The regulation of service contracts in New Jersey has been confusing and ambiguous for many years. Assembly Bill 1740, the state’s latest proposal for service contract regulation, is currently pending in the Assembly Consumer Affairs Committee.
Like the service contract acts of many states, the proposed law is based on the SCIC Model Act. While the A1740 retains the general structure and statutory language of the Model Act, the bill includes some notable differences:
- The proposed law exempts service contracts on tangible property with a purchase price of $250 or less, as opposed the Model Act’s figure of $100 or less.
- The bill prohibits deceptive business names, including names using the words “insurance,” “casualty,” “surety,” and “mutual.”
- A service contract provider can comply with the proposed law by maintaining a funded reserve account with reserves of 20% of gross consideration received, minus claims paid; the Model Act sets this figure at 40%.
- The bill charges an annual administrative fee of $500, as opposed to $200 under the Model Act.
- A violation of the bill’s provisions is punishable by a monetary penalty of up to $10,000 for the first offense, and $20,000 for subsequent offenses; the Model Act assesses $500 per violation, not exceeding $10,000 in aggregate.
The most notable provision of A1740 is the extremely harsh penalty for violation, which does not cap the aggregate damages a service contractor can face for non-compliance. If enacted, New Jersey’s bill would provide for the largest monetary penalties in the nation.
Once enacted, service contract providers would have one year to become compliant – which includes registration with the Division of Consumer Affairs. Service contracts covered by the law would need to include a list of mandated provisions, set forth in clear and understandable language. The chances that the bill will make it out of the Assembly Consumer Affairs Committee is debatable – New Jersey has been considering similar service contract legislation since 2007. However, the growing trend towards Model Act-based regulation of service contracts suggests that New Jersey will fall in line with the majority of states sooner rather than later.