Warranties and service plans

When a registered Ontario dealer sells an add-on protection product, the rules split into two streams. Sections 47 and 48 of Ontario Regulation 333/08 under the Motor Vehicle Dealers Act, 2002 govern extended warranties and service plans separately, with different financial backing rules, different contract content lists, and different timelines for handing the paperwork to the third-party provider. Section 1 of the same regulation defines what each product is, and section 50 makes both products travel with the underlying sale: when a buyer rescinds the vehicle contract, every related warranty and service plan goes with it.

The rules apply whenever a registered dealer sells the product to a customer who is not another registered dealer, whether the dealer is the actual seller of the warranty or service plan or is only forwarding the application to a third-party provider. Subsection 47(2) and subsection 48(5) treat the application-forwarding case as facilitating the sale, so the contract requirements bite either way.

What this category covers

This category is sections 47 and 48 of Ontario Regulation 333/08. It covers the section 1 definitions of extended warranty and service plan, the insurance or letter-of-credit requirement for warranties, the dealer’s residual liability when the third-party provider goes out of business, the prescribed contract content for each product, the post-sale paperwork timelines, the broker prohibition in subsection 20(4), the advertising disclosure rule in subsection 36(14), and the cascade in subsection 50(10) that refunds warranty and service plan payments when a rescission notice is delivered.

Key rules to remember

Extended warranty and service plan are different things

Section 1 of Ontario Regulation 333/08 defines an extended warranty as a contract to cover the cost of repairing or replacing components of a vehicle, including the labour, in addition to any warranty supplied or implied by law. A service plan is a contract sold to a buyer or lessee before the vehicle is delivered, under which someone agrees to provide goods or services to alter or maintain the vehicle, whether before or after delivery. Translated to the lot: a warranty pays for repairs when something breaks, while a service plan delivers preset maintenance such as oil changes, undercoating, or tire rotations. The two products are regulated separately for a reason.

Extended warranties need real money behind them

Subsection 47(1) prohibits a dealer from selling or facilitating the sale of an extended warranty unless one of two conditions is met. Either the performance of the warranty is insured by an insurer licensed under the Insurance Act, or the warranty seller has lodged an irrevocable letter of credit with the Motor Vehicle Dealers Compensation Fund. The required amount of the letter of credit is $100,000 when the dealer who sold or leased the vehicle is also the seller of the warranty, and $500,000 in any other case. Subsection 47(3) puts a sting in the tail: if the dealer only facilitated the sale and the warranty company later goes out of business, the dealer is personally liable for the portion of any unsettled claim that the security does not cover.

Service plans have no equivalent backing requirement

Section 48 imposes no insurance or letter-of-credit requirement on the seller of a service plan. The trade-off is built into the Motor Vehicle Dealers Compensation Fund: paragraph 8 of subsection 79(3) of the regulation lets a customer claim from the Fund for unearned payments under a service plan that a dealer sold or facilitated, or for the cost of goods or services that should have been provided but were not.

Contract content is prescribed, paragraph by paragraph

Subsection 47(4) lists 18 paragraphs of mandatory content for an extended warranty contract: the purchaser’s name and address, the warranty holder’s name and address if different, the dealer’s registered name, registration number, and business address, the salesperson’s registered name and registration number, all restrictions and conditions imposed by the warranty seller, a statement of whether the warranty is insured (and the insurer’s name and address if so), the vehicle make, model, model year, and VIN, the total sale price or lease value of the vehicle, a parts-covered description, the start and end dates expressed by date, kilometres, or both, the maximum individual claim limit, the maximum total liability of the seller, the deductible, the sale price of the warranty with an itemized fee list, the holder’s obligations under both the warranty and any manufacturer’s warranty, and whether the warranty is transferable and at what fee. Subsection 48(2) sets a parallel 15-paragraph list for service plans, including a list of the goods and services provided, the locations at which the vehicle can be serviced, and the deductible, if any.

Signatures, copies, and the post-sale handover

Subsection 47(5) and subsection 48(3) both require the parties to sign the contract, the salesperson to sign next to their identifying information, and the purchaser to receive a copy immediately after signing. The post-sale handover deadlines are different. Clause 47(7)(c) gives the facilitating dealer 30 days to send the warranty seller all documents detailing the contract, all payments received from the purchaser, and a statement describing the condition of the vehicle and the distance driven, if the dealer has one. Clause 48(6)(c) compresses that deadline to seven days for service plans and asks only for documents and payments.

Brokers cannot sell these products

Subsection 20(4) of the regulation prohibits a dealer registered as a broker from selling an extended warranty or service plan or facilitating the sale of one through the broker. This is one of the structural limits on the broker class.

Advertising the warranty inclusion

Subsection 36(14) requires that an advertisement stating an extended warranty is included with the purchase of a vehicle disclose, in a clear, comprehensible, and prominent manner, the term of the warranty and any maximum individual claim limits. Without those numbers, the advertising disclosure rule is breached.

Common mistakes

• Selling an uninsured extended warranty without checking that the warranty seller has actually filed a letter of credit with the Compensation Fund. The dealer who facilitates the sale carries the residual liability under subsection 47(3) when the seller folds.
• Treating service plans like warranties and ignoring the seven-day handover in clause 48(6)(c). Funds and paperwork sitting on a desk past day seven put the dealer offside.
• Forgetting to itemize fees and costs payable during the term of a service plan. Paragraph 12 of subsection 48(2) wants both the up-front sale price and the running costs, in writing.
• Skipping the maximum individual claim limit in the warranty contract or the inclusion advertisement. Paragraph 13 of subsection 47(4) and subsection 36(14) both demand it.
• Letting a broker arrange a warranty or service plan sale for a customer. Subsection 20(4) is a flat prohibition.
• Refusing to refund warranty payments when a buyer rescinds the vehicle contract under section 50. Clause 50(10)(b) folds those payments into the refund.
• Missing the salesperson’s registered name and registration number on the contract, or failing to have them sign next to it.

How OMVIC enforces this

OMVIC inspectors review warranty and service plan files during routine inspections. They confirm the insurer or letter-of-credit backing for any extended warranty the dealer has sold or facilitated, check every contract against the section 47(4) or section 48(2) content list, verify the immediate copy to the buyer, and look for the seven-day or 30-day handover paper trail. A consumer complaint about an unhonoured warranty often opens a parallel file under the Code of Ethics. Where the warranty seller is no longer in business and the customer cannot collect, the customer can bring a claim against the Motor Vehicle Dealers Compensation Fund under paragraphs 7 and 8 of subsection 79(3) of the regulation. Findings can support a discipline committee referral or a registration proposal carried to the Licence Appeal Tribunal, and on conviction under section 32 of the Motor Vehicle Dealers Act, 2002, fines reach $50,000 for an individual or $250,000 for a corporation.

Where to learn more

The full text of sections 47 and 48 is on this site at Ontario Regulation 333/08, with anchors for each subsection. The Compensation Fund claim categories tied to warranties and service plans sit at section 79 of the same regulation. The DealerPrep iPhone app carries the wider question pool, including scenario items on the $100,000 versus $500,000 letter-of-credit split, the seven-day service plan handover, and the rescission cascade under section 50.