Source: https://www.tdlr.texas.gov/scp/scpfaq.htm
Timestamp: 2019-04-22 20:16:28+00:00

Document:
The 85th Legislative Session made three changes to the SCP statute.
• In addition, HB 2275 amended the statute to state that a contract provider is not required to deduct the amount of any claims paid from the amount of a refund requested by a contract holder. This change is also effective September 1, 2017.
What is a “depreciation benefit optional member program”?
A depreciation benefit optional member program (DBOMP) is a service contract that may be offered to a buyer of a vehicle. In the event of a total constructive loss of the vehicle, this service contract provides a credit to the vehicle owner toward the purchase of a replacement vehicle at a participating dealer.
S.B. 1199, 85th Legislature, Regular Session (2017), added a DBOMP as a new type of service contract under Texas Occupations Code, Chapter 1304.
Does the DBOMP pay a cash settlement to the buyer in the event of a total constructive loss of the vehicle?
No. Under the terms of the DBOMP, the contract will provide a credit toward the purchase of a replacement vehicle at a participating dealer.
What is the amount of the credit that will be provided under the DBOMP?
How much can the provider charge for a DBOMP type of service contract?
The provider can only charge a fee for the contract that is reasonable in relation to the benefit provided by the DBOMP type of service contract.
I signed a DBOMP type of service contract but now I want to cancel it. Can I?
Yes. A service contract must allow the service contract holder to cancel the service contract at any time. If you cancel within 30 days of signing the contract, you are entitled to a full refund without paying any cancellation fee. If you cancel after the 30th day, you will only be entitled to a pro-rata refund and may be charged a reasonable cancellation fee not to exceed $50.
Is a DBOMP the same a GAP insurance?
No. A DBOMP only provides for a credit toward the purchase of a replacement vehicle if a buyer’s current vehicle is considered a total constructive loss. GAP insurance pays the difference between the amount a vehicle owner owes on the vehicle and the amount paid to the owner under an insurance policy in the case of a total loss of the vehicle. A DBOMP does not pay any money to a vehicle owner to help pay any outstanding loan on a total constructive loss vehicle.
Are there any restrictions on who can offer a DBOMP type of service contract?
Yes. Only a registered service contract provider may offer a DBOMP unless the seller is a motor vehicle dealer exempt from SCP registration. Please see the FAQ below regarding motor vehicle dealerships.
Who must register as a SCP with this new DBOMP type service contract?
Any person, company, or entity that is contractually obligated to a service contract purchaser under the terms of the contract is required to register with TDLR.
Are motor vehicle dealerships required to register with TDLR?
If the motor vehicle dealer is only selling another company's service contracts, but is not contractually or financially responsible under those contracts, then the motor vehicle dealer is a seller. Sellers do not register with TDLR.
If the motor vehicle dealer is selling its own service contracts, and it is contractually and financially responsible for those contracts, then the motor vehicle dealer is a service contract provider, and must register with TDLR.
The dealer is covering the dealer's financial obligations under the service contracts with reimbursement insurance.
If a SCP is already registered with TDLR, does the SCP need a new or separate registration to offer the DBOMP type of service contract?
If a SCP is already registered with TDLR, the SCP does not need a new or separate registration to offer a DBOMP type of service contract.
If a provider only wants to issue DBOMP type service contracts, does the entire statute apply to the provider or only Sections 1304.003(a)(3) and (e)?
The entire statute applies to a provider offering or issuing the DBOMP type of service contracts.
As a provider, can I include coverage for keys or key fobs in my service contracts?
Yes. H.B. 2275, 85th Legislature, Regular Session (2017), added a provision to the statute to allow service contracts under Section 1304.003(a)(2)(A) to provide for the replacement of a motor vehicle key or key fob in the event the key or key fob is inoperable, lost, or stolen.
As a provider, do I have to deduct claims already paid to a consumer when I am providing a refund to a consumer?
