2017 -- S 0276

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LC001218

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2017

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A N   A C T

RELATING TO MOTOR AND OTHER VEHICLES - REGULATION OF BUSINESS

PRACTICES AMONG MOTOR VEHICLE MANUFACTURERS, DISTRIBUTORS, AND

DEALERS

     

     Introduced By: Senators Ruggerio, Doyle, Ciccone, and McCaffrey

     Date Introduced: February 15, 2017

     Referred To: Senate Judiciary

     It is enacted by the General Assembly as follows:

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     SECTION 1. Section 31-5.1-6 of the General Laws in Chapter 31-5.1 entitled

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"Regulation of Business Practices Among Motor Vehicle Manufacturers, Distributors, and

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Dealers" is hereby amended to read as follows:

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     31-5.1-6. Warranty agreement.

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     (a) Every manufacturer shall properly fulfill any warranty agreement and adequately and

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fairly compensate each of its motor vehicle dealers for labor and parts. In no event shall that

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compensation fail to include reasonable compensation for diagnostic work, as well as repair

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service and labor. All claims made by motor vehicle dealers for labor and parts shall be paid in

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accord with the provisions of subsection (b) of this section. Any delay in payment after approval

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or disapproval that is caused by conditions beyond the reasonable control of the manufacturer

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shall not constitute a violation of this section. Reimbursement for warranty repairs or diagnostic

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work shall be at the dealer retail rate in effect at the time the warranty repair or diagnostic work is

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performed. Compensation for parts used in warranty service shall be fair and reasonable, as

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determined by methods described in subsection (b) of this section. Compensation for labor used

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in warranty service shall be fair and reasonable, as determined by methods described in

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subsection (c) of this section.

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     (b) The retail rate customarily charged by the dealer for parts shall be established by the

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dealer submitting to the manufacturer or distributor one hundred (100) sequential non-warranty

 

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customer-paid service repair orders which contain warranty-like parts, or sixty (60) consecutive

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days of non-warranty customer-paid service repair orders which contain warranty-like parts,

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whichever is less, covering repairs made no more than one hundred eighty (180) days before the

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submission and declaring the average percentage markup. The average of the markup rates shall

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be presumed to be fair and reasonable, however, a manufacturer or distributor may, not later than

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thirty (30) days after submission, rebut that presumption by reasonably substantiating that the rate

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is unfair and unreasonable in light of the practices of all other franchised motor vehicle dealers in

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the vicinity offering the same line-make vehicles. The retail rate shall go into effect thirty (30)

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days following the declaration, subject to audit of the submitted repair orders by the franchisor

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and a rebuttal of the declared rate as described above. If the declared rate is rebutted, the

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manufacturer or distributor shall propose an adjustment of the average percentage markup based

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on that rebuttal not later than thirty (30) days after submission. If the dealer does not agree with

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the proposed average percentage markup, the dealer may file a protest with the department not

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later than thirty (30) days after receipt of that proposal by the manufacturer or distributor. If such

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a protest is filed, the department shall inform the manufacturer or distributor that a timely protest

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has been filed and that a hearing will be held on such protest. In any hearing held pursuant to this

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subsection, the manufacturer or distributor shall have the burden of proving that the rate declared

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by the dealer was unfair and unreasonable as described in this subsection and that the proposed

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adjustment of the average percentage markup is fair and reasonable pursuant to the provisions of

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this subsection.

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     (c) The retail rate customarily charged by the dealer for labor may be established by

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submitting to the manufacturer or distributor all non-warranty customer-paid service repair orders

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covering repairs made during the month prior to the submission and dividing the amount of the

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dealer's total labor sales by the number of total labor hours that generated those sales. The

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average labor rate shall be presumed to be fair and reasonable, provided a manufacturer or

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distributor may, not later than thirty (30) days after submission, rebut such presumption by

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reasonably substantiating that such rate is unfair and unreasonable in light of the practices of all

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other franchised motor vehicle dealers in the vicinity offering the same line-make vehicles. The

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average labor rate shall go into effect thirty (30) days following the declaration, subject to audit

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of the submitted repair orders by the franchisor and a rebuttal of such declared rate. If the

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declared rate is rebutted, the manufacturer or distributor shall propose an adjustment of the

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average labor rate based on such rebuttal not later than thirty (30) days after submission. If the

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dealer does not agree with the proposed average labor rate, the dealer may file a protest with the

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department not later than thirty (30) days after receipt of that proposal by the manufacturer or

 

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distributor. If such a protest is filed, the department shall inform the manufacturer or distributor

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that a timely protest has been filed and that a hearing will be held on such protest. In any hearing

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held pursuant to this subsection, the manufacturer or distributor shall have the burden of proving

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that the rate declared by the dealer was unfair and unreasonable as described in this subsection

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and that the proposed adjustment of the average labor rate is fair and reasonable pursuant to the

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provisions of this subsection.

