(1) "Administrator" means the person responsible for the administration of a service contract or service contract plan. The term includes a person responsible for any filings required by this article.

(3) "Commission" means the Texas Commission of Licensing and Regulation.

(4) "Consumer" means an individual who buys, other than for purposes of resale, any tangible personal property that is:

(6) "Maintenance agreement" means an agreement of limited duration that provides only for scheduled maintenance.

(7) "Person" means an individual or a partnership, company, corporation, association, or other group, however organized.

(8) "Premium" means the consideration paid to an insurer for a reimbursement insurance policy.

(9) "Provider" means a person who is contractually obligated to the service contract holder under the terms of the service contract.

(10) "Provider fee" means the consideration paid for a service contract.

(11) "Reimbursement insurance policy" means a policy of insurance issued to a provider to:

(12) "Service contract" means an agreement, entered into for a separately stated consideration and for a specified term, 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. A service contract may additionally provide for incidental payment or indemnity under limited circumstances, including towing, rental, and emergency road service, or for the repair or replacement of a product for damage resulting from power surges or accidental damage incurred in handling the product.

(13) "Service contract holder" means a person who purchases or otherwise holds a service contract.

(14) "Warranty" means, in relation to a product or service, an undertaking that guarantees indemnity for defective parts, mechanical or electrical breakdown, labor costs, or other remedial measures, such as repair or replacement of the product or repetition of services, and that is:

(a) The commissioner may adopt rules as necessary to implement this article.

(b) The commissioner may conduct investigations of providers, administrators, or other persons as necessary to enforce this article and protect service contract holders in this state. On request of the commissioner, a provider shall make the provider's records maintained under Section 9 of this article regarding service contracts sold by the provider available to the commissioner as necessary to enable the commissioner to reasonably determine compliance with this article.

(a) The service contract providers advisory board is an advisory body to the department. The advisory board shall advise:

(b) The advisory board is composed of six members appointed by the commissioner as follows:

(c) A member of the advisory board serves a term of six years with terms expiring on February 1 of odd-numbered years.

(d) The commissioner shall designate one member of the advisory board to serve as presiding officer. The commissioner or the commissioner's designee shall serve as an ex officio nonvoting member of the advisory board. The commissioner shall fill any vacancy on the advisory board for the remainder of the unexpired term with an individual who represents the same interests with which the predecessor was identified.

(e) The advisory board shall meet at least every six months and may meet at other times at the call of the presiding officer. The advisory board shall meet at a location in this state designated by the advisory board.

(f) A decision of the advisory board is not effective unless it receives the affirmative vote of at least four members.

(g) The advisory board members serve without compensation. A member is entitled to reimbursement for actual and necessary expenses incurred in performing functions as a member of the advisory board, subject to any applicable limitation on reimbursement provided by the General Appropriations Act.

(a) A person may not operate as a provider of service contracts sold in this state unless the person is registered with the department. Except for this registration requirement, providers and service contract sellers, administrators, and other persons marketing, selling, or offering to sell service contracts are exempt from any licensing requirements of this state that relate to the activities regulated under this article.

(b) Each applicant for registration shall file a registration application with the commissioner in the form prescribed by the commissioner that includes evidence satisfactory to the commissioner of compliance with the financial security requirements adopted under Section 6 of this article.

(c) Each registered provider shall pay an annual registration fee not to exceed $2,000 as set by the commission to cover the costs of administrating this article. The commissioner shall develop a tiered fee structure under which registration fees are assessed on providers based on the number of service contracts sold within this state in the prior 12-month period. The information submitted to the commissioner under this section regarding the number of service contracts sold by a provider may only be used by the commissioner and the department in determining the tiered fee structure. Information concerning the number of service contracts sold by a provider that is submitted under this section is a trade secret and subject to Section 552.110, Government Code.

(d) The marketing, sale, offering for sale, issuance, making, proposing to make, and administration of service contracts are exempt from:

(1) the Insurance Code and other laws of this state regulating the business of insurance;

(2) Article 6573b, Revised Statutes; and

(3) Chapter 722, Transportation Code.

(e) The following contracts and agreements are specifically exempt from the application of this article and are only subject to other statutes and laws which specifically apply to them:

(1) warranties;

(2) maintenance agreements;

(a) To ensure the faithful performance of a provider's obligations to its service contract holders, each provider shall comply with one of the following financial security requirements:

(b)  No other financial security requirements shall be required by the commissioner for service contract providers.

(a) In order for a provider to comply with Section 6 of this article through the use of a reimbursement insurance policy, such policy must state that:

(b) An insurer that issues a reimbursement insurance policy under this article may not cancel the policy until the insurer delivers to the provider a written notice of cancellation that complies with the requirements adopted for those notices under Articles 21.49-2A and 21.49-2B, Insurance Code. The provider shall forward a copy of the cancellation notice to the commissioner not later than the 15th business day after the date the notice is delivered to the provider. The cancellation of a reimbursement insurance policy does not reduce the insurer's responsibility for service contracts issued by the provider and insured under the policy before the date of the cancellation.

(c) For purposes of this section, the provider is considered the agent of the insurer that issues the reimbursement insurance policy for purposes of obligating the insurer to service contract holders in accordance with the service contract and this article.

