Modifying provisions applicable to certain service contract providers regulated by the commissioner of insurance, providing fees, making penalties applicable, making an appropriation, and including effective date provisions

1. The bill removes definitions for “custodial account”, “custodial agreement”, “custodian”, “depository”, and “reserve account agreement”. The bill adds definitions for “maintenance agreement”, “motor vehicle”, “motor vehicle manufacturer”, “motor vehicle service contract”, “premium”, “reimbursement insurance policy”, “service contract”, and “warranty”, and modifies existing definitions for “residential service contract” and “service contract”, as described in the bill. The bill provides that a person shall not issue, offer for sale, or sell a motor vehicle service contract or residential service contract in Iowa unless the person is licensed as a service company under Code chapter 523C. The licensure requirements do not apply to any person who provides support services or works under the direction of a licensed service company, including but not limited to a person who provides marketing, administrative, or technical support. The bill specifies the information required in an application for a license under Code chapter 523C. In addition to such information, an application shall be accompanied by a license fee of $500 and a fee of $50 for each motor vehicle service contract form submitted in an application, if applicable. The commissioner shall issue a license if an application contains the required information and is accompanied by the required fees. The bill provides that each license issued under Code chapter 523C shall be valid for a period of one year and shall be renewed by August of each year following the date of issuance. An application for renewal shall require the same information required in an initial application, a $500 license renewal fee, other fees described in the bill that apply to certain service companies, and other information described in the bill regarding a service company’s operations during the preceding fiscal year. In addition to such requirements, a service company must report to the commissioner any material change in information provided in the initial application which has not been reported to the commissioner.5, which provides a surety bond requirement, with a new Code section which requires a service company to demonstrate financial responsibility to the commissioner. The service company shall satisfy this requirement by either insuring all of its service contracts offered for sale in Iowa under a reimbursement insurance policy that complies with the bill, maintaining a funded reserve account and placing in trust with the commissioner a financial security deposit, or maintaining a minimum net worth or stockholders’ equity and providing certain information to the commissioner upon request, as described in the bill.6, which provides a net worth requirement, with a new Code section which establishes certain requirements for reimbursement insurance policies that insure service contracts offered for sale in Iowa. The requirements include provisions regarding insurer obligations, service contract holder rights, termination, indemnification or subrogation, insurance premium tax liability, and insurer qualifications, as described in the bill.7, which provides service contract filing and form requirements, with a new Code section which establishes certain requirements regarding disclosure to service contract holders, service contract forms, and provisions included in service contracts, as described in the bill. The bill provides that the commissioner may suspend or revoke or refuse to renew the license of a service company if the service company violates a lawful order of the commissioner or any provision of Code chapter 523C, fails to pay a final judgment in Iowa within days, indicates negligence, incompetence, or a refusal to perform services, performs any prohibited acts or practices described in the bill, fails to demonstrate financial responsibility as provided in the bill, or fails to maintain its corporate certificate of good standing with the secretary of state. The bill provides that the costs of a service company examination conducted at the discretion of the commissioner, which is paid by the service company, shall not exceed an amount equal to percent of the service company’s reported net income in the previous fiscal year. The bill prohibits a licensed service company offering for sale in Iowa motor vehicle service contracts, or its representatives, from directly or indirectly representing a false, deceptive, or misleading statement with respect to certain statements regarding its affiliation with a motor vehicle manufacturer or importer, the validity or expiration of a warranty, or a service contract holder’s coverage under a service contract, as described in the bill. The bill also allows the commissioner to adopt rules regulating service contract practices, any violation of which allows the commissioner to assess certain civil penalties or suspend or revoke a license, as described in the bill. The bill provides that annual reporting requirements shall apply only to licensed service companies which do not demonstrate financial responsibility by insuring their service contracts under a reimbursement insurance policy. The annual report shall be filed with the commissioner no later than August of each year and shall contain certain information described in the bill.16, certain motor vehicle service contracts currently excluded from regulation under Code chapter 516E, residential service contracts involving residential property containing more than four dwelling units, warranties, motor vehicle service contracts issued or sold to any person other than a consumer, and maintenance agreements. The bill prohibits a lending institution from requiring the purchase of a motor vehicle service contract or residential service contract as a condition of a loan or the sale of any property. A violation of this provision allows the commissioner to assess certain civil penalties or suspend or revoke a license, as described in the bill.24, which creates a service company oversight fund under the control of the commissioner. The fund shall consist of all moneys deposited in the fund pursuant to the bill. The bill directs the commissioner to deposit in the fund an amount equal to one-third of all licensing, examination, renewal, and inspection fees collected under Code chapter 523C, provided that the maximum amount deposited each fiscal year shall not exceed $500,000.7. Moneys in the oversight fund are appropriated to the commissioner for the administration and enforcement of Code chapter 523C, and for establishing service contract consumer complaint, education, and outreach programs. Interest or earnings on moneys deposited in the fund shall be credited to the fund. Moneys deposited in the fund shall not revert at the close of a fiscal year.18 (criminal penalty no longer applicable). The bill makes conforming changes throughout Code chapter 523C. The bill allows the commissioner to adopt emergency rules to implement the provisions of the bill. Any such rules shall be effective immediately upon filing unless a later date is specified and shall be published as a notice of intended action. The bill takes effect upon enactment.