TDLR Adopts Rules to Allow More Dealers to Offer In-House Service Contracts

On Tuesday November 5, 2019 the Board of the Texas Department of Licensing and Regulation (TDLR) convened to adopt and revise rules relating to service contract providers.  The proposed rules are necessary to implement House Bill (HB) 4120 (Lucio III) of the 86th Legislature (2019 Regular Session), which amends Chapter 1304 of the Occupations Code by allowing service contract providers, who are automobile dealers offering service contracts on vehicles that they sell, to reduce the financial security deposit (aka "funded reserve") amount of $250,000 to a minimum of $25,000, $50,000, or $75,000 depending on the provider's annual gross revenue in this state from the sale of service contracts during the preceding year.

These rule changes apply to automobile service contract providers who meet the above requirements and who choose to demonstrate financial security during the licensure process by utilizing the funded reserve option available under Chapter 1304.  The rule goes into effect on December 1, 2019. 

By lowering the security amount from $250,000 (or a $100 million net worth) to $25,000, Texas dealers that elect to participate in the program may offer their own in-house service contracts and will not have to outsource service or warranty programs to third party providers.  This change was intended to increase competition in the marketplace while providing reduced program costs for dealers as well as lower costs for customers. Remember this program may only be provided to un-house customers only!  Dealers cannot sell to other dealerships our outside your lot.

According to Phil Lathrop of Tejas Finance, "years ago, I closed my in-house Extended Service Policy company, as the reserve to operate required by the State increased from $25,000 to $250,000.

Now, thanks to the TIADA and Representative Eddie Lucio III, the law is now back to $25,000.

I'm adding this profit center back to my dealership, and suggest all dealers investigate this opportunity to see if it would work in your business."
TIADA will provide additional application information to our members in the near future.


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