The New York Department of Financial Services (“DFS”), in Circular Letter No. 1 (1/3/18), provides guidance on certain improper trade practices related to the sale of insurance and service contracts covering phones and other wireless communications equipment. While wireless equipment typically includes a manufacturer’s warranty covering mechanical failures for a limited period, equipment vendors often sell two products to provide additional protection for the equipment. First, wireless communications equipment insurance is offered to cover certain perils not covered by the warranty, such as theft, loss or damage. Second, a service contract is offered primarily to cover mechanical failures after the warranty period, as well as to provide additional customer support.
The Circular Letter discusses the following improper practices identified by DFS in connection with the sale of wireless communications equipment insurance and service contracts in New York: (1) offering prohibited rebates and inducements through the tying or bundling of insurance products and service contracts; (2) deviating from filed premium rates for the insurance (the Circular Letter also discusses the circumstances in which a premium discount may be approved for customers also purchasing a service contract); (3) paying compensation for insurance sales to unlicensed employees of the vendors (as opposed to compensating the vendor holding a limited license to sell wireless communications equipment insurance); (4) not complying with cancellation and nonrenewal requirements for the insurance; (5) failing to provide required notices and disclosures in connection with the sale of wireless communications equipment insurance; and (6) using unfiled trade or assumed names.
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