No. H.B. 2275, 85th Legislature, Regular Session (2017), added provisions to the statute under Sections 1304.1581 and 1304.159, which state that a provider is not required to deduct the amount of any claims paid under a service contract from the amount of a refund required under these two sections.
'Identity recovery' means a process, through a limited power of attorney and the assistance of an identity recovery expert, that returns the identity theft victim to pre-identity theft event status.
Service contracts that ONLY provide for identity recovery services and are financed under Texas Finance Code, Chapters 348 or 353 are referred to as 'identity recovery service contracts.' There are a few specific requirements under the law and rules that apply only to identity recovery service contracts.
What are the responsibilities of providers that sell or issue identity recovery service contracts?
Those providers who sell or issue service contracts that ONLY provide identity recovery services and are financed under Texas Finance Code, Chapters 348 or 353 (identity recovery service contracts) are required to report each quarter the number of identity recovery service contracts sold or issued to consumers in Texas and to pay a fee equal to one dollar for each of those contracts.
The reports must be made every three months, covering those quarters that end on March 31, June 30, September 30, and December 30. The reports must be made within 30 days after those quarters have ended. The due dates are: April 30, July 30, October 30 and January 30.
The reporting forms can be found on the Forms page.
The fees are also paid quarterly, with the reports, and they consist of one dollar ($1) for each identity recovery service contract sold or issued during the quarter. Failure to make the reports and pay the fees can result in revocation or denial of the provider's registration.
For details, see Rule 77.24, Quarterly Provider Requirements-Identity Recovery Services.
Are there any required disclosures or information that must be included in the service contracts?
Yes. Lists of requirements regarding the format and contents of a service contract are found in Occupations Code Section 1304.156 and Rule 77.70.
For providers that sell or issue service contracts that ONLY provide identity recovery services and are financed under Texas Finance Code, Chapters 348 or 353 (identity recovery service contracts), the required disclosures must include the information under Rule 77.70(e) .
(D) sells or transfers title to the automobile.
The disclosures specific to identity recovery service contracts are the same as the disclosures required under the former rules under 16 TAC Chapter 90.
• Provide compensation to the buyer of a vehicle on the total constructive loss under a depreciation benefit optional member program.
The contract is between the service contract provider and the consumer. The price of the service contract is in addition to the price of the product.
By what other names are service contracts called?
Quite often service contracts are called extended warranties, extended services, extended service agreements and protection plans, to name a few. However, a consumer has the same protection under the statute no matter what the service contract is called.
What about vehicle service contracts? Can they be called by other names as well?
Vehicle service contracts can also be called by other names, including vehicle extended warranties, extended vehicle services, vehicle extended service agreements and auto protection plans. But, likewise, a consumer has the same protection under the statute no matter what the vehicle service contract is called.
Is there a difference between a warranty and a service contract or extended warranty?
Yes, a warranty, or manufacturer’s warranty, automatically comes with the product and does not cost anything extra. A service contract or extended warranty must be purchased separately, in addition to the cost of the product.
What law and rules govern Texas service contracts?
The Service Contract Regulatory Act, Texas Occupations Code, Chapter 1304 , and the TDLR rules under 16 Texas Administrative Code, Chapter 77 , govern Texas service contracts.
Do all service contracts fall under the jurisdiction of TDLR?
where the consumer pays a fee for the contract that is in addition to the price of the product.
Who is a Service Contract Provider or Provider?
The person, company or entity that is contractually obligated to the service contract purchaser under terms of the contract. The provider is required to register with TDLR.
Who is a Service Contract Administrator or an Administrator?
An administrator is defined as a person, other than the provider of the service contract or an employee of the provider, who is responsible for the third-party administration of a service contract.
• Comply with the provider requirements, other than the financial security requirements, of Texas Occupations Code, Chapter 1304.
Third-party administration 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.
Who is a Service Contract Seller or Seller?
