Regulates the issuance of lifetime service contracts on goods, wares and merchandise by mercantile establishments; requires proper insurance or establishment of escrow account in guarantee thereof.

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S1947-2011 Actions

• Jan 14, 2011: REFERRED TO CONSUMER PROTECTION

S1947-2011 Memo

BILL NUMBER:S1947

TITLE OF BILL:
An act
to amend the general business law, in relation to regulating service
contracts issued by mercantile establishments

PURPOSE/SUMMARY OF PROVISIONS:
To eliminate lifetime warranties and
encourage finite term warranties. The general business law is amended
by adding a new section two hundred eighteen-b.

JUSTIFICATION:
A retail operation, usually an appliance store, offers
a lifetime warranty on a product as a marketing inducement for sale.
When the company goes out of business, the consumer suddenly realizes
that the warranty was not for the life of the product, but rather the
life of the business. The consumer is then stuck holding a product
with a worthless warranty. In western New York alone, many examples
of this situation have occurred over the years. Recently, a business
in Western New York named Burnhams Inc. suddenly went out of
business, leaving well over 100 consumers holding meaningless
warranties. This legislation addresses this situation by abolishing
lifetime warranties which, in reality, do not exist. In fact,
reputable retailers admit that lifetime warranties are unrealistic to
administer.

Furthermore, this legislation forces finite term warranties (i.e. 5 to
10 years) to be backed by insurance in case of a business closure. If
insurance cannot be purchased, realizing that some contract holders
may not be able to access affordable insurance, this proposal calls
for the creation of an escrow account, whereby a percentage of the
money can be withdrawn by the holder each year equal to the year of
the warranty.
This would allow the consumer to claim the remaining money in an
escrow account if a business should fold. Finally, this legislation
would also require an escrow account to be formed by the retailer
against purchased goods "to be delivered." In the Burnhams case, for
example, many consumers lost large amounts of money on down payments
made to the company.
The product had not been delivered, the down payment was made and the
company folded. This bill would protect the consumer from this
situation.

FISCAL IMPLICATIONS:
None to the State.

EFFECTIVE DATE:
This act shall take effect on the one hundred
twentieth day after it shall have become a law.

S1947-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                    1947

                         2011-2012 Regular Sessions

                              I N  SENATE

                              January 14, 2011
                                 ___________

  Introduced  by  Sen.  KRUGER -- read twice and ordered printed, and when
    printed to be committed to the Committee on Consumer Protection

  AN ACT to amend the general business  law,  in  relation  to  regulating
    service contracts issued by mercantile establishments

    THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section 1. The general business law is amended by adding a new section
  218-b to read as follows:

    S 218-B.  SERVICE CONTRACTS.  1.  NO RETAIL  MERCANTILE  ESTABLISHMENT
  SHALL  SELL  OR  OFFER FOR SALE LIFETIME SERVICE CONTRACTS ON ANY GOODS,
  WARES OR MERCHANDISE OFFERED TO THE PUBLIC EXCEPT AS AUTHORIZED IN  THIS
  SECTION.
    2.  FOR ANY SERVICE CONTRACT OFFERED BY A RETAIL MERCANTILE ESTABLISH-
  MENT  ON  ANY  PRODUCT SOLD, PROPER INSURANCE SHALL BE PURCHASED FOR THE
  CORRESPONDING LENGTH OF SAID CONTRACT TO ASSURE THE PURCHASER  THAT  THE
  TERMS OF SAID SERVICE CONTRACT SHALL BE CARRIED OUT IN THE CASE THAT THE
  RETAIL  MERCANTILE ESTABLISHMENT DECLARES BANKRUPTCY OR INSOLVENCY OR IS
  UNABLE TO PERFORM THE TERMS OF SUCH CONTRACT DUE TO  ANY  OTHER  REASON.
  IF,  HOWEVER, INSURANCE IS NOT AVAILABLE TO THE RETAIL MERCANTILE ESTAB-
  LISHMENT AT A REASONABLE BUSINESS RATE, SAID  ESTABLISHMENT  SHALL  HAVE
  THE  OPTION TO ESTABLISH INTEREST BEARING ESCROW ACCOUNTS IN WHICH MONEY
  PAID BY THE PURCHASER FOR SERVICE CONTRACTS SHALL BE DEPOSITED.
    3.  THE RETAIL MERCANTILE ESTABLISHMENT MAY WITHDRAW  TEN  PERCENT  OF
  THE  MONEY DEPOSITED FOR EACH SUCH CONTRACT EACH YEAR WHICH SHALL BECOME
  THE PROPERTY OF THE ESTABLISHMENT.  AT THE TIME WHEN SUCH  ESTABLISHMENT
  IS  ENTITLED TO THE FINAL TEN PERCENT OF THE MONEY PAID ON SUCH CONTRACT
  OR AGREEMENT, IT MAY ALSO WITHDRAW THE INTEREST EARNED ON SUCH MONEY.
    4.  IF SUCH RETAIL MERCANTILE ESTABLISHMENT IS UNABLE TO  PERFORM  THE
  TERMS  OF SUCH CONTRACT OR AGREEMENT BECAUSE OF BANKRUPTCY OR INSOLVENCY
  OR FOR ANY OTHER REASON, OR IF IT IS DETERMINED THAT SUCH  ESTABLISHMENT
  HAS  BREACHED  THE TERMS OF SUCH CONTRACT OR AGREEMENT, THE PURCHASER OF

