Under the bill, telephone and direct-mail sellers of extended service contracts in Missouri would be required to get state licenses. Customers would get a 20-business-day “free look” period to cancel contracts without penalty.
The licensing requirement would not apply to vehicle dealers, financial institutions, lenders, manufacturers or providers already licensed in Missouri.
Consumers who cancel after the free-look period would be entitled to a pro-rated refund, minus a maximum $50 administrative fee under the legislation. It also would mandate a 30-day deadline for sellers to provide consumers with a signed copy of their contracts, as well as giving consumers the right to receive an unsigned copy ahead of a purchase.
Other provisions would prohibit the word “warranty” in service contracts and outlaw misrepresentations concerning any affiliation with a manufacturer or dealer. Violators would face penalties, as well as the loss of their state licenses.
Aside from legislative action, the task force called for stronger Department of Insurance, Financial Institutions and Professional Regulation oversight. That would include setting minimum standards for “clear and understandable language” and disclosure of exclusions, price, deductibles and claims procedures in the contracts.
The department also should enhance its regulation of telemarketing practices, the report recommended.
Koster filed 12 lawsuits in 2009-10 against auto service contract telemarketing companies.
And in 2009, service contracts made up the largest category of complaints his office received, Koster press secretary Nanci Gonder said.
Complaints dealt with both service contracts and “additive contracts,” which officials say are a scam designed to bypass Missouri’s service contract laws. An additive contract is triggered if a consumer first installs one or more additives, such as radiator coolant or an oil supplement, or devices into some part of his vehicle, the task force report said.
The report followed testimony from dissatisfied consumers -- including one who paid $2,175 for a US Fidelis contract that provided less than $2,000 in coverage -- and discussions with representatives of the Vehicle Protection Association, Better Business Bureau and Service Contract Industry Council.