Service Contract Providers Frequently Asked Questions

General Questions
Licensing Questions - Providers
Licensing Questions - Administrators
Enforcement Questions
Communication Questions

General Questions

1. What are the key services and functions of this program?

Licensing

TDLR processes applications and issues annual registrations for Service Contract Providers and Service Contract Administrators. The Service Contract Provider registration entitles a person to contract with consumers to repair, replace or maintain a product. The service contract may additionally provide incidental payment or indemnity under limited circumstances, including towing, rental and emergency road service. Service Contract Administrator is a person other than the Provider who is responsible for the third-party administration of a service contract.

Enforcement

The Department is the primary enforcement authority for complaints against the service contract provider industry. The most common complaint involves unlicensed activity. The Department investigates and resolves complaints, conducts hearings, and may impose administrative penalties and sanctions if a violation has occurred.

2. What is a service contract?

A service contract, also known as an extended warranty, is an agreement entered into for a cost that is in addition to that paid for the product and is an agreement between the service contract provider and consumer for repair, replacement, or maintenance of a product, or for payment to repair, replace, or maintain the product for a specified period of time.

3. When did this law become effective?

The Service Contract Provider Act took effect September 1, 1999.

On January 1, 2006, the following changes to the Act became effective:

(1) Provider’s must identify controlling persons;

(2) Insurers covering service contracts sold in Texas must meet certain net worth requirements;

(3) Additional disclosures in service contracts covered by reimbursement insurance policies will be required; and

(4) A provision in reimbursement insurance policies must provide that the insurer is considered to have received the premium on the date the consumer pays the purchase price.

Service Contract Administrators must be registered effective March 1, 2006.

For more specific information regarding these changes go the Department’s website at www.license.state.tx.us/scp/scp.htm .

4. Do all service contracts fall under the jurisdiction of this Act?

Only service contracts entered into on or after January 1, 2000 fall under the jurisdiction of this Act.

5. What changes did HB 2261 make to service contracts?

The bill adds the term “or damage” to the definition of a service contract to clarify that service contracts will cover damage caused by a defect in materials or workmanship of a product.

The bill also provides further definition to the term “normal wear” in a service contract. That term was expanded to include coverage of things that happen to automobiles in their daily use, including dents and dings, windshield chips, worn tire tread, worn fabric and carpet and tire and wheel damage caused by road hazards. This change took effect September 1, 2007.

6. Does HB 2261 require that all service contracts include each of the five normal wear items listed in the bill?

No. A service contract may include one, some, all or none of the five items listed in HB 2261. Those five items represent examples of what may be covered, they are not a list of what must be covered. The particular items covered in a service contract will be addressed in the service contract itself.

7. I currently have a service contract on my automobile. How will the change impact my service contract?

Your current service contract will not be impacted by the change. The only contracts that will be impacted by this change are those entered into or effective after September 1, 2007.

8. My service contract is effective prior to September 1, 2007 but I want the new coverage. What should I do?

You should contact your service contract provider.

9. How will this change impact Vehicle Protection Products (VPP)?

The change will not impact the Vehicle Protection Product Warrantors (VPP).

Licensing Questions - Providers

1. How much does it cost to register as a service contract provider?

The cost for initial and renewal service contract provider registrations is based on the number of service contracts sold in Texas during the past 12 month period.

$250 for 0 - 250 service contracts

$500 for 251 - 500 service contracts

$1,000 for 500 or more service contracts

After one year, you will be required to reapply by submitting a new application and the required fee.

2. Does the seller of the service contract need to register?

No, the service contract provider who is the person, company or entity that is contractually obligated to the service contract purchaser under terms of the contract is required to register. For instance a retailer may sell a consumer a service contract in which another party, such as the manufacturer of the product, is obligated to pay any claims made against the contract. In that instance the product manufacturer is required to register.

3. Do motor vehicle dealers have to register as a Service Contract Provider?

It depends. If a motor vehicle dealer is only selling service contracts for a service contract provider then no registration is necessary. A motor vehicle dealer doesn’t have to register, if the dealer is:

(1) Selling service contracts only on the vehicles he or she sells;

(2) Licensed as a motor vehicle dealer pursuant to Subchapter D, Texas Motor Vehicle Commission; and

(3) Covering his or her obligations under the service contract with reimbursement insurance.

If a motor vehicle dealer is providing service contracts and doesn't meet all the above criteria that dealer must register.

4. How do I get a reimbursement insurance policy?

You may contact an insurance company. You can search the Texas Department of Insurance website, www.tdi.state.tx.us or call 800-578-4677 ( Texas only) or 512-463-6169 to see if a specific insurance company is authorized to write this type of liability insurance.

5. How do I obtain a surety bond?

You may contact an insurance company or a bonding company. You can search the Texas Department of Insurance website, www.tdi.state.tx.us or call 800-578-4677 (Texas only) or 512-463-6169 to see if a specific insurance or bonding company is authorized to write bonds. To locate a bonding company check the yellow pages of the phone book under, "bonds."

