CHAPTER 1304. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS - Texas Statutes

OCCUPATIONS CODE

TITLE 8. REGULATION OF ENVIRONMENTAL AND INDUSTRIAL TRADES

CHAPTER 1304. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 1304.001. SHORT TITLE. This chapter may be cited as the

Service Contract Regulatory Act.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.002. DEFINITIONS. In this chapter:

(1) "Administrator" means 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.

(2) "Commission" means the Texas Commission of Licensing and

Regulation.

(3) Repealed by Acts 2003, 78th Leg., ch. 816, Sec. 13.010(1);

Acts 2003, 78th Leg., ch. 1276, Sec. 14A.337(a).

(4) "Consumer" means an individual who, for a purpose other than

resale, buys tangible personal property that is:

(A) distributed in commerce; and

(B) normally used for personal, family, or household purposes

and not for business or research purposes.

(5) "Department" means the Texas Department of Licensing and

Regulation.

(5-a) "Executive director" means the executive director of the

department.

(6) "Person" means an individual or an association, company,

corporation, partnership, or other group.

(7) "Provider" means a person who is contractually obligated to

a service contract holder under the terms of a service contract.

(8) "Reimbursement insurance policy" means a policy of insurance

issued to a provider to:

(A) reimburse the provider under a service contract the provider

issued or sold; or

(B) pay on behalf of the provider all covered contractual

obligations that are incurred by the provider under a service

contract the provider issued or sold and that the provider does

not perform.

(9) "Service contract holder" means a person who purchases or

otherwise holds a service contract.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 13.001,

13.010(1), eff. Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276,

Sec. 14A.337(a), (b), eff. Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 2, eff. January 1, 2006.

Sec. 1304.003. SERVICE CONTRACT. (a) In this chapter, "service

contract" means an agreement:

(1) that is entered into for a separately stated consideration

and for a specified term; and

(2) under which a provider agrees to repair, replace, or

maintain a product, or provide indemnification for the repair,

replacement, or maintenance of a product, for operational or

structural failure or damage caused by a defect in materials or

workmanship or by normal wear.

(b) A service contract may also provide for:

(1) incidental payment or indemnity under limited circumstances,

including towing, rental, and emergency road service;

(2) the repair or replacement of a product for damage resulting

from a power surge or for accidental damage incurred in handling

the product; or

(3) identity recovery, as defined by Section 1306.002, if the

service contract is financed under Chapter 348, Finance Code.

(c) For purposes of Subsection (a), normal wear for a motor

vehicle may include minor and reasonable wear and tear that a

vehicle sustains in everyday ordinary operation including:

(1) small dents, dings, and creases repairable by the process of

paintless dent removal without affecting the existing paint

finish and without replacing vehicle body panels or sanding,

bonding, or painting;

(2) small windshield chips and cracks repairable without

replacement of the entire windshield;

(3) worn tire tread;

(4) worn interior fabric or carpet items; and

(5) tire and wheel damage resulting from ordinary road hazards

such as potholes, rocks, wood debris, metal parts, glass,

plastic, or composite scraps.

(d) Subsection (c)(5) does not apply to tire damage covered

under an agreement sold by a tire manufacturer.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

1059, Sec. 1, eff. September 1, 2007.

Acts 2009, 81st Leg., R.S., Ch.

36, Sec. 2, eff. September 1, 2009.

Sec. 1304.0035. CONTROLLING PERSON. (a) In this chapter,

"controlling person" means an individual who:

(1) possesses direct or indirect control of at least 25 percent

of the voting securities of a corporation;

(2) possesses the authority to set policy and direct the

management of a business entity;

(3) is the president, the secretary, or a director of a

corporation; or

(4) is a general partner of a partnership.

(b) An individual who is a controlling person of a corporation

or other business entity that is the general partner of a limited

partnership is a controlling person of the limited partnership.

Added by Acts 2005, 79th Leg., Ch.

63, Sec. 3, eff. January 1, 2006.

Sec. 1304.004. EXEMPTIONS. (a) In this section:

(1) "Maintenance agreement" means an agreement that provides

only for scheduled maintenance for a limited period.

