What is a home service contract provider?
Under HB 1542, home service contract providers are defined as persons who offer home service contracts, under which the provider performs service, repair, replacement or maintenance of property. They can provide roof leak coverage and can service damage from power surges and accidental damage from handling.
What’s the current law?
Under current law, home service contract providers are licensed and regulated by the Virginia Bureau of Insurance. They must submit an application along with a $500 application fee. Providers must maintain a minimum net worth of no less than 20% of premiums charged on contracts currently in effect or at least $100,000. Providers must place a financial security deposit with the State Treasurer that is at least 5% of the gross consideration received on the sale of home service contracts. The deposit must not be less than $25,000 or more than $250,000.
What’s new for home service contract providers?
HB 1542 will move oversight of home service contract providers from the Bureau of Insurance to the Virginia Department of Agriculture and Consumer Services (VDACS). Providers will need to submit their application for licensure with a $300 registration fee, and must renew their registration annually on July 1. The renewal fee is also $300 and must be accompanied by an audited financial statement each year. If a provider enters into a home service contract before registering, they face a $100 late filing fee every 30 days or portion thereof. Providers that do not renew their registration on time face a $50 late filing fee per 30 day period or portion thereof.
Before becoming registered, home service contract providers must file a $10,000 bond with the Commissioner of the VDACS. The bond amount will subsequently be adjusted according to the amount of unexpired home service contracts in effect, as follows:
- $50,001 to $300,000 in unexpired contracts—$40,000 surety bond
- $300,001 to $750,000 in unexpired contracts—$65,000 surety bond
- $750,001 or more in unexpired contracts—$90,000 surety bond
Home service contract providers must also maintain a reserve account no less than 40% of gross consideration received on all in-force contracts. Providers have the option of submitting a letter of credit in place of the bond. Instead of providing a bond or letter of credit, or a reserve account, providers can file a liability insurance policy with the Commissioner that covers 100% of their home service contract liabilities, including the cost for the administration of claims.
HB 1542 adds a new section on how home service contract providers are taxed—instead of being subjected to corporate tax rates, they pay a minimum tax of 2.25% of collected provider fees.
If you have questions about the new tax and licensure laws for Virginia home service contract providers, contact the VDACS. Get in touch with a surety expert if you’re ready to buy a Virginia surety bond.