6. Is a service contract provider registration renewed annually?

Yes.

7. How do I change information on my service contract provider registration?

Submit any changes in writing to the Texas Department of Licensing and Regulation, P.O. Box 12157 , Austin , TX 78711 within 30 days of the change with a $25 fee for an amended registration certificate.

8. My service contract provider registration has expired, how do I get it back?

You must submit a renewal application and all required attachments along with the appropriate fee.

Registration fees for applications filed from 1 to 90 days after the expiration date:

0-250 service contracts sold in Texas in the prior 12 months - $375.00
251-500 service contracts sold in Texas in the prior 12 months - $750.00
More than 500 service contracts sold in Texas in the prior 12 months - $1500.00

Registration fees for applications filed from 91 days to 1 year after the expiration date:

0-250 service contracts sold in Texas in the prior 12 months - $500.00
251-500 service contracts sold in Texas in the prior 12 months - $1,000.00
More than 500 service contracts sold in Texas in the prior 12 months - $2,000.00

9. I am a tire manufacturer with my own warranty. Do I need to register as a service contract provider because of this change?

No. The change states that the service contract will not apply to tires that are covered under a tire manufacturer’s own warranty. The change does not require tire manufacturers to register as service contract providers.

10. If the person, company or entity already holds an active service contract provider registration, do I need to register as an administrator?

No. The provider license will include the administrative duties. However, if another party is obligated to pay any claims, that party or entity would be required to register as a service contract Administrator.

11. Are Biographical Affidavits for controlling persons required upon renewal every year even if no changes?

No. If there has been no change, the controlling person may submit a Service Contract Provider Biographical Affidavit No change of Information form. If there are changes, the controlling person must complete the entire Service Contract Provider Biographical Affidavit.

12. Will the Department accept the Texas Department of Insurance NAIC Biographical Affidavit, in lieu of the Service Contract Provider Biographical Affidavit?

No. The Department requires the Texas Department of Licensing and Regulation Service Contract Provider Biographical Affidavit.

13. Must I submit insurer net worth documents upon renewal every year?

Yes, the NAIC annual statement, Actuarial Opinion and the Audited Financial statement for the insurer must be submitted every year upon renewal.

14. How do I obtain an approval letter from Texas Department of Insurance (TDI) for the service contract provider endorsement language?

Contact the insurance company (insurer) that wrote the policy and request a copy of the approval letter from TDI. If the endorsement language has not been filed with TDI, the insurer must file for approval with TDI. For more information, contact TDI at 512-463-6169 or 800-578-4677.

15. How do I obtain the Service Contract Provider Endorsement language?

You may obtain the endorsement language from the website under Service Contract Provider Forms, Endorsement form.

Licensing Questions – Administrators

1. Does the administrator of a service contract provider program need to register?

Yes, a service contract administrator is reguired to register by March 1, 2006. Administrator Application forms will be available by February 1, 2006.

2. How much does it cost to register as a service contract administrator?

The cost to register as a service contract administrator is $250 for an initial and renewal registration.

3. What functions may a service contract administrator perform?

An administrator may perform third-party administration as defined below on behalf of a service contract provider:

(1)   Perform or arrange the collection, maintenance, or disbursement of money to compensate any party for claims or repairs pursuant to a service conract;

(2)   Participate in processing or adjustment of claims arising under a service contract;

(3)   Maintianing records required by TX. Occ. Code, Chap 1304; or

(4)   Comply with requirements, other than financial security requirements of TX. Occ.Code, Chap 1304.

The term does not include the performance of repairs, or clerical functions ancillary to the performance of repairs, by a repair facility that performs no other activities with respect to a service contract.

4. Is the service contract administrator registration renewed annually?

Yes

5. How do I change information on my service contract administrator registration?

6. My service contract administrator registration has expired, how do I get it back?

Registration fees for applications filed from 1 to 90 days after the expiration date is $375.

Registration fees for applications filed from 91 dayst to 1 year after the expiration date is $500.

Enforcement Questions

1. How do I file a complaint?

You may download the Complaint Form from our website at www.license.state.tx.us/SCP/SCPforms.htm or contact the Enforcement Division at 800-803-9202 ( Texas only) or 512-463-2906.

Communication Questions

1. Is this Service Contract Provider or Service Contract Administrator registered?

You may search the Licensing Database on our website at www.license.state.tx.us/databases.htm.

2. How do I get a list of registered service contract providers?

To get a list of all registered service contract providers, you may search the Licensing Database on our website at www.license.state.tx.us/databases.htm.

3. How do I get a list of registered service contract administrators?

To get a list of all registered service contract administrators, you may search the Licensing Database on our website at www.license.state.tx.us/databases.htm.

4. How may I receive notification of new and changing information with your department?

You may sign up on the TDLR E-mail Subscriber Notification Lists on our website at http://www.license.state.tx.us/newsletters/TDLRnotificationLists.asp. This list(s) were established to allow subscribers to receive automated notification of new and changing information.

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