HCS HB 221 -- SERVICE CONTRACTS

This bill changes the laws regarding motor vehicle extended
service contracts and product service contracts.

MOTOR VEHICLE EXTENDED SERVICE CONTRACTS

The bill:

(1)  Specifies that a "fronting company" is a dealer that
authorizes a third-party administrator or provider to use its
name or business to evade or circumvent a sale, an offer for
sale, or a solicitation of the sale of a motor vehicle extended
service contract to a consumer;

(2)  Allows only motor vehicle dealers and manufacturers, boat
dealers, federally insured depository institutions, and licensed
lenders to market or sell motor vehicle extended service
contracts;

(3)  Prohibits a dealer from acting as a fronting company; and

(4)  Creates penalties for a violation of these provisions.

PRODUCT SERVICE CONTRACTS

The bill:

(1)  Prohibits any person from issuing or selling a product
service contract without registering and paying a fee to the
Director of the Department of Insurance, Financial Institutions,
and Professional Registration;

(2)  Requires providers of service contracts to maintain at least
one of the following:

(a)  A funded reserve account of at least 40% of the gross
consideration received less claims paid;

(b)  A financial security deposit with the department director of
at least 5% of the gross consideration received less claims paid;

(c)  A net worth of $100 million; or

(d)  A reimbursement insurance policy covering 100% of the
service contract obligations;

(3)  Prohibits the collected provider fees from being subject to
premium taxes and exempts the person selling the contract from
other state licensing laws if all the requirements are met;

(4)  Requires providers of service contracts to furnish a written
statement to the consumer specifying the provider's obligations
and conveying the terms and any restrictions.  Misleading
advertising is prohibited;

(5)  Requires providers of service contracts to maintain accurate
records of every transaction for a period of at least three years
after the specified period of coverage has expired.  Records must
be made available to the department upon request;

(6)  Prohibits insurers who issue reimbursement insurance
policies from terminating a policy without notifying the
department director.  Insurers have the right to seek
indemnification against a provider if the insurer pays amounts
under the service contract that the provider was obligated to
pay; and

(7)  Creates penalties for a violation of these provisions.

The bill becomes effective January 1, 2008, except for Sections
385.202, 385.206, 385.214, 385.216, 385.218, 385.220, 385.308,
385.314, 385.316, 385.318 and 385.320 which become effective
August 28, 2007.

Missouri House of Representatives
Last Updated July 25, 2007 at 2:37 pm