Home Warranty Regulation
As a consumer, you’d likely choose to work with a trustworthy home warranty company—yet you have the right to file a complaint if your home warranty provider fails to uphold its contractual obligations. Below, we walk through the different regulatory bodies for home warranties and how they protect you.
Who Regulates Home Warranties?
Individual states and national organizations regulate the home warranty industry. Here are the types of regulations that apply to home warranties.
Federal Regulations
The federal government doesn’t regulate the home warranty industry—it allows individual states to oversee home warranty and service contract companies. Although it isn’t a federal or state governmental entity, the National Association of Insurance Commissioners developed the Service Contracts Model Act in 1995 to guide states in regulating service contracts. Since the federal government doesn’t enforce this act, state entities decide whether to implement it.
However, the federal government provides consumers with resources to help them make informed purchasing decisions. In particular, the Federal Trade Commission (FTC) offers general facts about service contracts, such as how much they cost. Home warranties are technically home service contracts, so most of the FTC’s advice applies to them.
State Regulations
Each state implements its own regulations for home warranty providers. Some states, such as Florida and California, have governmental bodies that regulate home warranty companies.
Although home service contracts are not the same as home insurance policies, some states include home warranties under the authority of the insurance departments. For example, California’s Department of Insurance oversees home warranty regulation. It places strict requirements on home warranty companies and ensures they comply with the state and meet or exceed consumers’ best interests.
Not every state’s insurance department regulates home warranties. In Oregon, the state’s Department of Consumer and Business Services enforces home warranty regulations. Some states, such as South Dakota, don’t specifically regulate home warranties but do regulate other service contract types, such as automobile service contracts. Some states don’t regulate service contracts at all.
If you live in a state that doesn’t have specific home warranty or service contract regulations, check your state’s consumer protection agency to see what protections you have under general consumer protection laws. Remember, you can always reach out to your state’s consumer protection office, even if there is another entity that regulates home warranties.
Industry Regulations
In addition to applicable government regulation, the home services contract industry has stepped up with self-regulation. The Service Contract Industry Council (SCIC) is a national trade association that advocates in all 50 states for consistent regulation in the service contract industry—including home warranties and service contracts for appliances, consumer electronics, and more. You can find the SCIC’s member list on its website.
The National Home Service Contract Association (NHSCA) is a nonprofit trade organization that sets a code of ethics for members. The NHSCA routinely monitors member companies for compliance, and you can access a list of member companies on the NHSCA website. In addition to overseeing member companies, the NHSCA hosts an annual conference with industry-related companies to provide education on industry standards and regulations.
What Do Regulatory Bodies Do To Protect Homeowners?
Regulatory bodies write laws that aim to protect the homeowner’s best interests. For example, many states require companies to prove financial stability before being licensed to sell service contracts. This condition ensures providers can pay out all claims they receive from customers.
Regulatory bodies also include additional requirements, such as clear contract language, to guide fair business practices and help prevent misleading the signer. Clear contract language highlights covered item components and the right to cancel your policy if unsatisfied. Printed contracts are required to have a font larger than 8–10 points so that consumers can read them—although many printed contracts aren’t in compliance.
When a home warranty provider doesn’t follow applicable statutes, the state’s regulating body has the authority to suspend or revoke a provider’s license.
How To Read a Home Warranty Company’s Service Contract
Reading a home warranty company’s service contract informs you of the terms and conditions it places on coverage. Our research shows no two home warranty companies provide the same contract language, but most follow a similar outline. Below are the service contract sections you should focus on:
- Coverage: A service contract’s coverage section lists the major appliances, systems, and other household items it covers. Companies also typically list covered item components in this section. Generally, covered components are essential items that ensure a system or appliance functions properly, such as a refrigerator’s condenser fan motor.