A seller is defined as a person, other than the provider or administrator of a service contract, who markets, sells, offers to sell, negotiates, or issues a service contract to a consumer on behalf of a provider, but who is not contractually obligated to a service contract holder under the terms of a service contract.
Does the administrator of a service contract need to register with TDLR?
Yes. The Act applies to administrators the same as it applies to providers, except that administrators are not subject to the financial security requirements. If the administrator is a separate legal entity from the Service Contract Provider, then the administrator needs an Administrator registration. If the Service Contract Provider is administering its own contracts, it does not need a separate administrator registration.
Does the seller of the service contract need to register?
No. Sellers are not required to register with TDLR, but the seller is required to comply with the same marketing and sales requirements as the registered provider.
See Occupations Code, Section 1304.1531, Service Contract Sellers, Responsibilities.
Does a motor vehicle dealer have to register as a Service Contract Provider?
• If the motor vehicle dealer is only selling another company's service contracts, but is not contractually or financially responsible under those contracts, then the motor vehicle dealer is a seller. As discussed in question #26, sellers do not register with TDLR.
• If the motor vehicle dealer is selling its own service contracts, and it is contractually and financially responsible for those contracts, then the motor vehicle dealer is a service contract provider, and must register with TDLR.
o The dealer is covering the dealer's financial obligations under the service contracts with reimbursement insurance.
How do I become a Texas registered Provider or Administrator?
Submit an application to TDLR using Form #002 SCP located on Forms page and paying the application fee of $250.
The registration is valid for a one-year period.
See Rule 77.21, Registration Renewal Requirements - Provider, and Rule 77.22, Registration Renewal Requirements - Administrator, and the forms and instructions located on Forms page.
What are the financial security requirements for being a Provider in Texas?
• proof of net worth of at least $100 million.
Any form of financial security listed above must be approved by the Department prior to use.
See Occupations Code, Section 1304.151, Financial Security Requirements and Rule 77.40, Financial Security-General Requirements.
Administrators are not subject to the financial security requirements.
How do I obtain a reimbursement insurance policy?
You should contact an insurance agent or company to obtain this type of policy. You can search the Texas Department of Insurance website or call 1-800-578-4677 (Texas only) or 512-463-6169 to find out if a specific insurance company is authorized to write this type of liability insurance in Texas.
• a copy of the approval letter from the Texas Department of Insurance for using the endorsement.
The reimbursement insurance policy must cover all obligations for all service contracts issued and outstanding in Texas.
Are SERFF (System for Electronic Rate & Form Filing) documents from the Texas Department of Insurance (TDI) acceptable?
Yes. SERFF is TDI's electronic filing system. The SERFF disposition report to companies replaces the approval letter. TDLR will accept this document as TDI's approval of an insurer's policy or endorsements.
What are the requirements for using a funded reserve account to meet the financial obligations?
1. A funded reserve account.
• not be used for any purpose other than to cover the provider's obligations under its service contracts that are issued and outstanding in Texas.
• a letter of credit (Form #005 SCP).
The provider must submit to TDLR its most recent financial statements that have been audited by an independent certified public accountant.
Any form of financial security listed above must be approved by the Department prior to use. Once a Letter of Credit or Certificate of Deposit has been received by TDLR, it is considered a government document and will not be returned.
Is there recommended wording for a letter of credit?
Yes, the recommended wording is located on Form #005 SCP located on the Service Contract Provider Forms page.
What are the requirements for using a minimum net worth of $100 million to meet the financial security obligations?
• a copy of the provider's or the provider's parent company's audited financial statements showing a net worth of the provider or its parent company of at least $100 million.
Are A.M. Best reports acceptable as insurer net worth documents?
No. A.M. Best reports are NOT acceptable.
As a Provider how long do I have to maintain the financial security?
As long as the provider does business or is registered in Texas and until the provider satisfied all liabilities and obligations to its service contract holders in Texas.