(2) "Warranty" means an undertaking made solely by the

manufacturer or importer of a product or the seller of a product

or service that:

(A) guarantees indemnity for a defective part, mechanical or

electrical breakdown, or labor cost or guarantees another

remedial measure, including the repair or replacement of the

product or the repetition of service;

(B) is made without payment of additional consideration;

(C) is not negotiated or separated from the sale of the product

or service; and

(D) is incidental to the sale of the product or service.

(b) This chapter does not apply to:

(1) a warranty;

(2) a maintenance agreement;

(3) a service contract sold or offered for sale to a person who

is not a consumer;

(4) a residential service contract sold by an entity licensed by

the Texas Real Estate Commission under Chapter 1303;

(5) an agreement issued by an automobile service club that holds

a certificate of authority under Chapter 722, Transportation

Code;

(6) a service contract sold by a motor vehicle dealer on a motor

vehicle sold by that dealer, if the dealer:

(A) is the provider;

(B) is licensed as a motor vehicle dealer under Chapter 2301;

and

(C) covers its obligations under the service contract with a

reimbursement insurance policy; or

(7) a contract offered by a local exchange telephone company

that provides for the repair of inside telephone wiring, if:

(A) the contract term does not exceed one month; and

(B) the consumer can terminate the contract before a new

contract term begins without liability except for payment of

charges for the term that has begun.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.005. EXEMPTIONS FROM CERTAIN OTHER LAWS. Marketing,

selling, offering for sale, issuing, making, proposing to make,

and administering a service contract are exempt from:

(1) Chapter 1303;

(2) Chapter 722, Transportation Code; and

(3) the Insurance Code and other laws of this state regulating

the business of insurance.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.006. PURCHASE REQUIREMENT PROHIBITED. A person,

including a bank, a savings and loan association, a lending

institution, or the manufacturer or seller of a product, may not

require the purchase of a service contract as a condition of a

loan or the sale of property.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.007. GENERAL INVESTIGATIVE POWER OF EXECUTIVE

DIRECTOR. (a) The executive director may investigate a

provider, administrator, or other person as necessary to enforce

this chapter and protect service contract holders in this state.

(b) On request of the executive director, a provider shall make

the records required by Section 1304.155 available to the

executive director as necessary to enable the executive director

to reasonably determine compliance with this chapter.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.038, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.338, eff.

Sept. 1, 2003.

SUBCHAPTER C. REGISTRATION REQUIREMENTS

Sec. 1304.101. REGISTRATION REQUIRED; EXEMPTION FROM OTHER

LICENSING REQUIREMENTS. (a) A person may not operate as a

provider or administrator of service contracts sold in this state

unless the person is registered with the department.

(b) Except for the registration requirement of this subchapter,

a provider, service contract seller, administrator, or other

person who markets, sells, or offers to sell service contracts is

exempt from any licensing requirement of this state that relates

to an activity regulated under this chapter.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 4, eff. March 1, 2006.

Sec. 1304.102. APPLICATION FOR REGISTRATION OR RENEWAL; GENERAL

REQUIREMENTS. (a) An applicant for registration or registration

renewal must submit an application to the executive director.

(b) The application must:

(1) be in the form prescribed by the executive director; and

(2) include evidence satisfactory to the executive director of

compliance with the applicable financial security requirements

prescribed by Section 1304.151, if the application is for a

provider registration or renewal.

(c) The department may refuse to issue or renew a registration

if the applicant or a controlling person of the applicant has

violated this chapter or a rule adopted or order issued by the

commission or executive director.

(d) A person who makes a false statement in an application or in

any document provided with an application is subject to

disciplinary action under Subchapter E, including denial of the

application or suspension or revocation of a registration.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.039, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.341, eff.

Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 5, eff. January 1, 2006.

Sec. 1304.1025. ADDITIONAL REGISTRATION AND RENEWAL REQUIREMENTS

FOR PROVIDERS. (a) In addition to the requirements of Section

1304.102, an applicant for issuance or renewal of a provider

registration must file with the application:

(1) the reimbursement insurance policy, if the provider is using

a reimbursement insurance policy; and

(2) a biographical affidavit, in a form prescribed by the

executive director, for each controlling person of the provider.