- Cancellation: This section covers how a company handles plan cancellations. Most companies grant you a 30-day free cancellation period after you purchase coverage. After the free cancellation period, you’ll typically have to pay a cancellation fee if you decide you no longer want coverage. If you cancel after 30 days, companies will only refund the prorated amount rather than the full amount you paid for a plan.
- Limitations and exclusions: The limitations and exclusions section highlights coverage limits, plus the item components and situations the company won’t cover. We recommend carefully reading this section to avoid an unexpected claim denial.
- State-specific clauses: Most home warranty companies list state-specific clauses at the end of their service contracts. You should know these clauses if you live in a listed state. These state-specific terms outline actions you can take, amendments, cancellation terms, and arbitration clauses when filing a dispute.
- Questions: While it’s not a section you’ll find in a company’s sample contract, we suggest contacting your home warranty company if you have questions about a section or clause. Reputable home warranty companies have representatives who will gladly clarify areas you don’t understand.
How Do You File a Home Warranty Complaint?
There are several ways to file a complaint if you believe your provider violated its service agreement. You should first re-read your contract for relevant terms. Then, attempt to resolve the issue directly with your provider. Take detailed notes including who you spoke with and on what date. This will be valuable information if you need to escalate the issue.
Providers often have a legal department that manages customer complaints that mention any intention to take legal action. Consumers need to know how to address their issues to the legal entity, which will be shown in the terms and conditions.
If your complaint isn’t fixed or a suitable resolution reached, you can complain to a third party. Your state’s attorney general’s website is one option. You can also contact your state’s insurance commissioner or other consumer protection agency. Timothy Meenan, the managing shareholder at Meenan Regulatory and Legislative Attorneys Law Firm, recommends contacting the insurance commissioner of the state where your provider is incorporated.
Additionally, if your provider is an National Home Service Contract Association (NHSCA) member, you can file a complaint with them. The NHSCA can send your complaint directly to your provider’s management to expedite the resolution process.
Who Do I Contact if My State Doesn’t Have a Clear Regulatory Body?
We suggest attempting to resolve your issue with your home warranty company before contacting a third party. You can escalate your complaint to the appropriate consumer protection agency if your provider refuses to address it. Your state’s attorney general’s office is the best entity to contact if there isn’t a clear regulatory body for home warranties. State consumer protection and attorney general’s offices handle complaints and take the necessary steps to regulate non-compliant companies.
Our Conclusion
Home warranty service contracts are an excellent option to cover an unexpected appliance or system breakdown if you don’t want to pay out of pocket. However, you should understand your provider’s coverage details, exclusions, and fees. If you find that your warranty provider isn’t adhering to the contract, industry and government regulations are in place to ensure consumer protection.
Quick Tip
- We recommend reviewing several providers’ sample contracts so you can choose the best provider for your needs.
FAQ About Home Warranties
What is the difference between a home warranty and homeowners insurance?
A home insurance policy covers items in your home damaged by incidents such as theft, fire, or storms. A home warranty policy covers items in your home that fail due to normal wear and tear.
What does a home warranty not cover?
Home warranties cover a wide variety of your home’s systems and appliances. Common exclusions include appliance removal and disposal fees, routine maintenance, commercially-used appliances (“commercial use” appliances), and more. We recommend reading your provider’s sample contract to determine what your policy doesn’t cover.
Are home warranties worth the cost?
Home warranties can be worth the cost, but each situation is different. A home warranty is worth the investment for someone who can’t afford an expensive repair out-of-pocket. A home warranty can save you hundreds or even thousands of dollars in home repairs depending on what items break down and what your coverage is.
How do I handle a complaint with my home warranty provider?
We recommend attempting to resolve your complaint directly with your provider before escalating your issue to your state’s consumer protection agency. First, reach out to your provider and take note of who you speak to and the date and time. If your provider refuses to address your issue, reach out again, and state you have a record of attempting to resolve it. Mention “legal action” to escalate your complaint to the provider’s legal team. Make a note of that interaction also. Finally, contact your state’s consumer protection agency if your issue remains unresolved.
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