What background information does TDLR ask for from the provider's controlling persons?
A controlling person of a provider must submit a Service Contract Provider Personal Information Form, Form #009 SCP, located on the Forms page.
TDLR does not accept the NAIC Biographical Affidavit.
Are there any reports, audits and fees to be made and paid to TDLR?
Yes, but only for those providers who sell or issue service contracts that ONLY provide identity recovery services and are financed under Texas Finance Code, Chapters 348 or 353. See the FAQs above on Identity Recovery Service contracts.
How soon should I report changes to my Provider or Administrator registration information?
Any changes affecting your Texas registration must be reported in writing to the Texas Department of Licensing and Regulation, P.O. Box 12157, Austin, TX 78711, within 30 days of the change.
I am a registered provider and I am surrendering my registration or ceasing operations in Texas. What do I need to do?
If you are ceasing operation in Texas you must notify TDLR as soon as possible when ceasing operations or discontinuing business in Texas. Within 10 days after notifying the department, the provider must submit to the department specific information and/or documents. The provider remains financially responsible to all service contract holders with active service contracts in this state.
See Rule 77.71, Responsibilities of Providers Ceasing Operations or Discontinuing Business, for more information.
How often is a Service Contract Provider or Administrator required to renew its registration?
The Texas Provider and Administrator registrations are valid for one year and must be renewed annually.
How much are the Provider and Administrator registration renewal fees?
The Administrator registration renewal fee is $250.
What are the requirements to renew a Provider or Administrator registration?
TDLR will send you the renewal application. Along with the completed renewal form, you will provide the Personal Information Form (Form #009 SCP) for the controlling persons and financial security documents for the Providers.
See Rule 77.21, Registration Renewal Requirements-Provider , and Rule 77.23, Registration Renewal Requirements-Administrator , and the forms and instructions located on the Forms page.
Are Personal Information Forms for provider's controlling persons required every year with the renewal application even if there are no changes?
Due to the statutory changes under Texas Occupations Code §1304.102 and §1304.1025, for the first registration renewal on or after March 1, 2012, each controlling person of a provider must complete a Personal Information Form, Form #009 SCP .
A controlling person will need to complete a Personal Information Form at subsequent renewals only if the person has had a change in any of the information previously provided by the controlling person or has not previously submitted a personal information form to the department. The 'no change form' has been eliminated.
The provider applicant must indicate on the registration renewal form if there has or has not been any change in the information previously provided by any of the provider's controlling persons to the department.
See Rule 77.21, Registration Renewal Requirements-Provider .
How do I change information on my Service Contract Provider or Administrator registration?
Within 30 days of the change, submit any changes in writing to: Texas Department of Licensing and Regulation, P.O. Box 12157, Austin, TX 78711.
How do I get a duplicate or replacement copy of my registration certificate?
Make a written request for a duplicate registration along with a check or money order for $25 to Texas Department of Licensing and Regulation, PO Box 12157, Austin, TX 78711.
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 late renewal fee. The late renewal fee is based on the number of service contracts sold to consumers in Texas during the 12-month period preceding the expiration date of the registration.
If your license has been expired for more than 18 months but less than 3 years, you may submit for approval a written request stating the reason your license should be renewed or "Request to Executive Director for Expired Renewal" form with a fee in the amount of two times the normal renewal fee.
If your license has been expired for more than 3 years, you may not renew your license. You must re-apply for a new license.
If your renewal application is received postmarked before your expiration date, it is considered a timely renewal.
My Service Contract Administrator registration has expired. How do I get it back?
If your license has been expired for more than 18 months but less than 3 years, you may submit for approval a written request stating the reason your license should be renewed or 'Request to Executive Director for Expired Renewal' form with a fee in the amount of two times the normal renewal fee.
Are service contracts required to be approved by the Department?
No, the Department does not review or approve service contracts.