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     (d) In calculating the retail rate customarily charged by the dealer for parts and labor, the

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following work shall not be included in the calculation:

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     (1) Repairs for manufacturer or distributor special events, specials or promotional

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discounts for retail customer repairs;

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     (2) Parts sold at wholesale;

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     (3) Engine assemblies and transmission assemblies;

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     (4) Routine maintenance not covered under any retail customer warranty, such as fluids,

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filters and belts not provided in the course of repairs;

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     (5) Nuts, bolts, fasteners, and similar items that do not have an individual part number;

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     (6) Tires; and

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     (7) Vehicle reconditioning.

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     (e) If a manufacturer or distributor furnishes a part or component to a dealer, at no cost,

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to use in performing repairs under a recall, campaign service action or warranty repair, the

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manufacturer or distributor shall compensate the dealer for the part or component in the same

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manner as warranty parts compensation under this section by compensating the dealer the average

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markup on the cost for the part or component as listed in the manufacturer's or distributor's price

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schedule less the cost for the part or component.

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     (f) A manufacturer or distributor may not require a dealer to establish the retail rate

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customarily charged by the dealer for parts and labor by an unduly burdensome or time

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consuming method or by requiring information that is unduly burdensome or time consuming to

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provide, including, but not limited to, part-by-part or transaction-by-transaction calculations. A

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dealer may not declare an average percentage markup or average labor rate more than twice in

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one calendar year.

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     (g) A manufacturer or distributor may not otherwise recover its costs from dealers within

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this state, including an increase in the wholesale price of a vehicle or surcharge imposed on a

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dealer solely intended to recover the cost of reimbursing a dealer for parts and labor pursuant to

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this section, provided a manufacturer or distributor shall not be prohibited from increasing prices

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for vehicles or parts in the normal course of business.

 

LC001218 - Page 3 of 5

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     (h) Each manufacturer or distributor shall perform all warranty obligations, include in

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written notices of factory recalls to owners and dealers the expected date by which necessary

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parts and equipment will be available to dealers for the correction of such defects and compensate

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dealers for repairs necessitated by such recall.

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     (b)(i) A claim filed under this section by a dealer with a manufacturer or distributor shall

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be:

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     (1) In the manner and form prescribed by the manufacturer or distributor; and

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     (2) (i) Approved or disapproved within (30) days of receipt.

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     (ii) A claim not approved or disapproved within thirty (30) days of receipt shall be

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deemed approved.

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     (iii) Payment of, or credit issued on, a claim filed under this section shall be made within

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thirty (30) days of approval.

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     (3) (i) If a claim filed under this section is shown by the manufacturer or distributor to be

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false or unsubstantiated, the manufacturer or distributor may charge back the claim within twelve

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(12) months from the date the claim was paid or credit issued.

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     (ii) A manufacturer or distributor shall not charge back a claim based solely on a motor

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vehicle dealer's incidental failure to comply with a specific claim processing requirement, such as

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a clerical error or other administrative technicality that does not put into question the legitimacy

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of the claim after the motor vehicle dealer properly resubmits the claim in accordance with the

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manufacturer's or distributor's submission guidelines.

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     (iii) A dealer shall have no less than sixty (60) days from the date of notification by a

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manufacturer or distributor of a charge back to the dealer to resubmit a claim for payment or

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compensation if the claim was denied for a dealer's incidental failure as set forth in subsection

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(3)(ii) of this section, whether the chargeback was a direct or an indirect transaction.

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     (iv) This subdivision does not limit the right of a manufacturer or distributor to charge

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back for any claim that is proven to be fraudulent.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO MOTOR AND OTHER VEHICLES - REGULATION OF BUSINESS

PRACTICES AMONG MOTOR VEHICLE MANUFACTURERS, DISTRIBUTORS, AND

DEALERS

***

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     This act would establish standardized methods and appeals procedures for the calculation

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of fair and reasonable compensation for parts and labor used in warranty services.

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     This act would take effect upon passage.

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LC001218

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