States Impose New Requirements for Dealer Warranty Repayment – Corporate / Commercial Law


United States: States Impose New Requirements For Dealer Warranty Repayment

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State legislatures across the country spent the first half of 2021 enacting laws that include several changes to warranty repayment obligations owed by suppliers to authorized resellers.

  • Four states have new warranty refund laws for Car manufacturers:
    • Illinois
    • Louisiana
    • Mississippi
    • Caroline from the south
  • One state changed its warranty repayment laws to manufacturers of engines, transmissions or rear axles for medium and heavy trucks:
  • There is also a new law in force, changing the warranty reimbursement rates for equipment suppliers in a number of sectors – farm equipment, construction equipment, industrial equipment, forestry equipment and outdoor electrical equipment:

The relationship between suppliers and their authorized resellers is heavily regulated by a patchwork of state reseller laws. A common element of the regulatory landscape is the repayment of the guarantee. Typical regulations require that suppliers pay a dealer’s retail labor rate to perform warranty repairs, and pay a dealer’s retail mark-up, or other percentage, on all parts supplied. to a dealer for warranty repairs. Several states even impose a retail mark-up on “free” parts, effectively prohibiting manufacturers from giving away “free” parts. These regulations extend to cover recall and “stop-sale” repairs, and to provide reimbursement for preshipment inspections and other preparation and delivery tasks performed by dealers.

State dealer laws almost uniformly contain anti-waiver provisions. These ensure that the warranty repayment requirements apply, notwithstanding the terms of the written concession contract. Suppliers cannot “circumvent” these regulations. In some cases, a supplier may be able to invoke constitutional protections to avoid the retroactive enforceability of these new laws, if they infringe existing concession agreements. Any supplier wishing to avoid the new laws, with the intention of seeking protection against tampering with existing contracts, should consult legal counsel. In some jurisdictions, there are precedents that the type of automatic renewal terms often found in agreements may constitute a “new” contract that is not protected from retroactive enforceability.

Below is a summary of the changes in each of the six states. Any supplier who has dealer relationships in these states, for these industries, will need to review their warranty refund policies and practices to ensure compliance with new state laws.

Connecticut (farm / agriculture / forestry / industry / outdoor energy)

Connecticut SB 264, effective January 1, 2022, changes warranty repayment obligations owed by equipment suppliers. The regulation applies to suppliers of “agricultural and utility tractors, forestry equipment, light industrial or construction equipment, agricultural implements, agricultural machinery, yard and garden equipment, or accessories , accessories or spare parts for these articles ”. Under the new law, suppliers must reimburse dealers for parts at the current net price plus eighteen percent (18%), and must reimburse labor at the labor rate. dealer retailer. The bill also requires suppliers to allow resubmissions of previously denied claims where that denial was the result of minor errors or clerical errors.

Illinois (automotive)

Illinois HB 3940, effective July 30, 2021, contains a number of changes to a supplier’s warranty refund obligations. This includes specifying that recall and stoppage repairs are covered by reimbursement regulations; requiring reimbursement of labor at a dealer’s retail labor rate, using retail labor times; prohibit cost recovery fees and surcharges; establish timelines for warranty reimbursement approvals; and eliminate the possibility for suppliers to enter into an agreement with a majority of dealers to establish agreed reimbursement rates.

Louisiana (automotive)

Louisiana HB 502, effective August 1, 2021, contains a number of changes to a supplier’s warranty repayment obligations. These include extending repayment requirements to recalls; the addition of reimbursement requirements for delivery and preparation obligations; demand reimbursement at retail rates for parts and labor; establish a process for determining a dealership’s retail prices; establish a process for suppliers to challenge a dealer’s tariffs (including dealer’s rights to protest); and impose retail mark-ups for “no-charge” parts.

Mississippi (automotive)

Mississippi HB 746, effective July 1, 2021, contains a number of changes to a supplier’s warranty repayment obligations. These include adding reimbursement requirements for PIP obligations as well as pre-delivery inspection notice (PDI) requirements owed by suppliers to dealers; establish a method for measuring dealer labor rates and parts mark-ups; regulate working time allowances; add elements to the reimbursement requirement (previously the law only concerned labor); impose the reimbursement of parts at the retail mark-up; impose retail mark-ups for “no charge” parts; and the establishment of a method to challenge concessionaire rates.

South Carolina (automotive)

South Carolina SB 510, effective August 4, 2021, contains a number of changes to a supplier’s warranty repayment obligations. These include prohibiting cost recovery by suppliers; impose PDI notification requirements and reimbursement for preparation, delivery and inspection; adding recall work and stop-sell issues to repayment obligations; substantially rewrite the overall reimbursement obligations for the parts and labor warranty (including a calculation method); establish a complaints process to resolve reimbursement disputes; impose retail mark-ups for “no charge” parts; establish timelines for suppliers to approve requests; impose limits on requests for rate changes; and limit reimbursement rate audits.

South Dakota (heavy duty truck engines / transmissions / axles)

South Dakota SB 101, effective July 1, 2021, makes existing automobile reimbursement regulations applicable to manufacturers of warranted engines, transmissions, or rear axles separately installed in a medium and heavy commercial highway vehicle. It imposes deadlines for the approval and payment of claims and establishes audit rights for manufacturers.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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