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD07083-01-1

 S. 1947                             2

  THE PRODUCT WHO HAS DEPOSITED THE MONEY PURSUANT  TO  SUCH  CONTRACT  OR
  AGREEMENT  SHALL  BE  ENTITLED TO THE BALANCE OF HIS OR HER DEPOSIT PLUS
  ACCUMULATED INTEREST THEREON IN THE ESCROW ACCOUNT,  PROVIDED,  HOWEVER,
  THIS  PROVISION SHALL NOT LIMIT ANY RECOVERY IN A CLAIM OR ACTION BY THE
  PURCHASER AGAINST SUCH ESTABLISHMENT BASED ON THE BREACH OF THE TERMS OF
  THE CONTRACT OR AGREEMENT BY SUCH ESTABLISHMENT.
    5.  THE SERVICE CONTRACT SHALL INCLUDE WITHIN ITS PROVISIONS  LANGUAGE
  NOTIFYING THE PURCHASER THAT PROPER INSURANCE HAS BEEN PURCHASED OR THAT
  AN ESCROW ACCOUNT HAS BEEN ESTABLISHED PURSUANT TO THIS SECTION.
    6.    THE RETAIL MERCANTILE ESTABLISHMENT SHALL DEPOSIT ANY MONEY PAID
  AS A DOWN PAYMENT AGAINST THE FUTURE  DELIVERY  OF  A  PRODUCT  INTO  AN
  ESCROW ACCOUNT.  WHENEVER SUCH RETAIL MERCANTILE ESTABLISHMENT IS UNABLE
  TO  DELIVER  SUCH  PRODUCT TO THE PURCHASER BECAUSE OF ITS BANKRUPTCY OR
  INSOLVENCY OR FOR ANY OTHER REASON, THE PURCHASER OF THE PRODUCT WHO HAS
  DEPOSITED THE MONEY SHALL BE ENTITLED TO  THE  BALANCE  OF  HIS  OR  HER
  DEPOSIT  PLUS  ACCUMULATED  INTEREST  THEREON  PROVIDED,  HOWEVER,  THIS
  PROVISION SHALL NOT LIMIT ANY RECOVERY IN  A  CLAIM  OR  ACTION  BY  THE
  PURCHASER AGAINST SUCH ESTABLISHMENT BASED ON THE BREACH OF THE TERMS OF
  THIS  SECTION.  THE RETAIL MERCANTILE ESTABLISHMENT SHALL WITHDRAW FUNDS
  IN THE AMOUNT EQUAL TO THE DOWN PAYMENT FROM THE ESCROW ACCOUNT  AT  THE
  TIME  THE  PRODUCT IS DELIVERED TO THE PURCHASER.  THE RETAIL MERCANTILE
  ESTABLISHMENT SHALL INFORM THE  PURCHASER  IN  WRITING  THAT  AN  ESCROW
  ACCOUNT HAS BEEN ESTABLISHED.
    S 2. This act shall take effect on the one hundred twentieth day after
  it shall have become a law.