E7-21399. Agency Information Collection Activities; Submission for OMB Review; Comment Request

AGENCY:

Federal Trade Commission (“FTC” or “Commission”).

ACTION:

Notice.

SUMMARY:

The information collection requirements described below will be submitted to the Office of Management and Budget (“OMB”) for review, as required by the Paperwork Reduction Act. The FTC is seeking public comments on its proposal to extend through November 30, 2010 the current OMB clearance for the information collection requirements contained in the Commission’s Rule Concerning Disclosure of Written Consumer Product Warranty Terms and Conditions. The clearance is scheduled to expire on November 30, 2007. The FTC is also seeking public comments on its proposal to extend through December 31, 2010 the current OMB clearances for the information collection requirements contained in the Commission’s Rule Governing Pre-Sale Availability of Written Warranty Terms and the Informal Dispute Settlement Procedures Rule. Those clearances are scheduled to expire on December 31, 2007.

DATES:

Comments must be filed by November 30, 2007.

ADDRESSES:

Interested parties are invited to submit written comments. Comments should refer to “Warranty Rules: Paperwork Comment, FTC File No. P044403” to facilitate the organization of comments. A comment filed in paper form should include this reference both in the text and on the envelope, and should be mailed or delivered, with two complete copies, to the following address: Federal Trade Commission, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Because paper mail in the Washington area and at the Commission is subject to delay, please consider submitting your comments in electronic form, as prescribed below. However, if the comment contains any material for which confidential treatment is requested, it must be filed in paper form, and the first page of the document must be clearly labeled “Confidential.”^[1] The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible.

Comments filed in electronic form should be submitted by using the following weblink: https://secure.commentworks.com/​ftc-warrantypra (and following the instructions on the Web-based form). To ensure that the Commission considers an electronic comment, you must file it on the Web-based form at the weblink: https://secure.commentworks.com/​ftc-warrantypra. If this notice appears at www.regulations.gov, you may also file an electronic comment through that Web site. The Commission will consider all comments that regulations.gov forwards to it.

Comments should also be submitted to: Office of Management and Budget, Attention: Desk Officer for the Federal Trade Commission. Comments should be submitted via facsimile to [phone] because U.S. Postal Mail is subject to lengthy delays due to heightened security precautions.

The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. All timely and responsive public comments will be considered by the Commission, and will be available to the public on the FTC Web site, to the extent practicable, at www.ftc.gov. As a matter of discretion, the FTC makes every effort to remove home contact information for individuals from the public comments it receives before placing those comments on the FTC Web site. More information, including routine uses permitted by the Privacy Act, may be found in the FTC’s privacy policy, at http://www.ftc.gov/​ftc/​privacy.htm.

FOR FURTHER INFORMATION CONTACT:

Requests for additional information or copies of the proposed information requirements should be addressed to Allyson Himelfarb, Investigator, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, Room H-292, 600 Pennsylvania Ave., N.W., Washington, D.C. 20580, [phone].

SUPPLEMENTARY INFORMATION:

Under the Paperwork Reduction Act (“PRA”), 44 U.S.C. 3501-3521, federal agencies must obtain approval from OMB for each collection of information they conduct or sponsor. On August 7, 2007, the FTC sought comment on the information collection requirements associated with the FTC's (1) Rule Concerning Disclosure of Written Consumer Product Warranty Terms and Conditions (OMB Control Number 3084-0111); (2) Rule Governing Pre-Sale Availability of Written Warranty Terms (OMB Control Number 3084-0112); and (3) Informal Dispute Settlement Procedures Rule (OMB Control Number 3084-0113) (collectively, “Warranty Rules”).^[2] No comments were received. Pursuant to the OMB regulations that implement the PRA (5 CFR Part 1320), the FTC is providing this second opportunity for public comment while seeking OMB approval to extend the existing paperwork clearance for the Warranty Rules. All comments should be filed as prescribed in the ADDRESSES section above, and must be received on or before November 30, 2007.

The Warranty Rules implement the Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et seq. (“Warranty Act” or “Act”), which required the FTC to issue three rules relating to warranties on consumer products: the disclosure of written warranty terms and conditions; pre-sale availability of warranty terms; and rules establishing minimum standards for informal dispute settlement mechanisms that are incorporated into a written warranty.^[3]

Consumer Product Warranty Rule (“Warranty Rule”): The Warranty Rule, 16 CFR 701, specifies the information that must appear in a written warranty on a consumer product costing more than $15. The Rule tracks Section 102(a) of the Warranty Act,^[4] specifying information that must appear in the written warranty and, for certain disclosures, mandates the exact language that must be used.^[5] Neither the Warranty Rule nor the Act requires that a manufacturer or retailer warrant a consumer product in writing, but if they choose to do so, the warranty must comply with the Rule.

