2005 Texas Occupations Code CHAPTER 1304. SERVICE CONTRACT PROVIDERS

OCCUPATIONS CODE

CHAPTER 1304. SERVICE CONTRACT PROVIDERS

SUBCHAPTER A. GENERAL PROVISIONS


	§ 1304.001. SHORT TITLE.  This chapter may be cited as the 
Service Contract Regulatory Act.

Added by Acts 2001, 77th Leg., ch. 1421, § 3, eff. June 1, 2003.           


	§ 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		(3)  Repealed by Acts 2003, 78th Leg., ch. 816, § 
13.010(1);  Acts 2003, 78th Leg., ch. 1276, § 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 13.001, 13.010(1), 
eff. Sept. 1, 2003;  Acts 2003, 78th Leg., ch. 1276, § 
14A.337(a), (b), eff. Sept. 1, 2003;  Acts 2005, 79th Leg., ch. 63, 
§ 2, eff. Jan. 1, 2006.


	§ 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 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;  or
		(2)  the repair or replacement of a product for damage 
resulting from a power surge or for accidental damage incurred in 
handling the product.

Added by Acts 2001, 77th Leg., ch. 1421, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. Jan. 1, 2006.             


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.038, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.338, eff. Sept. 1, 
2003.

SUBCHAPTER C. REGISTRATION REQUIREMENTS


	§ 1304.101. REGISTRATION REQUIRED;  EXEMPTION FROM OTHER 
LICENSING REQUIREMENTS.  

Text of subsec. (a) effective until March 1, 2006
	(a)  A person may not operate as a provider of service 
contracts sold in this state unless the person is registered with 
the department.

Text of subsec. (a) effective March 1, 2006
	(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, § 3, eff. June 1, 2003.  
Amended by Acts 2005, 79th Leg., ch. 63, § 4, eff. March 1, 2006.


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.039, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.341, eff. Sept. 1, 
2003;  Acts 2005, 79th Leg., ch. 63, § 5, eff. Jan. 1, 2006.


	§ 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, § 6, eff. Jan. 1, 2006.             


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 13.006, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.342, eff. Sept. 1, 
2003.

Amended by Acts 2005, 79th Leg., ch. 63, § 7, eff. Jan. 1, 2006.           


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.040, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.343, eff. Sept. 1, 
2003.


	§ 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, § 13.007, eff. Sept. 1, 
2003.    

SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 13.008, eff. Sept. 1, 
2003.


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.041, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.345, eff. Sept. 1, 
2003;  Acts 2005, 79th Leg., ch. 63, § 9, eff. Jan. 1, 2006;  Acts 
2005, 79th Leg., ch. 728, § 11.150, eff. Sept. 1, 2005.


	§ 1304.153. APPOINTMENT AND RESPONSIBILITIES OF 
ADMINISTRATOR.            

Text of subsec. (a) effective until March 1, 2006
	A provider may appoint an administrator or designate a person 
to be responsible for:
		(1)  all or any part of the administration or sale of 
service contracts;  and
		(2)  compliance with this chapter.                                            

Text of subsec. (a) effective March 1, 2006
	(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.             

Text of subsec. (b) effective March 1, 2006
	(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, § 3, eff. June 1, 2003.  
Amended by Acts 2005, 79th Leg., ch. 63, § 10, eff. March 1, 
2006.


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.042, eff. Sept. 1, 
2003;  Acts 2003, 78th Leg., ch. 1276, § 14A.346, eff. Sept. 1, 
2003;  Acts 2005, 79th Leg., ch. 63, § 11, eff. Jan. 1, 2006.


	§ 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;                               

Text of subsec. (d)(2) effective until January 1, 2006
		(2)  state that the service contract holder may apply 
for reimbursement directly to the insurer if 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;  and

Text of subsec. (d)(2) effective January 1, 2006
		(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, § 3, eff. June 1, 2003.  
Amended by Acts 2005, 79th Leg., ch. 63, § 12, eff. Jan. 1, 2006.


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.           


	§ 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."  
(V.A.C.S. Art. 9034, § 12, as added Acts 76th Leg., R.S., Ch. 
1559.)

Added by Acts 2001, 77th Leg., ch. 1421, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.           

SUBCHAPTER E. DISCIPLINARY ACTION


	§ 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, § 
13.010(2).              

Added by Acts 2001, 77th Leg., ch. 1421, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 13.009, 13.010(2), 
eff. Sept. 1, 2003;  Acts 2003, 78th Leg., ch. 1276, § 
14A.347(a), eff. Sept. 1, 2003.


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 816, § 26.043, eff. Sept. 1, 
2003.


	§ 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, § 3, eff. June 1, 2003.           


	§ 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, § 3, eff. June 1, 2003.  
Amended by Acts 2003, 78th Leg., ch. 1276, § 14A.347(b), eff. 
Sept. 1, 2003.