For providers that sell or issue service contracts that ONLY provide identity recovery services and are financed under Texas Finance Code, Chapters 348 or 353 (identity recovery service contracts), the required disclosures must include the information under Rule 77.70(e) . See FAQ number 16 above.
Can windshield repair and windshield replacement services be included in a service contract?
The provisions of the contract that provide for windshield repair fall within the scope of the service contract statute, but the windshield replacement services do not. A service contract may provide for repair of a product for damage caused by normal wear. 'Normal wear' for a motor vehicle may include minor and reasonable wear and tear that a vehicle sustains in everyday ordinary operation including 'small windshield chips and cracks repairable without replacement of the entire windshield.
A company offering windshield repair and replacement services would need to be registered as a service contract provider with TDLR for the repair services and would need to be licensed/authorized by TDI for the replacement services.
I offer an automobile service contract that covers windshields. Do I need to register with TDLR or the Texas Department of Insurance (TDI)?
If the contract covers both types of windshield services, you must be registered with TDLR and licensed/authorized by TDI. See FAQ number 52 above.
Are there any advertising and disclosure requirements for providers?
Yes, the provider and administrator must comply with the advertising and disclosure requirements Rule 77.70, Responsibilities of Providers and Administrators . If a provider uses a seller to market its service contracts, the provider is responsible for the seller per Occupations Code §1304.1531 .
As a provider doing TV commercials do I have to put my name on the commercials?
The provider's name is not required to be on TV commercials but per Rule 77.70. The provider's name must be on all written service contracts and written advertising materials.
What records must a service contract provider keep, and how long does the provider have to keep them?
The provider must retain the records for at least one year after the expiration date of the specified period of coverage under the service contract. A list of the records that a provider must maintain is located under Occupations Code Section 1304.155 . The records may be kept electronically.
A provider that discontinues business in this state must retain its records until that the provider has discharged all obligations to contract holders in this state and has provided proof satisfactory to TDLR's Executive Director.
How can I determine if a Service Contract Provider or Administrator is registered in Texas?
You may search the Licensing Database on the TDLR website. Select 'Service Contract Providers' as the license type. Providers and administrators are combined into one list, with Administrators indicated with an '(a)' in the registration number. Example: 'SCP(a)-001' is an administrator registration number, 'SCP-001' is a provider registration number.
You will also find in this list those service contract providers who formerly were listed as identity recovery service contract providers under Chapter 1306.
You can also call TDLR at (800) 803-9202 (Texas only) or (512) 463-6599, and speak with a customer service representative.
How do I get a list of Texas registered Service Contract Providers and Administrators?
To get a list of all registered Service Contract Providers and Administrators, you may search the Licensing Databaseon the TDLR website.
You will also find in this list those service contract providers who formerly were listed separately as identity recovery service contract providers under Chapter 1306.
Are home warranties or home service contracts regulated by TDLR?
No. Residential service contracts are regulated by the Texas Real Estate Commission .
I bought a service contract, but I have changed my mind. Can I return or cancel it? Can I get a refund?
Yes. The amount of time you have to cancel the service contract and the terms for cancellation are determined by when you bought your service contract. Your service contract should state the terms and requirements for cancelling your contract and obtaining a refund.
the 10th day after the date of delivery, if the contract is delivered to you at the time of sale.
You may be able to cancel the service contract at a later time as provided by the service contract.
The provider must pay the refund or credit your account before the 46th day after the date the contract is returned to the provider. If the provider does not meet this time period, the provider owes you a penalty amount for each month an amount remains outstanding. The monthly penalty may not exceed 10 percent of the amount outstanding.
For more information, see Occupations Code §1304.157, Returning a Service Contract ; and 1304.158, Voiding a Service Contract .
If you bought your service contract on or after January 1, 2012, you may cancel the service contract at any time, even if you have made a claim under the service contract. The amount of refund will be determined based on when you canceled the contract and if you had any claims.
