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ReprintsTexas rules limiting robocalls could boost dealers' service contract sales
When Texas Gov. Rick Perry signed a new law June 17 imposing stricter regulations for the sale of automobile extended-service contracts, the state accomplished what several others are hoping to do -- toughen laws governing service contracts.
The Texas law, though, which takes effect Sept. 1, has an unusual provision that could ultimately make it easier for dealerships to sell extended-service contracts in the state.
The provision, on its face, prohibits telemarketers from contacting consumers to sell them extended-service contracts unless the companies have a prior commercial relationship with the customers. That could be a competitive advantage for dealerships because direct marketers compete for business with dealerships.
Earlier this month, Missouri Gov. Jay Nixon signed into law a bill that the state Legislature gave him in May. The new law creates licensing requirements for the sale of extended-service contracts and tightens the rules for consumer disclosures.
Missouri is the most prominent among states clamping down on extended-service contracts, in part as a reaction to last year's high-profile bankruptcy for U.S. Fidelis of Wentzville, Mo. Fidelis used aggressive telemarketing tactics, making millions of phone calls to consumers nationwide in a bid to sell them extended-service contracts.
Besides Missouri and Texas, other states adopting or considering tougher laws include Maine, Nevada, North Carolina and New Jersey, experts said. California and the state of Washington also are keeping a close eye on service-contract regulations in other states, according to interviews with state officials.
Larry Hecker, executive director of the Vehicle Protection Association, a trade association based in Selbyville, Del., said the apparent ban on cold calling in Texas was surprising.
The VPA includes several companies that use telemarketing to sell extended-service contracts directly to consumers, as does the Service Contract Industry Council, a separate lobbying group based in Tallahassee, Fla.
SCIC members include automakers, captive finance companies and F&I vendors that sell extended-service contracts primarily through dealerships. However, some SCIC members sell the contracts directly to consumers.
A ban on cold calling in Texas would pose a problem to some degree for both groups. On the other hand, Hecker said other provisions of the Texas law appear to be based on a "model law" advocated by the SCIC, plus some provisions of the VPA's ethical Standards of Conduct, which his group adopted in 2009.
Hecker said last week his group will review the Texas law, but it was too soon to express an opinion. He added: "I'm not a lawyer."
You can reach Jim Henry at autonews@crain.com.
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