The law governing vehicle service contracts has specific provisions regarding extended auto warranty insurance companies. The laws also refer to common words in new ways. For example, in some states, the company that issues a contract is called an “administrator” and the one that services it is called a “provider.” In this guide, we use the terms interchangeably. Read on to learn more about the legality of extended auto warranty companies and what you should expect from them.
Exemptions from insurance requirements
Extended auto warranty companies must meet state regulations and be licensed to provide their services. They must also insure contracts and deposit a minimum of forty percent of the gross contract sales into a trust account. These insurance policies must specify the name of the insurer, as well as whether they can use non-original parts in repairs. However, some companies are exempt from insurance requirements, as long as they have a net worth of more than $100 million.
These rulings also give auto dealers a unique opportunity. By creating a dealer-agent contract, they can receive the tax benefits of an insurance company without subjecting themselves to state insurance regulations. This will improve the dealership’s overall value while isolating warranty liabilities from dealership-related obligations. Gary Lucas is a taxation associate and member of the firm’s taxation group. He received his bachelor’s degree from Marshall University, his law degree from Tulane University, and an LLM in taxation from the University of Florida Levin College of Law.
In addition, these contracts must clearly state the terms and conditions of their coverage. For example, they must clearly state the deductible, the types of parts covered and the amounts that must be paid by the buyer. Moreover, the contract cannot be used as a conditional requirement for car loans in Pennsylvania. In addition, companies cannot impose an additional insurance requirement on consumers, such as extended warranties, as they are a separate financial product from a car loan.
Another state that has stricter laws about extended auto warranty contracts is Mississippi. The state also has a law prohibiting the use of horns in non-emergency situations. Moreover, in addition to imposing these laws, extended auto warranty companies are required to register with the state each year and to have insurance policies in place. The name of the insurance company should be stated on the contract.
Disclosure of exclusions to coverage
Consumer protection laws require extended auto warranty companies to clearly disclose the terms of their service contracts. For example, they must disclose the deductible for services, exclusions from coverage, and non-original parts and labor used in repairs. In addition, they must disclose whether their plans cover pre-existing conditions or consequential damages. In South Carolina, any company found in violation of these laws may be required to stop selling their contracts or pay restitution to their victims.
State law requires all car warranty contracts to disclose the deductibles and exclusions to coverage. Exclusions must be clearly stated in the contract, as well as any other responsibilities the customer has to maintain the contract. Additionally, no company can require customers to buy an extended warranty contract as a condition of obtaining a car loan in the state. Finally, companies cannot make sales calls through telemarketing to sell extended auto warranties to consumers in state-regulated markets. If they do so, they risk being fined up to $50,000 each, or their license may be suspended.
A contract must also disclose the limits of coverage. Exclusions can include pre-existing conditions, deductible fees, and non-original parts. It must explain how maintenance is required. It should also disclose the conditions and terms of coverage. Exclusions from coverage include consequential damages and pre-existing conditions. Further, the contract must allow customers to return the policy within 10 or 20 days if they are not satisfied with the coverage.
Fines for violations
New York State law requires that all service contracts state-side disclose details such as deductibles and pre-existing conditions. Those who break the law can face fines of up to $500 per violation. The law is effective January 2022. In addition, companies must give consumers an opportunity to cancel within 30 days of purchase. Those who don’t comply will be banned from doing business in the state. Furthermore, companies will be subject to bans from operating in the state, which could lead to massive fines of up to $10,000.
In addition to fines, violations of service contract laws can result in company suspension or license revocation. In some cases, violators can be jailed for up to a year. In such cases, the state may require a company to pay restitution to customers. However, the penalties may be greater in other states. In Maryland, fines for violations by extended auto warranty companies are as high as $5,000.
While fines for violations by extended auto warranty companies can be as high as $10,000, they are typically less severe. A first-time offender may be penalized with a fine of as little as $100, but an intentional violation can result in a $500 fine. In addition to fines, the state may also suspend the company’s license or even revoke its registration. A fine of this size can be more than $10,000, and in extreme cases, even lead to license suspension.
The laws require that the contract clearly describe coverage and exclusions. It must also make it clear whether a service contract will cover non-original parts, or pre-existing conditions. It must also specify whether the coverage includes consequential damages. If a company does not follow the law, it will be ordered to stop selling the service contracts and may be barred from doing business in the state altogether. If the violation continues, the company may be shut down, and the fines could be up to $15,000 per violation.