Service Contract, GAP and Ancillary Product Industries Made Significant Law Changes in 2014

The 2014 state legislative season was productive for the Service Contract Industry Council, the Motor Vehicle Ancillary Products Association, and the Guaranteed Asset Protection Alliance (collectively the “Associations”). The Associations, whose members offer a variety of automobile products, have been instrumental in the passage of legislation impacting their respective industries. In addition to advocating on behalf of the industries on the legislative front, the Associations have work throughout the country on regulatory issues impacting the industries at both the state and federal level.

A. Service Contract Industry Council Update

The Service Contract Industry Council (SCIC) is the national trade association whose members include manufacturers, insurers, retailers, providers, and administrators of service contracts. The SCIC monitors state legislative and regulatory activities, contributes to relevant legislative and administrative proceedings, and educates businesses and consumers about the value and benefits of service contracts. For almost 27 years, the SCIC has been the national leader and pivotal force in the development of model legislation throughout the country, working for balanced standards that create fair and consistent regulation of the service contract industry.

The SCIC model legislation provides a framework to regulate service contracts to ensure full disclosure to consumers and the financial responsibility of providers. The legislation defines terms related to the service contract industry, establishes requirements for doing business, sets forth recordkeeping requirements, prohibited practices and enforcement authority of the agencies who oversee service contract providers. To date, the SCIC has played a key role in the enactment of legislation in more than 37 states.

The SCIC worked hard to sponsor and support legislation signed into law in the following states this year: Alaska: Governor Sean Parnell signed House Bill 206, legislation pursued by the SCIC, on July 10, 2014. This legislation establishes a framework, similar to the industry model, regulating motor vehicle service contracts and exempting such contracts from regulation as insurance. The legislation includes tire and wheel repair, paintless dent repair, windshield repair, and key fob protection in the definition of “motor vehicle service contract.” This legislation specifically prohibits offering “dry” interior and exterior appearance care products as a service contract. This legislation takes effect January 1, 2015.

Colorado: Governor John Hickenlooper signed House Bill 1199, legislation pursued by the SCIC, on May 15, 2014. This legislation added power sports vehicles to the definition of “motor vehicle” found in Colorado’s current law regulating motor vehicle service contracts. Prior to this amendment, the law was not clear as to covering snowmobiles, ATVs, and other off-road vehicles. This legislation takes effect January 1, 2015.

Florida: Florida House Bill 291 was signed by Governor Rick Scott on June 13, 2014, and it became effective July 1, 2014. This legislation amended Florida law to allow for the electronic delivery of motor vehicle service agreements to consumers.

Michigan: Michigan House Bill 4467, legislation pursued by the SCIC, was signed by Governor Rick Snyder on April 7, 2014, and it became effective immediately. This legislation authorizes motor vehicle service contracts along with other motor vehicle ancillary products to be sold in the state as non-insurance products.

New Jersey: New Jersey Senate Bill 854, legislation pursued by the SCIC, was signed by Governor Chris Christie on January 21, 2014, and it became effective July 16, 2014. This legislation is based upon the SCIC model legislation and includes its core requirements. The legislation authorizes motor vehicle service contracts along with other motor vehicle ancillary products to be sold in the state but, unlike the model act, does not require registration of providers.

B. Motor Vehicle Ancillary Products Association Update

The Motor Vehicle Ancillary Products Association (MVAPA) evolved from the Ancillary Products Coalition, which began in 2007 as an informal coalition of companies engaged in the motor vehicle ancillary product business. The Ancillary Products Coalition was formed to clarify the legal status of motor vehicle ancillary products and ensure that the products are sold in a consistent manner.

MVAPA developed model legislation to expressly authorize the sale of stand-alone ancillary products and eliminate the risk that these products will be considered insurance. The model act authorizes tire and wheel, paintless dent repair, windshield repair, key fob replacement, appearance care, and other ancillary products. The model act also includes vehicle theft protection products in states that do not currently regulate such products.

MVAPA pursued legislation in the following states this year:

Indiana: Governor Mike Pence signed House Bill 1206, legislation containing language pursued by MVAPA, on March 25, 2014 and it became effective July 1, 2014. This legislation replaced the prior regulatory framework, Bulletin 78, which specifically authorized vehicle service contracts but was loosely interpreted to authorize other service contracts as well, as long as insured. The legislation authorizes ancillary products including protective chemicals, alarm systems, body part marking products, steering locks, window etching products, pedal and ignition locks, fuel and ignition kill switches, and electronic, radio, and satellite tracking devices.