(b) The executive director may not issue or renew a registration

to a provider unless the provider provides evidence to the

executive director that:

(1) each controlling person of the provider is trustworthy and

can competently manage the affairs of the provider in compliance

with this chapter; and

(2) the provider can meet the provider's obligations under

service contracts and this chapter.

(c) Not later than the 30th day after the date of a provider's

initial registration, the provider must provide to the department

a list of any Internet website address through which a consumer

may purchase the provider's service contracts and the name,

assumed name, street address, and telephone number of:

(1) any administrator appointed by the provider under Section

1304.153; and

(2) any seller of the provider's service contracts, other than a

seller that is:

(A) an employee of the provider; or

(B) a business with a physical location in this state at which a

consumer may purchase a service contract.

(d) The provider shall update the list required by Subsection

(c) with each renewal.

Added by Acts 2005, 79th Leg., Ch.

63, Sec. 6, eff. January 1, 2006.

Sec. 1304.103. REGISTRATION AND RENEWAL FEES. (a) The executive

director shall develop a tiered schedule of registration and

renewal fees under which a provider's fee is based on the number

of service contracts the provider sold in this state during the

preceding 12-month period.

(b) The commission shall set the amounts of fees to cover the

costs of administering this chapter, including registration and

renewal fees for administrators.

(c) To register or renew a registration, a provider or

administrator must pay the appropriate fee.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 13.006, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.342, eff.

Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 7, eff. January 1, 2006.

Sec. 1304.104. INFORMATION CONCERNING NUMBER OF SERVICE

CONTRACTS SOLD. Information concerning the number of service

contracts sold by a provider that is submitted under Section

1304.103:

(1) is a trade secret to which Section 552.110, Government Code,

applies; and

(2) may be used only by the executive director and the

department in developing the tiered fee schedule under Section

1304.103.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.040, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.343, eff.

Sept. 1, 2003.

Sec. 1304.105. RENEWAL. The commission shall adopt rules

regarding the renewal of a registration issued under this

chapter.

Added by Acts 2003, 78th Leg., ch. 816, Sec. 13.007, eff. Sept.

1, 2003.

SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS AND

ADMINISTRATORS

Sec. 1304.151. FINANCIAL SECURITY REQUIREMENTS. (a) To ensure

the faithful performance of a provider's obligations to its

service contract holders, each provider must:

(1) insure the provider's service contracts under a

reimbursement insurance policy issued by an insurer authorized to

transact insurance in this state or by a surplus lines insurer

eligible to place coverage in this state under Chapter 981,

Insurance Code;

(2) maintain a funded reserve account covering the provider's

obligations under its service contracts that are issued and

outstanding in this state and place in trust with the executive

director a financial security deposit consisting of:

(A) a surety bond issued by an authorized surety;

(B) securities of the type eligible for deposit by an authorized

insurer in this state;

(C) a statutory deposit of cash or cash equivalents;

(D) a letter of credit issued by a qualified financial

institution; or

(E) another form of security prescribed by rules adopted by the

commission; or

(3) maintain, or have a parent company that maintains, a net

worth or stockholders' equity of at least $100 million.

(b) If the provider ensures its obligations under Subsection

(a)(2), the amount maintained in the reserve account may not be

less than an amount equal to 40 percent of the gross

consideration the provider received from consumers from the sale

of all service contracts issued and outstanding in this state,

minus any claims paid. The executive director may review and

examine the reserve account. The amount of the security deposit

may not be less than the greater of:

(1) $25,000; or

(2) an amount equal to five percent of the gross consideration

the provider received from consumers from the sale of all service

contracts issued and outstanding in this state, minus any claims

paid.

(c) If the provider ensures its obligations under Subsection

(a)(3), the provider must give to the executive director on

request:

(1) a copy of the provider's or the provider's parent company's

most recent Form 10-K or Form 20-F filed with the Securities and

Exchange Commission within the preceding calendar year; or

(2) if the provider or the provider's parent company does not

file with the Securities and Exchange Commission, 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.