The Rule Governing Pre-Sale Availability of Written Warranty Terms (“Pre-Sale Availability Rule”): The Pre-Sale Availability Rule, 16 CFR 702, requires sellers and warrantors to make the text of any written warranty on a consumer product costing more than $15 available to the consumer before sale. Among other things, the Rule requires sellers to make the text of the warranty readily available either by (1) displaying it in close proximity to the product or (2) furnishing it on request and posting signs in prominent locations advising consumers that the warranty is available. The Rule requires warrantors to provide materials to enable sellers to comply with the Rule’s requirements and also sets out the methods by which warranty information can be made available before the sale if the product is sold through catalogs, mail order, or door-to-door sales.

Informal Dispute Settlement Rule: The Informal Dispute Settlement Rule, 16 CFR 703, specifies the minimum standards which must be met by any informal dispute settlement mechanism that is incorporated into a written consumer product warranty and which the consumer must use before pursuing legal remedies in court. In enacting the Warranty Act, Congress recognized the potential benefits of consumer dispute mechanisms as an alternative to the judicial process. Section 110(a) of the Act sets out the Congressional policy to “encourage warrantors to establish procedures whereby consumer disputes are fairly and expeditiously settled through informal dispute settlement mechanisms” (“IDSMs”) and erected a framework for their establishment.^[6] As an incentive to warrantors to establish IDSMs, Congress provided in Section 110(a)(3) that warrantors may incorporate into their written consumer product warranties a requirement that a consumer must resort to an IDSM before pursuing a legal remedy under the Act for breach of warranty.^[7] To ensure fairness to consumers, however, Congress also directed that, if a warrantor were to incorporate such a “prior resort requirement” into its written warranty, the warrantor must comply with the minimum standards set by the Commission for such IDSMs.^[8] Section 110(a)(2) of the Act directed the Commission to establish those minimum standards.^[9]

The Informal Dispute Settlement Rule contains standards for IDSMs, including requirements concerning the mechanism’s structure (e.g., funding, staffing, and neutrality), the qualifications of staff or decision makers, the mechanism’s procedures for resolving disputes (e.g., notification, investigation, time limits for decisions, and follow-up), recordkeeping, and annual audits. The Rule requires that warrantors establish written operating procedures and provide copies of those procedures upon request.

The Informal Dispute Settlement Rule applies only to those firms that choose to be bound by it by requiring consumers to use an IDSM. Neither the Rule nor the Act requires warrantors to set up IDSMs. A warrantor is free to set up an IDSM that does not comply with the Informal Dispute Settlement Rule as long as the warranty does not contain a prior resort requirement.

Warranty Rule Burden Statement:

Total annual hours burden: 107,000 hours, rounded to the nearest thousand.

In its 2004 submission to OMB,^[10] the FTC estimated that the information collection burden of including the disclosures required by the Warranty Rule was approximately 34,000 hours per year. Although the Rule’s information collection requirements have not changed, this estimate increases the number of manufacturers subject to the Rule based on recent Census data. Nevertheless, because most warrantors would now disclose this information even if there were no statute or rule requiring them to do so, staff’s estimates likely overstate the PRA-related burden attributable to the Rule. Moreover, the Warranty Rule has been in effect since 1976, and warrantors have long since modified their warranties to include the information the Rule requires.

Based on conversations with various warrantors’ representatives over the years, staff has concluded that eight hours per year is a reasonable estimate of warrantors’ PRA-related burden attributable to the Warranty Rule. This estimate takes into account ensuring that new warranties and changes to existing warranties comply with the Rule. Based on recent Census data, staff now estimates that there are 134 large manufacturers and 13,235 small manufacturers covered by the Rule.^[11] This results in an annual burden estimate of approximately 106,952 hours (13,369 total manufacturers x 8 hours of burden per year).

Total annual labor costs: $14,118,000, rounded to the nearest thousand

Labor costs are derived by applying appropriate hourly cost figures to the burden hours described above. The work required to comply with the Warranty Rule—ensuring that new warranties and changes to existing warranties comply with the Rule—requires a mix of legal analysis and clerical support. Staff estimates that half of the total burden hours (53,476 hours) requires legal analysis at an average hourly wage of $250 for legal professionals,^[12] resulting in a labor cost of $13,369,000. Assuming that the remaining half of the total burden hours requires clerical work at an average hourly wage of $14, the resulting labor cost is approximately $748,664. Thus, the total annual labor cost is approximately $14,117,664 ($13,369,000 for legal professionals + $748,664 for clerical workers).

Total annual capital or other non-labor costs: $0

The Rule imposes no appreciable current capital or start-up costs. As stated above, warrantors have already modified their warranties to include the information the Rule requires. Rule compliance does not require the use of any capital goods, other than ordinary office equipment, which providers would already have available for general business use.

