Home warranty regulations 2024

State home warranty regulations: a patchwork of protections

Each state imposes its own set of laws governing home warranty companies, adding layers of complexity to an already intricate landscape. State oversight typically lands in one of two camps: the state’s department of insurance or the state’s department of licensing and regulation. The primary distinction is whether the state classifies home warranty companies with insurance providers or if it considers them service contract providers.

Either way, the goal is to ensure homeowners buy home warranties from vetted companies that uphold the standards and expectations outlined in state laws and rules. Below are some examples of how states regulate home warranties under different departments.

Iowa: regulated by the Iowa Insurance Division

The Hawkeye State regulates home warranty companies through its Insurance Division. Home warranty (or residential service contract) companies in Iowa are licensed through the Iowa Insurance Division. Iowa makes it easy to find out if a company is licensed on its website.

Maine: regulated by the Bureau of Insurance

Since 2011, home warranties in Maine have fallen under the Service Contract Act. This act covers a variety of service contracts, including retail, automotive and other contracts, including home warranties (or home service contracts). Maine’s requirements for service contract providers include:

• There is a mandatory return policy, either 20 or 10 days from the date of purchase (depending on whether the contract was mailed to the purchaser) that includes a full refund if no claim has been made in that period.
• You can cancel after the initial 10- or 20-day period for a prorated refund, minus any paid claims and an administrative fee of up to 10%.
• Any prior approval required for repairs must be clearly stated.
• Coverage (or not) for preexisting conditions must be clearly stated.

Maryland: regulated by the Department of Labor

Home warranties in Maryland fall under the Maryland Service Contracts and Consumer Products Guaranty Act. The Maryland Home Improvement Commission (MHIC), which is part of the Department of Labor, Licensing and Regulation, regulates the licensing and work of contractors who perform the repair work under the terms of the home warranty.

Federal home warranty regulations: a national safety net

While state regulations provide the foundation for consumer protection regarding home warranties, the Federal Trade Commission (FTC) casts a wide net of oversight, ensuring uniform standards nationwide. The FTC mandates the transparency and fairness of home warranty companies.

From crystal clear contract terms to ethical marketing practices, the FTC protects against deceptive tactics, wielding the power to levy fines and penalties upon violators. However, the FTC doesn’t consider home warranties actual “warranties” — it makes it clear that, as far as the FTC is concerned, they are service contracts.

One of the benefits of the FTC’s involvement in home warranty regulation is a direct line to report problems if you’re unsatisfied. Although the FTC encourages homeowners first to try to resolve any issues with the home warranty company, you can report problems to your state attorney general or the FTC directly if you don't find an acceptable resolution.

Industry associations: allies in accountability

Beyond state or federal governmental oversight, industry associations are stalwart allies in the pursuit of consumer protections. The Service Contract Industry Council (SCIC) and the National Home Service Contract Association (NHSCA) advocate for fair standards and quality service. Companies aligning themselves with these associations signal a commitment to excellence, providing consumers with an added layer of assurance.

Nearly every state has a statewide branch of the NHSCA, which works to support home warranty customers and companies. All home warranty companies that are members must uphold a rigorous code of ethics, fostering principles of integrity and ethical conduct in their business operations. The NHSCA is dedicated to cultivating the home service contract industry and promoting its accessibility and reliability to consumers across the nation.

Each company that’s a member of the NHSCA is issued a six-digit code that signifies its legitimacy. Because real estate agents often purchase home warranties as part of the sale of a home, these professionals also rely on NHSCA membership numbers to verify that they’re dealing with a home warranty company in good standing.

How home warranty regulations protect homeowners

In the realm of home warranty regulations, the primary goal is to safeguard homeowners from unexpected disasters and deceitful dealings. These rules provide numerous advantages, acting as a protective barrier against uncertainties like the following:

• Financial requirements: Ensure that warranty companies have sufficient funds to fulfill their obligations, protecting homeowners from companies that might otherwise default
• Transparent contracts: Mandate clear disclosure of all terms and conditions, helping homeowners avoid hidden fees and unexpected clauses
• Quality standards: Enforce adherence to industry standards for service and contractor reliability, preventing subpar workmanship
• Legal recourse: Provide structured legal frameworks for homeowners to seek justice against fraudulent or unethical practices
• Ethical standards: Require companies to adhere to ethical guidelines and possibly hold memberships in professional associations, promoting trustworthy business practices

Bottom line

When it comes to homeownership, safety nets like home warranties offer extra reassurance and financial help in the event of surprise repairs. However, that safety net offers scant protection if it's from an unscrupulous company.

Home warranty regulations illuminate the path to informed decision making and consumer protection. By understanding the intricacies of state, federal and industry regulations, homeowners can confidently navigate the landscape, secure in the knowledge that their investment is safeguarded.