Automatic Renewal, Walking Through A Mine Field For Alarm Companies

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Question
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Ken,
   NJ is once again trying to enact an automatic renewal statute for service contracts. The bill A1004 will be in the consumer fraud act witch here in NJ is bias to any business and always sides on the consumers even for technical violations that would cost a business a lot of money if not complied with right. Are your contract up to date with this proposed legislation? Some of the wording in this bill is confusing. What exactly does (on line 37 3.d.(2) ) mean ? And if this bill passes how exactly does this effect my monitoring contracts?    Thanks.
Gerard Duffy
Spectrum Cable & Alarm Systems
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Answer
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   Before eveeryone in NJ gets crazy and the NJ lawyers sound an alert, keep in mind that this is proposed legislation. We see lots of proposed legislation in many states that never makes it into law. It means nothing until effective. However, NJ is. as you point out, about as unfriendly to business as it can be in its consumer fraud laws. Seems like a business walks a fine line or risks a claim for deceptive business practice, NJ isn't the only state so most alarm companies need to pay attention to these issues.
   Let me assuage your concerns regarding compliance. The Standard Form Agreements are all written to comply with this proposed legislation should it be enacted as drafted. All of the statutes that affect or prohibit automatic renewal all carve out a month to month renewal and that is why the Standard Form Agreements all provide for month to month renewal. States that have automatic renewal statutes can be found here: https://www.kirschenbaumesq.com/page/alarm-law-issues I anticipated that other states would eventually enact similar statutes, and I correctly guessed that NJ would exempt month to month from the prohibition.
   The proposed NJ legislation, which is below along with the sponsor's Statement [his explanation of the proposed bill] is not really confusing, though it's sad that the sponsor doesn't understand his own draft. First, the statute affects only residential service contracts, not commercial. You ask about section 3 (d) (2). That means law doesn't apply to commercial buyers; just consumer for residential purposes. I think the proposed statute as drafted isn't really confusing, but the Statement accompanying the proposed bill causes confusion, and I don't think it's accurate. The statute does not use the term "real property" but does define "Consumer" as natural person who buys " ... any tangible personal property that is distributed in commerce and that is normally used for personal, family, or household purposes and not for business ..." The Standard Form Agreements define the alarm / security equipment as personal property; clearly when installed at the residence it fits the statute's definition. The Statement defines the service contract as "A service contract is defined in the bill as a written contract for the performance of service, maintenance, or repair over a fixed period of time in connection with real property." I don't read it that way. Use in household isn't limited to real property in my opinion.
   But a more glaring error in the Statement deals with required notice of the automatic renewal. The Statement provides:
   " Specifically, the bill provides that if a service contract has an automatic renewal provision for a specified period of more than one month, the seller shall disclose the automatic renewal provision clearly and conspicuously in the contract or contract offer. Additionally, if the service contract is for twelve months or longer, and the renewal is for a period of one month or longer, the seller shall provide either written or electronic notification to the consumer between 30 and 60 days prior to the cancellation deadline provided in the contract. This notification shall disclose that unless the consumer cancels the contract it will automatically renew and indicate methods by which the consumer may obtain details of the automatic renewal provision and cancellation procedure."
   Alarm contracts are usually for more than 12 months. The proposed legislation requires notice when the automatic renewal is "more than one month". However the Statement provides that notice is required when the automatic renewal is for "one month or longer". More than one month is not the same as one month. Use the Standard Form Agreements and you don't have to give notice for the month to month renewal.
   Keep in mind that this proposed legislation is not the law. If an automatic renewal statute does get enacted we will have to read it carefully to be sure how to comply. It's likely that the month to month renewal will be exempt from any prohibition or notice requirement, as it should be. So the real bottom line is, use the Standard Form Agreements and get it right the first time, you may not get a second chance. Note the penalty referred to in the Statement for non compliance of $10,000.
   Here is the proposed statute and Statement.
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AN ACT concerning service contracts and supplementing P.L.1960, c.39 (C.56:8-1 et seq.).

BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:

1. As used in this act:
"Automatic renewal provision" means a provision under which a service contract is renewed for a specified period of more than one month if: (1) the renewal causes the service contract to be in effect more than six months after the day of the initiation of the service contract; and (2) the renewal is effective unless the consumer gives notice to the seller of the consumer's intention to terminate the service contract.
"Consumer" means a natural person who buys other than for purposes of trade any tangible personal property that is distributed in commerce and that is normally used for personal, family, or household purposes and not for business or research purposes.
"Seller" means any natural person, firm, partnership, company, corporation, association, or other similar legal entity engaged in commerce that sells, leases, or offers to sell or lease any service to a customer pursuant to a service contract.
"Service contract" means a written contract for the performance of service, maintenance, or repair over a fixed period of time or for a specified duration in connection with any real property or that provides a benefit to any real property.
"Warranty" means a warranty made solely by the manufacturer, importer, or seller of property or services without consideration, that is incidental to, and not negotiated or separated from, the sale of the property or services, that guarantees indemnity for defective materials, parts, mechanical or electrical breakdown, labor, or workmanship, or provides other remedial measures, including repair or replacement of the property or repetition of services.