(d) If the provider's parent company's Form 10-K, Form 20-F, or

audited financial statements are filed to show that the provider

meets the financial security requirement, the parent company

shall agree to guarantee the obligations of the provider relating

to service contracts sold by the provider in this state.

(e) The executive director may not require a provider to meet

any additional financial security requirement.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 13.008, eff.

Sept. 1, 2003.

Sec. 1304.152. REIMBURSEMENT INSURANCE POLICY. (a) A

reimbursement insurance policy that a provider uses to comply

with Sections 1304.1025 and 1304.151(a)(1) must state that:

(1) the insurer that issued the policy shall:

(A) reimburse or pay on behalf of the provider any covered

amount the provider is legally obligated to pay; or

(B) provide the service that the provider is legally obligated

to perform according to the provider's contractual obligations

under the insured service contract;

(2) if the covered service is not provided to a service contract

holder not later than the 60th day after the date of proof of

loss, the insurer shall pay the covered amount directly to the

service contract holder or provide the required service; and

(3) if a refund is not paid to the service contract holder or

credited to the service contract holder's account as required by

Section 1304.158, the insurer, after receiving written notice,

shall pay the refund amount directly to the service contract

holder.

(a-1) For a reimbursement insurance policy to comply with

Section 1304.151(a)(1), the insurer issuing the policy must:

(1) maintain surplus as to policyholders and paid-in capital of

at least $15 million and annually file with the executive

director copies of the insurer's audited financial statements,

National Association of Insurance Commissioners annual statement,

and actuarial certification if the certification is required and

filed in the insurer's state of domicile; or

(2) maintain surplus as to policyholders and paid-in capital of

at least $10 million but not more than $15 million, demonstrate

to the satisfaction of the executive director that the insurer

maintains a ratio of net written premiums, wherever written, to

surplus as to policyholders and paid-in capital of not more than

three to one, and annually file with the executive director

copies of the insurer's audited financial statements, National

Association of Insurance Commissioners annual statement, and

actuarial certification if the certification is required and

filed in the insurer's state of domicile.

(b) The insurer may not cancel the reimbursement insurance

policy until the insurer delivers to the provider and the

executive director a written notice of cancellation that complies

with the notice requirements prescribed by Subchapters B and C,

Chapter 551, Insurance Code, for cancellation of an insurance

policy under those subchapters. Cancellation of the policy does

not affect the insurer's liability for a service contract issued

by the provider and insured under the policy before the effective

date of the cancellation.

(b-1) If the insurer or provider cancels the reimbursement

insurance policy, the provider named on the policy may not issue

a new service contract after the effective date of the

cancellation unless:

(1) the provider files with the executive director a copy of a

new policy that meets the requirements of this section and that

provides coverage after that date; or

(2) the provider complies with other financial security

requirements provided by Section 1304.151(a).

(c) A provider is considered the agent of an insurer that issues

a reimbursement insurance policy for purposes of obligating the

insurer to the service contract holder in accordance with the

service contract and this chapter. The insurer issuing the

reimbursement insurance policy is considered to have received the

premium for the policy on the date the service contract holder

pays the purchase price of the service contract.

(d) This chapter does not prevent or limit the right of the

insurer to seek indemnification or subrogation against a provider

for any amount the insurer pays or is obligated to pay to a

service contract holder on behalf of the provider.

(e) In this section, "net written premiums" means the sum of

direct written premiums and assumed reinsurance premiums, minus

ceded reinsurance premiums.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.041, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.345, eff.

Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 9, eff. January 1, 2006.

Acts 2005, 79th Leg., Ch.

728, Sec. 11.150, eff. September 1, 2005.

Sec. 1304.153. APPOINTMENT AND RESPONSIBILITIES OF

ADMINISTRATOR. (a) A provider may appoint an administrator

registered under this chapter to be responsible for:

(1) all or any part of the administration or sale of service

contracts; and

(2) compliance with this chapter, except for Section 1304.151.

(b) The appointment of an administrator under this section does

not affect a provider's responsibility to comply with this

chapter.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 10, eff. March 1, 2006.