The provider must pay the refund or credit your account before the 46th day after the date notice of cancellation is received by the provider. If the provider does not meet this time period, the provider owes you a penalty amount for each month an amount remains outstanding equal to 10 percent of the amount outstanding. This penalty is in addition to the full or prorated purchase price of the contract that is owed to you.
For more information, see Occupations Code §1304.1581, Cancellation by Service Contract Holder; Refund.
I cancelled my contract more than 45 days ago, and I still have not received my refund. How much does the service contract provider have to pay?
A service contract provider who does not pay a refund or credit your account before the 46th day after the date they receive the notice of cancellation must pay a penalty equal to 10 percent of the amount outstanding for each month an amount remains outstanding. This penalty is in addition to the full or prorated purchase price of the contract that is owed to you.
Purchase price of the contract/amount owed: $100 - this is considered the amount outstanding.
10% penalty = $10 - this penalty amount will be added every thirty days that the amount outstanding is not refunded.
When should I expect to get a copy of the service contract after purchasing it?
The seller may provide you with a copy of the service contract at the time of purchase. If the seller does not provide a copy at the time of purchase, the provider or administrator must give you a copy of the service contract within a reasonable amount of time after the date of purchase that still allows you the opportunity to cancel the contract and receive a full refund. If you don't receive a copy of the contract, you should contact the person or company you purchased it from.
See Rules 77.70(e) and (f), Responsibilities of Providers and Administrators .
Can a service contract provider cancel my service contract without my permission or consent?
Yes. A provider may cancel a contract, but the reasons for doing so and whether you can obtain a refund is determined by when you bought your service contract. Your service contract should state the terms and requirements for the provider cancelling your contract.
If you bought your service contract before January 1, 2012 , a provider may cancel a service contract by mailing a written notice of cancellation to you at your last known address according to the records of the provider. The provider must mail the notice before the fifth day preceding the effective date of the cancellation. The notice must state the effective date of the cancellation and the reason for the cancellation.
a substantial breach of a duty by you relating to the covered product or its use.
For more information, see Occupations Code §1304.159, Canceling a Service Contract .
If you bought your service contract on or after January 1, 2012, a provider may cancel a service contract by mailing a written notice of cancellation to you at your last known address according to the records of the provider. The provider must mail the notice before the fifth day preceding the effective date of the cancellation. The notice must state the effective date of the cancellation and the reason for the cancellation.
If your service contract is canceled by the provider, the provider must give you a prorated refund of the purchase price of the contract reflecting the remaining term of the contract, based on mileage, time, or another reasonably applicable measure of the remaining term that must be disclosed in the contract, decreased by the amount of any claims paid under the contract. The provider may not charge you a cancellation fee.
For more information, see Occupations Code §1304.159, Cancellation By Provider; Refund .
What are a contract holder's / consumer's rights if the person buys a service contract from a person or company that presents themselves as a service contract provider but is not licensed in Texas?
If TDLR determines that a person or company has operated as a service contract provider or administrator in Texas without holding the appropriate registration, the contract holder may: (1) cancel the contract and obtain a refund of the full purchase price; or (2) retain the contract.
contact TDLR at (800) 803-9202 (Texas only) or (512) 463-6599.
If you are a consumer, TDLR suggests contacting the service contract provider first. The provider is required to provide you with its complaint resolution procedures and if you are unable to resolve the complaint with the provider, you may file a complaint with TDLR.
How do I find out if a Service Contract Provider or Service Contract Administrator has been assessed penalties or sanctions for violating the Act or the rules?
To get a list of final enforcement actions against all Service Contract Providers and Administrators, you may search the TDLR website. Select 'Service Contract Providers' as the license type. Providers and administrators are combined into one list, with Administrators indicated with an '(a)' in the registration number. Example: 'SCP(a)-001' is an administrator registration number, 'SCP-001' is a provider registration number.

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