Oklahoma: Governor Mary Fallin signed Senate Bill 1923, legislation pursued by MVAPA, on June 3, 2014 and it became effective November 1, 2014. This legislation amended the Service Warranty Act to include tire and wheel repair, paintless dent repair, windshield repair or replacement, and key fob protection. This legislation specifically prohibits offering “dry” interior and exterior appearance care products as a service contract. Fuel additives, oil additives, or other chemical products that are applied to the engine, transmission, or fuel system of a motor vehicle are also excluded.

Virginia: Governor Terry McAuliffe signed House Bill 69, legislation pursued by MVAPA, on March 7, 2014 and it became effective July 1, 2014. This legislation amended the definition of “extended service contract” to include tire and wheel repair, paintless dent repair, windshield repair, key fob protection, and chemical additive products accompanied by a written warranty. This legislation specifically prohibits offering “dry” interior and exterior appearance care products as a service contract. Fuel additives, oil additives, or other chemical products that are applied to the engine, transmission, or fuel system of a motor vehicle are also excluded.

Washington: Governor Jay Inslee signed Senate Bill 5977, legislation pursued by MVAPA, on March 27, 2014 and it became effective June 11, 2014. This legislation amended the definition of “service contract” to include tire and wheel repair, paintless dent repair, windshield repair or replacement and key fob protection. This legislation specifically prohibits offering “dry” interior and exterior appearance care products as a service contract. Fuel additives, oil additives, or other chemical products that are applied to the engine, transmission, or fuel system of a motor vehicle are also excluded.

C. Guaranteed Asset Protection Alliance Update

The Guaranteed Asset Protection Alliance (GAPA) is comprised of companies offering quality guaranteed asset protection waivers throughout the country. The members include insurance companies, lenders, and administrative services companies who, together with automobile dealers, bring these valuable products to market in a responsible and competitive way.

GAPA was formed in 2006 by the most active companies in the industry for the purpose of monitoring and lobbying legislative, regulatory and administrative activity affecting their industry. Since then, GAPA has enacted model legislation, or some form of it, in Georgia, Michigan, Montana, Nebraska, North Carolina, Tennessee, Utah, and Washington. GAPA has also assisted with legislation or obtaining regulatory bulletins clarifying the legal status of GAP in Arkansas, California, Florida, Kentucky, Ohio, and Texas. The model law clarifies the roles of the lender, insurers, administrators, and automobile dealers and requires retail sellers to have a contractual liability policy. It establishes consumer disclosures and grants power to regulators to oversee the industry.

GAPA’s mission is to preserve the viability of its industry, promote fair and equitable regulation of its members and their products, and to continue to offer meaningful options to consumers who choose to purchase this protection.

During 2014 GAPA responded to the following issues:

Alabama: The Department of Insurance issued a letter advising that contractual liability policies, which refer to a GAP addendum for cancellation and refund provisions must be refiled to remove references to external addendums and include cancellation and refund language that satisfies Alabama law within the contractual liability policy. Updated cancellation and refund language may appear in an endorsement so long as the endorsement is mandatory.

Tennessee: Governor Bill Haslem signed Senate Bill 2024 on May 19, 2014 and it became effective July 1, 2014. This legislation amends Tennessee GAP laws to permit retail sellers who assign waivers to “related finance companies” to avoid the requirement that they must obtain a contractual liability policy. The legislation defines “related finance company” as a finance company that has common ownership of 50% or more with the retail seller.

D. Looking Ahead to 2015 and Beyond

SCIC, MVAPA and GAPA just concluded their 2014 annual conferences and have charted a course for 2015, which includes seeking legislation in 15 states clarifying the status of these products. It is also likely that we will fight against harmful legislation in another five or six states during the upcoming year. We are also working with our dealer partners to help our members respond to the changing regulatory landscape as a result of an activist Consumer Financial Protection Bureau. If you are not a member of your industry’s trade association, you have no voice in the direction we are headed and are not helping to protect your future. Please call me to discuss how you can get involved!