Sec. 1304.154. PROVIDER REQUIREMENTS. A provider may not sell,

offer for sale, or issue a service contract in this state unless

the provider gives the service contract holder:

(1) a receipt for, or other written evidence of, the purchase of

the contract; and

(2) a copy of the contract within a reasonable period after the

date of purchase.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.155. PROVIDER RECORDS. (a) A provider shall maintain

accurate accounts, books, and other records regarding

transactions regulated under this chapter. The provider's records

must include:

(1) a copy of each unique form of service contract sold;

(2) the name and address of each service contract holder who

provided the holder's name and address;

(3) a list of each location at which the provider's service

contracts are marketed, sold, or offered for sale; and

(4) written claims files that contain at least the date and a

description of each claim related to the service contracts.

(b) The records required by this section may be maintained in an

electronic medium or through other recordkeeping technology. If a

record is not in a hard copy, the provider must be able to

reformat the record into a legible hard copy at the request of

the executive director.

(c) Except as provided by Subsection (d), a provider shall

retain the records required by this section until at least the

first anniversary of the expiration date of the specified period

of coverage under the service contract.

(d) A provider that discontinues business in this state shall

retain its records until the provider furnishes the executive

director with proof satisfactory to the executive director that

the provider has discharged all obligations to service contract

holders in this state.

(e) An administrator appointed to maintain the provider's

records is responsible for compliance with this section to the

same extent as the provider.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.042, eff.

Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.346, eff.

Sept. 1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 11, eff. January 1, 2006.

Sec. 1304.156. FORM OF SERVICE CONTRACT AND REQUIRED

DISCLOSURES. (a) A service contract marketed, sold, offered for

sale, issued, made, proposed to be made, or administered in this

state must:

(1) be written, printed, or typed in clear, understandable

language that is easy to read;

(2) state the name and address of the provider;

(3) state the purchase price of the contract and the terms under

which the contract is sold;

(4) state the terms and restrictions governing cancellation of

the contract by the provider or the service contract holder

before the expiration date of the contract;

(5) identify:

(A) any administrator;

(B) the contract seller; and

(C) the service contract holder, if the service contract holder

provides the holder's name;

(6) state the amount of any deductible;

(7) specify the products and services to be provided under the

contract and any limitation, exception, or exclusion;

(8) specify any restriction governing the transferability of the

contract;

(9) state the duties of the service contract holder, including

any duty to protect against any further damage and any

requirement to follow the instructions in the owner's manual; and

(10) state whether the contract provides for or excludes

consequential damages or preexisting conditions, if applicable.

(b) The identity of a person described by Subsection (a)(5) is

not required to be preprinted on the service contract and may be

added to the contract at the time of sale.

(c) The purchase price is not required to be preprinted on the

service contract and may be negotiated with the service contract

holder at the time of sale.

(d) A service contract insured under a reimbursement insurance

policy under Section 1304.151(a)(1) must:

(1) state the name and address of the insurer;

(2) state that the service contract holder may apply for

reimbursement directly to the insurer if:

(A) a covered service is not provided to the service contract

holder by the provider not later than the 60th day after the date

of proof of loss; or

(B) a refund or credit is not paid before the 46th day after the

date on which the contract is returned to the provider under

Section 1304.158; and

(3) contain a statement substantially similar to the following:

"Obligations of the provider under this service contract are

insured under a service contract reimbursement insurance policy."

(e) A service contract that is not insured under a reimbursement

insurance policy must contain a statement substantially similar

to the following: "Obligations of the provider under this service

contract are backed by the full faith and credit of the

provider." (V.A.C.S. Art. 9034, Secs. 10(a), (b), (c), (d), (e),

(f) (part), (g), as added Acts 76th Leg., R. S., Ch. 1559.)

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Amended by:

Acts 2005, 79th Leg., Ch.

63, Sec. 12, eff. January 1, 2006.

