The final version of the legislation clarifies that a 10% penalty will be due to the consumer if a provider fails to return, within 45 days,  the amount outstanding and due to the consumer when a VSC is returned by a consumer under the “free look” provision. 

Under the legislation, a provider will be required maintain a “register” of appointed VSC producers who are authorized to sell such contracts in the state. Within 30 days of a provider authorizing a producer to sell its VSC contracts, the provider will be required to enter the name and license number of the producer in the company registry of appointed VSC producers. Within 30 days of a provider terminating a producer’s appointment, the provider will be required to update the registry with the effective date of the termination. Under the act, providers having information relating to any cause for discipline of an appointed producer will be required to notify the director of this information in writing.