(d) This article does not prevent or limit the right of an insurer that issues a reimbursement insurance policy to seek indemnification or subrogation against a provider if the insurer pays or is obligated to pay a service contract holder any amount that the provider is obligated to pay under the terms of the service contract.

(a) A provider may appoint an administrator or other designee to be responsible for any or all of the administration or sale of service contracts and for compliance with this article.

(b) A service contract may not be issued, sold, or offered for sale in this state unless the provider has provided to the service contract holder:

(a) Each provider shall maintain accurate accounts, books, and other records regarding transactions regulated under this article. The provider's records must include:

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

(b) Except as provided by Subsection (d) of this section, each provider shall retain all records required to be maintained under Subsection (a) of this section at least until the first anniversary of the expiration date under the contract of the specified period of coverage.

(c) The records required to be maintained under this section may be maintained in an electronic medium or through other recordkeeping technology. If a record is maintained in a format other than hard copy, the provider must be able to reformat the record into legible hard copy at the request of the commissioner.

(d) A provider who discontinues business in this state shall maintain its records until the provider furnishes the commissioner with proof satisfactory to the commissioner that the provider has discharged all obligations to service contract holders in this state.

(a) Each service contract marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this state shall be written, printed, or typed in clear, understandable language that is easy to read and shall disclose the applicable requirements set forth in this section.

(b) A service contract insured under a reimbursement insurance policy under Section 6(a) of this article must 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." The service contract shall state the name and address of the insurer and state that in the event covered service is not provided by the service contract provider within 60 days of proof of loss by the service contract holder, the service contract holder may apply for reimbursement directly to the service contract reimbursement insurance company.

(c) 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."

(d) Each service contract shall state the name and address of the provider and shall identify any administrator, if different from the provider, the service contract seller, and the service contract holder, to the extent that the name of the service contract holder has been furnished by the service contract holder. The identities of those persons are not required to be preprinted on the service contract and may be added to the service contract at the time of sale.

(e) Each service contract must state the purchase price of the contract and the terms under which the contract is sold. The purchase price is not required to be preprinted on the service contract and may be negotiated at the time of sale with the service contract holder.

(f) Each service contract must state the terms, restrictions, or conditions governing cancellation of the service contract by either the provider or the service contract holder before the expiration date of the service contract. A provider shall mail a written notice of cancellation to the service contract holder at the last known address of the service contract holder contained in the records of the provider before the fifth day preceding the effective date of the cancellation. Prior notice is not required if the reason for cancellation is nonpayment of the provider fee, a material misrepresentation by the service contract holder to the provider, or a substantial breach of duties by the service contract holder relating to the covered product or its use. The notice must state the effective date of the cancellation and the reason for the cancellation.

(g) Each service contract must:

(1) state the amount of any deductible, if applicable;

(a) Each service contract shall require the provider to permit the service contract holder to return the service contract not later than the 20th day after the date the service contract was mailed to the service contract holder or, if the service contract is delivered to the service contract holder at the time of sale, not later than the 10th day after the date of delivery. A service contract holder may void the service contract at a later time as permitted by the service contract.

(b) If a contract holder returns a service contract under Subsection (a) of this section and a claim has not been made under the service contract before its return to the provider, the service contract is void and 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 service contract. The right provided by this section to void the service contract is not transferable and applies only to the original service contract purchaser. If a service contract is voided under this section and the provider does not pay the refund or credit the service contract holder's account before the 46th day after the date of the return of the service contract to the provider, the provider is liable to the contract holder for a penalty in an amount not to exceed 10 percent of the amount outstanding per month.

(a) A provider may not use:

(3) a name deceptively similar to the name of any other provider.

(b) A provider may use the word "guaranty" or a similar word.

(c) This section does not apply to a provider that, before September 1, 1999, used a word prohibited under this section in its name, but that provider must include in each of its service contracts a statement in substantially the following form: "This agreement is not an insurance contract."

(a) A provider, or a provider's representative, may not, in the provider's service contracts or literature:

(b) A person, including a bank, savings and loan association, lending institution, manufacturer, or seller of any product, may not require the purchase of a service contract as a condition of a loan or the sale of any property.

(a) On a finding that a ground for disciplinary action exists under one or more provisions of this article, the commissioner may impose appropriate administrative sanctions, including an administrative penalty as provided by Article 9100, Revised Statutes. An administrative penalty imposed under this section may not exceed $500 per violation or $10,000 in the aggregate for all violations of a similar nature.

(b) A disciplinary action taken under this article is subject to Section 17(d), Article 9100, Revised Statutes.

(c) The commissioner may bring an action for injunctive proceedings under Section 18, Article 9100, Revised Statutes, for a threatened or existing violation of this article or the commissioner's orders or rules adopted under this article and may also bring an action for civil penalties as provided by that section. A civil penalty assessed under this subsection may not exceed $2,500 per violation or $50,000 in the aggregate for all violations of a similar nature.

(d) For purposes of Subsections (a) and (c) of this section, a violation is of a similar nature if the violation consists of the same or a similar course of conduct, action, or practice, regardless of the number of times the act, conduct, or practice determined to be a violation of this article occurred.