Sec. 1304.157. RETURNING A SERVICE CONTRACT. A service contract

must require the provider to allow the service contract holder to

return the contract to the provider not later than:

(1) the 20th day after the date the contract is mailed to the

service contract holder; or

(2) the 10th day after the date of delivery, if the contract is

delivered to the service contract holder at the time of sale.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.158. VOIDING A SERVICE CONTRACT. (a) If a service

contract holder returns a service contract in accordance with

Section 1304.157 and a claim has not been made under the contract

before the contract is returned, the contract is void.

(b) A service contract holder may void the service contract at a

later time as provided by the contract.

(c) If a service contract is voided, the provider shall refund

to the service contract holder or credit to the account of the

service contract holder the full purchase price of the contract.

If the provider does not pay the refund or credit the service

contract holder's account before the 46th day after the date the

contract is returned to the provider, the provider is liable to

the service contract holder for a penalty each month an amount

remains outstanding. The monthly penalty may not exceed 10

percent of the amount outstanding.

(d) The right to void a service contract is not transferable.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.159. CANCELING A SERVICE CONTRACT. (a) A provider

may cancel a service contract by mailing a written notice of

cancellation to the service contract holder at the service

contract holder's 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.

(b) The provider is not required to provide prior notice of

cancellation if the service contract is canceled because of:

(1) nonpayment of the consideration for the contract;

(2) a material misrepresentation by the service contract holder

to the provider; or

(3) a substantial breach of a duty by the service contract

holder relating to the covered product or its use.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.160. LIMITATIONS ON PROVIDER NAME. (a) A provider

may not use a name that:

(1) includes "insurance," "casualty," "surety," or "mutual" or

any other word descriptive of the insurance, casualty, or surety

business; or

(2) is deceptively similar to the name or description of an

insurance or surety corporation or to the name of any other

provider.

(b) A provider may include in its name "guaranty" or a similar

word.

(c) This section does not apply to a provider that, before

September 1, 1999, included a word prohibited under this section

in its name. A provider described by this subsection must include

in each service contract a statement substantially similar to the

following: "This agreement is not an insurance contract."

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.161. MISLEADING STATEMENTS PROHIBITED. A provider or

the provider's representative may not, in the provider's service

contracts or literature:

(1) make, permit, or cause to be made any false or misleading

statement; or

(2) deliberately omit a material statement if the omission would

be considered misleading.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

SUBCHAPTER E. DISCIPLINARY ACTION

Sec. 1304.201. DISCIPLINARY ACTION. (a) On a finding that a

ground for disciplinary action exists under this chapter, the

commission may impose an administrative sanction, including an

administrative penalty as provided by Subchapter F, Chapter 51.

(b) Repealed by Acts 2003, 78th Leg., ch. 816, Sec. 13.010(2).

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 13.009,

13.010(2), eff. Sept. 1, 2003; Acts 2003, 78th Leg., ch. 1276,

Sec. 14A.347(a), eff. Sept. 1, 2003.

Sec. 1304.202. INJUNCTIVE RELIEF; CIVIL PENALTY. (a) The

executive director may institute an action under Section 51.352

for injunctive relief to restrain a violation or a threatened

violation of this chapter or an order issued or rule adopted

under this chapter.

(b) In addition to the injunctive relief provided by Subsection

(a), the executive director may institute an action for a civil

penalty as provided by Section 51.352. The amount of a civil

penalty assessed under this section may not exceed:

(1) $2,500 for each violation; or

(2) $50,000 in the aggregate for all violations of a similar

nature.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 816, Sec. 26.043, eff.

Sept. 1, 2003.

Sec. 1304.203. MULTIPLE VIOLATIONS. For purposes of this

subchapter, violations are of a similar nature if the violations

consist of the same or a similar course of conduct, action, or

practice, regardless of the number of times the conduct, act, or

practice occurred.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003.

Sec. 1304.204. ADMINISTRATIVE PROCEDURE. Sections 51.305,

51.310, and 51.354 apply to disciplinary action taken under this

chapter.

Added by Acts 2001, 77th Leg., ch. 1421, Sec. 3, eff. June 1,

2003. Amended by Acts 2003, 78th Leg., ch. 1276, Sec. 14A.347(b),

eff. Sept. 1, 2003.