Auto Indirect

Yes.

Alabama allows a creditor to sell and finance key replacement.

GOVERNING LAW & DEFINITIONS

The Alabama Consumer Credit Act, Ala. Code §§ 5-19-1 et seq. ("Mini-Code"), governs installment sales in Alabama.

The Mini-Code defines the term "service contract" to mean:

• an agreement, for a separately stated consideration, of the service contract offeror to correct, repair, or replace, or to pay for the correction, repair, maintenance, or replacement of tangible goods during the period covered by the service contract;
• with or without additional provisions for payment of or indemnity under limited circumstances for related expenses including, without limitation, for towing, rental, and emergency road service; and
• whether called a service contract, extended warranty, or otherwise.

Ala. Code § 5-19-32. As a result, a key replacement product is a service contract under the Mini-Code.

The Service Contracts Chapter, Ala. Code §§ 8-32-1 et seq. ("SCC"), regulates key replacement products as service contracts. The SCC does not apply to:

• a warranty;
• a maintenance agreement;
• a warranty, service contract, or maintenance agreement that an electric, gas, water, or telephone utility offers on its transmission device;
• a service contract sold or offered for sale in a commercial transaction;
• a service contract sold or offered for sale to a person other than a consumer; or
• a service contract sold at the point of sale or within 60 days of the original purchase date of the property that covers tangible property with a purchase price (excluding sales tax) of $250 or less.

Ala. Code § 8-32-1(b).

The SCC defines the following terms:

• Service Contract. The SCC defines the term "service contract" to mean a contract or agreement for a separately stated consideration for a specific duration:
  • to perform the repair, replacement, or maintenance of property or indemnification for repair, replacement, or maintenance;
  • for the operational or structural failure due to a defect in materials or workmanship, or normal wear and tear; and
  • with or without additional provision for incidental payment or indemnity under limited circumstances, for related expenses, including, but not limited to, towing, rental, and emergency road service.

A service contract may provide for the repair, replacement, or maintenance of property for damage resulting from power surges and accidental damage from handling. Ala. Code § 8-32-2(14). Service contract services may include but are not limited to the replacement of a motor vehicle key or key-fob if the key or key-fob becomes inoperable, lost, or stolen. Ala. Code § 8-32-2(14)(d).

The term does not include:

• a warranty;
• mechanical breakdown insurance; or
• a maintenance agreement.

Ala. Code § 8-32-2(14).

• Warranty. The SCC defines the term "warranty" to mean a warranty made by the manufacturer, importer, distributor, or seller of property or services:
  • without consideration stated separately from the price of the property or services sold;
  • that is not negotiated separately from the sale of the product and is incidental to the sale of the product; and
  • that guarantees repair or replacement, or indemnity for repair or replacement, for defective parts, mechanical or electrical breakdown, labor, or other remedial measures, such as repair or replacement of the property or repetition of services.

Ala. Code § 8-32-2(16).

• Mechanical Breakdown Insurance. The SCC defines the term "mechanical breakdown insurance" to mean a policy, contract, or agreement issued by an authorized insurance company directly to a consumer or other owner of property that provides for, among other coverages, the repair, replacement, or maintenance of property or indemnification for repair, replacement, or maintenance, for the operational or structural failure of the property due to a defect in materials or workmanship or due to normal wear and tear. Ala. Code § 8-32-2(6).
• Maintenance Agreement. The SCC defines the term "maintenance agreement" to mean a contract of limited duration that provides for scheduled maintenance only. Ala. Code § 8-32-2(4).
• Service Contract Holder. The SCC defines the term "service contract holder" to mean a person who is the purchaser or holder of a service contract. Ala. Code § 8-32-2(15).
• Provider. The SCC defines the term "provider" to mean a person who administers, makes, provides, sells, or offers to sell a service contract, who is contractually obligated to provide service under a service contract. Ala. Code § 8-32-2(10).

INSURANCE

The SCC provides that a service contract is not insurance for any purpose, including, but not limited to, compliance with the Alabama Insurance Code, Ala. Code §§ 27-1-1 et seq. ("Insurance Code"), other than for the purpose of a service contract holder's claim against a service contract provider for failure to comply with the provisions of the service contract if other law so provides. Ala. Code § 8-32-2(14).

PERMISSIBILITY

The Mini-Code expressly authorizes a seller or creditor to sell and finance a service contract, which includes key replacement products.

Under the Mini-Code, any creditor who extends credit with respect to a consumer credit sale may sell, finance, or sell and finance a service contract covering tangible goods that are the subject of the consumer credit sale. Any other person who was not the creditor with regard to the initial sale of the tangible goods also may sell, finance, or sell and finance a service contract covering the tangible goods. The service contract offeror need not be the seller or creditor. The service contract may be offered, sold, and financed at the time of the credit sale or at any time thereafter, including, without limitation, at or about the time of the expiration of any original warranty or the expiration of the period covered by the service contract. The service contract may, but need not, be renewable from time to time as set forth in the service contract. Ala. Code § 5-19-32.

DISCLOSURES

In the definition of the term "provider", the SCC confirms that a seller or creditor is not required to provide any disclosures in the sale or financing of a service contract if the seller or creditor is not responsible for providing service under the service contract. Ala. Code § 8-32-2(10).

The Mini-Code does not impose any disclosure requirements applicable to service contracts, including key replacement products.

NOTICE REQUIREMENTS AT TERMINATION

The SCC does not require a seller or creditor to provide a notice at the termination of a service contract if the seller or creditor is not responsible for providing service under the service contract. Ala. Code § 8-32-2(10).

The Mini-Code does not impose any notice requirements at termination of a service contract.

REFUND REQUIREMENTS

The SCC does not require a seller or creditor to provide a refund at the termination of a service contract if the seller or creditor is not responsible for providing service under the service contract. Ala. Code § 8-32-2(10).

The Mini-Code does not impose any refund requirements upon termination of a service contract.

November 1, 2023   Show Redlined Changes