STAND. COM. REP. NO. 2744

                                   Honolulu, Hawaii
                                                     , 2000

                                   RE:  S.B. No. 2729
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 2000
State of Hawaii

Sir:

     Your Committee on Commerce and Consumer Protection, to which
was referred S.B. No. 2729 entitled: 

     "A BILL FOR AN ACT RELATING TO SERVICE CONTRACTS,"

begs leave to report as follows:

     The purpose of this measure is to regulate the sale of
service contracts to protect consumers.

     Testimony on the measure was submitted by the Insurance
Commissioner, Office of Consumer Protection, Hawaii Automobile
Dealers' Association, and the Service Contract Industry Council.

     Under current law, service contracts are considered
insurance contracts, and therefore, fall within the purview of
the insurance code.  Your Committee, finds, however, that while
regulation of service contracts is necessary, the regulatory
framework established in the code may not be appropriate for the
regulation of service contracts which are distinct from other
types of insurance contracts.  Further, requiring compliance of
the service contract industry with the insurance code's stringent
requirements could hinder the industry's development in this
State.  Therefore, this measure establishes a regulatory
framework specific to the sale and administration of service
contracts, and exempts service contracts from the insurance code.

     Your Committee further finds that other states have adopted
amended versions of the Model Service Contract Act proposed by
the National Association of Insurance Commissioners (NAIC).

 
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Therefore, upon careful consideration, your Committee has amended
this measure by replacing the contents of section 2 of this Act
with language that substantially reflects the language of the
NAIC Model Act.  

     As amended, this measure requires service contract providers
to be registered with the insurance commissioner, pay fees, meet
financial responsibility requirements, maintain records, provide
receipts and disclosures to consumers, and allows for returns and
refunds.  The measure, as amended, also establishes requirements
for contractual liability insurance policies, exempts service
contract provider fees from premium taxes, prohibits certain
practices, and establishes enforcement authority.  The measure
deviates from the Model Act by:

     (1)  Including commercial service contracts within the
          regulatory scheme;

     (2)  Narrowing the definition of "provider" to apply only to
          persons contractually obligated to the service contract
          holder;

     (3)  Clarifying registration requirements for providers;

     (4)  Deleting the requirement that service contract receipts
          be provided at the time of purchase since sales are
          sometimes consummated by direct mail or telemarketing; 

     (5)  Expanding the time periods for cancellation of a
          service contract;

     (6)  Providing that contractual liability insurers are
          deemed to have received the insurance premiums upon the
          consumer's payment of service contract provider fees;
          and
 
     (7)  Establishing enforcement authority with the insurance
          commissioner, rather than with the director of commerce
          and consumer affairs.

     Additionally, your Committee has amended this measure by
making technical, nonsubstantive amendments for purposes of
clarity and style.

     As affirmed by the record of votes of the members of your
Committee on Commerce and Consumer Protection that is attached to
this report, your Committee is in accord with the intent and
purpose of S.B. No. 2729, as amended herein, and recommends that
it pass Second Reading in the form attached hereto as

 
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S.B. No. 2729, S.D. 1, and be placed on the calendar for Third
Reading.

                                   Respectfully submitted on
                                   behalf of the members of the
                                   Committee on Commerce and
                                   Consumer Protection,



                                   ______________________________
                                   BRIAN KANNO, Co-Chair



                                   ______________________________
                                   BRIAN T. TANIGUCHI, Co-Chair

 
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