2. a. Any seller that sells, leases or offers to sell or lease any service to a consumer pursuant to a service contract that has an automatic renewal provision shall disclose the automatic renewal provision clearly and conspicuously in the contract or contract offer.
b. Any seller that sells or offers to sell any service to a consumer pursuant to a service contract the term of which is a specified period of 12 months or more and that automatically renews for a specified period of more than one month, unless the consumer cancels the contract, shall provide the consumer with written or electronic notification of the automatic renewal provision. Notification shall be provided to the consumer not less than 30 days nor more than 60 days before the cancellation deadline pursuant to the automatic renewal provision. This notification shall disclose clearly and conspicuously:
(1) That unless the consumer cancels the contract the contract will automatically renew; and
(2) Methods by which the consumer may obtain details of the automatic renewal provision and cancellation procedure, whether by contacting the seller at a specified telephone number or address, by referring to the contract, or by any other method.
c. As part of the seller's routine business practice, where an error has caused the failure to comply with the provisions of this section, the unearned portion of the contract subject to the automatic renewal provision shall be refunded as of the date on which the seller is notified of the error.
d. The seller shall provide written or electronic notification to the consumer not less than 30 days nor more than 60 days before any change in the procedures required of the consumer to cancel the automatic renewal provision.

3. The following shall be exempt from the provisions of this act:
a. warranties;
b. service contracts on tangible property if the tangible property for which the service contract is sold has a purchase price of $250 or less, excluding sales tax;
c. service contracts with a bank, trust company, savings bank, savings and loan association, credit union, insurance company, or health maintenance organization organized under the laws of any state or the United States; and
d. service contracts issued, offered, or sold:
(1) by a public utility to the extent that the public utility is regulated by the Board of Public Utilities, or by a person providing central heating and air conditioning services; or
(2) to any person other than a consumer.

4. a. This act shall not limit rights or remedies available to a consumer under any other law.
b. If a seller does not comply with the provisions of this act, the automatic renewal provision shall be void and unenforceable.

5. A violation of any of the provisions of this act shall be an unlawful practice and a violation of P.L.1960, c.39 (C.56:8-1 et seq.).

6. This act shall take effect on the first day of the third month following enactment, and shall apply to service contracts entered into on or after that date.

STATEMENT

This bill establishes notification standards regarding service contracts which contain automatic renewal provisions. A service contract is defined in the bill as a written contract for the performance of service, maintenance, or repair over a fixed period of time in connection with real property. A service contract does not include a warranty offered by a manufacturer, importer, or seller of property or services that is incidental to the sale of the property or service. The bill's provisions do not apply to service contracts on tangible property which is valued under $250. The bill's provisions also do not apply to service contracts offered by certain financial institutions, public utilities regulated by the Board of Public Utilities, and persons providing central heating and air conditioning services.
Specifically, the bill provides that if a service contract has an automatic renewal provision for a specified period of more than one month, the seller shall disclose the automatic renewal provision clearly and conspicuously in the contract or contract offer. Additionally, if the service contract is for twelve months or longer, and the renewal is for a period of one month or longer, the seller shall provide either written or electronic notification to the consumer between 30 and 60 days prior to the cancellation deadline provided in the contract. This notification shall disclose that unless the consumer cancels the contract it will automatically renew and indicate methods by which the consumer may obtain details of the automatic renewal provision and cancellation procedure.
The bill also requires the seller to notify the consumer of any change in the procedures required to cancel the automatic renewal.
The bill provides that if an error has caused the seller to fail to comply with the provisions of the bill, the unearned portion of the contract subject to the automatic renewal provision shall be refunded as of the date on which the seller is notified of the error. The bill makes automatic renewal provisions void and unenforceable if the notification requirements stipulated in the bill are not met. Furthermore, a violation of the bill's provisions constitutes an unlawful practice. An unlawful practice under the Consumer Fraud Act is punishable by a monetary penalty of not more than $10,000 for a first offense and not more than $20,000 for any subsequent offense. In addition, a violation can result in cease and desist orders issued by the Attorney General, the assessment of punitive damages, and the awarding of treble damages and costs to the injured.

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Automatic Renewal - Walking Through A Mine Field For Alarm Companies - November 6, 2014