Service Contracts Model Act

The Service Contracts Model Act: An Overview

Businesses that provide services, such as home warranty providers, repair service companies, and maintenance service providers, often offer service contracts to their customers. These contracts provide an extended warranty or service guarantee, which outlines the terms and conditions under which services will be provided to the customer.

To ensure that service contracts are fair, transparent, and provide adequate coverage for customers, many states have adopted the Service Contracts Model Act (SCMA). The SCMA is a legal framework that regulates service contracts and sets standards for their content, marketing, and administration.

What is the Service Contracts Model Act?

The SCMA was first adopted by the National Association of Insurance Commissioners (NAIC) in 1994. It is a model statute that provides guidance to states on how to regulate service contracts. While the SCMA is not a federal law, many states have adopted it or used it as a basis for their own service contract regulations.

What does the Service Contracts Model Act cover?

The SCMA covers a wide range of issues related to service contracts. Here are some of the key provisions:

1. Disclosures: Service contract providers must provide customers with a clear and concise description of the coverage, including any limitations, exclusions, or deductibles. They must also disclose any fees, cancellation policies, and renewal policies.

2. Marketing: Service contract providers must include a clear and conspicuous statement of the customer`s cancellation rights in all marketing materials. They must also refrain from using misleading or deceptive marketing practices.

3. Administration: Service contract providers must maintain records of all service contracts, claims, and payments. They must also have a system to handle customer complaints and disputes.

4. Financial Responsibility: Service contract providers must demonstrate financial responsibility, which may include posting a bond, maintaining a letter of credit, or obtaining insurance.

Why is the Service Contracts Model Act important?

The SCMA is important because it protects consumers from fraudulent or unfair service contracts. By setting standards for disclosures, marketing, administration, and financial responsibility, the act ensures that service contract providers are held accountable and that customers receive the coverage they pay for.

In addition, the SCMA can help service contract providers improve their business practices. By following the act`s guidelines, they can establish a trustworthy reputation, which can lead to increased customer loyalty and referrals.


The Service Contracts Model Act is an essential tool for regulating service contracts and protecting consumers. By providing transparency, accountability, and fair practices, the act ensures that service contract providers meet the needs and expectations of their customers. If you are a business that provides service contracts, it is important to familiarize yourself with the SCMA and ensure that you comply with its provisions.