Pre-Sale Availability Rule Burden Statement:

Total annual hours burden: 2,328,000 hours, rounded to the nearest thousand.

In its 2004 submission to OMB, FTC staff estimated that the information collection burden of making the disclosures required by the Pre-Sale Availability Rule was approximately 2,760,000 hours per year. Although there has been no change in the Rule’s information collection requirements since 2004, staff has adjusted its previous estimate of the number of manufacturers subject to the Rule based on recent Census data. As discussed above, staff now estimates that there are approximately 134 large manufacturers and 13,235 small manufacturers subject to the Rule. Census data suggests that the number of retailers subject to the Rule has remained largely unchanged since 2004. Therefore, staff continues to estimate that there are 6,552 large retailers and 422,100 small retailers impacted by the Rule.

Since 2001, online retailers have been posting warranty information on their web sites, reducing their burden of providing the required information.^[13] While some online retailers make warranty information directly available on their web sites, the majority of them instead provide consumers with instructions on how to obtain that information. Moreover, some online retailers provide warranty information electronically in response to a consumer’s request for such information. A review of 20 top online retailers’ websites for availability of warranty information suggests that a significant percentage of retailers (40% of the 20 sampled) have begun to incorporate online methods of complying with the Rule—either by posting warranty information online or sending that information to consumers electronically. Based on this information, staff estimates that retailers’ annual hourly burden has decreased by twenty percent.^[14]

In 2004, staff estimated that large retailers spend an average of 26 hours per year and small retailers spend an average of 6 hours per year to comply with the Rule. Applying a 20% reduction to the FTC’s previous estimates, staff assumes that large retailers spend an average of 20.8 hours per year and small retailers spend an average 4.8 hours per year to comply with the Rule. Accordingly, the total annual burden for retailers is approximately 2,162,362 hours ((6,552 large retailers x 20.8 burden hours) + (422,100 small retailers x 4.8 burden hours)).

Staff retains its previous estimate that large manufacturers spend an average of 52 hours per year and small manufacturers spend an average of 12 hours per year to comply with the Rule. Accordingly, the total annual burden incurred by manufacturers is approximately 165,788 hours ((134 large manufacturers x 52 hours) + (13,235 small manufacturers x 12 hours)).

Thus, the total annual burden for all covered entities is approximately 2,328,150 hours (2,162,362 hours for retailers + 165,788 hours for manufacturers).

Total annual labor cost: $32,594,000, rounded to the nearest thousand.

The work required to comply with the Pre-Sale Availability Rule is predominantly clerical, e.g., providing copies of manufacturer warranties to retailers and retailer maintenance of them. Applying a clerical wage rate of $14/hour, the total annual labor cost burden is approximately $32,594,100 (2,328,150 hours x $14 per hour).

Total annual capital or other non-labor costs: De minimis.

The vast majority of retailers and warrantors already have developed systems to provide the information the Rule requires. Compliance by retailers typically entails keeping warranties on file, in binders or otherwise, and posting an inexpensive sign indicating warranty availability.^[15] Manufacturer compliance entails providing retailers with a copy of the warranties included with their products.

Informal Dispute Settlement Rule Burden Statement:

Total annual hours burden: 17,000 hours, rounded to the nearest thousand.

The primary burden from the Informal Dispute Settlement Rule comes from the recordkeeping requirements that apply to IDSMs, the use of which is incorporated into a consumer product warranty. In its 2004 submission to OMB, staff estimated that the recordkeeping and reporting burden was 21,754 hours per year and 8,157 hours per year for disclosure requirements or, cumulatively, approximately 30,000 hours. Although the Rule’s information collection requirements have not changed since 2004, the audits filed by the IDSMs indicate that on average fewer disputes were handled over the previous three years. In addition, representatives of the IDSMs indicate that relatively few consumers request a copy of their complete case file, and even fewer request a copy of the annual audit. These factors result in a decreased annual hours burden estimate for the IDSMs. The calculations underlying staff’s new estimates follow.

Recordkeeping: The Rule requires IDSMs to maintain individual case files. Because maintaining individual case records is a necessary function for any IDSM, much of the burden would be incurred in the ordinary course of the IDSM’s business. Nonetheless, staff retains its previous estimate that maintaining individual case files imposes an additional burden of 30 minutes per case.

The amount of work required will depend on the number of dispute resolution proceedings undertaken in each IDSM. The 2005 audit report for the BBB AUTO LINE states that, during calendar year 2005, it handled 23,672 warranty disputes on behalf of 12 manufacturers (including General Motors, Honda, Ford, Saturn, Volkswagen, Isuzu, and Nissan).^[16] The BBB AUTO LINE audits from calendar years 2004 and 2003 indicate warranty disputes totaling 19,793 and 21,859, respectively. Thus, the average number of disputes filed annually through BBB AUTO LINE over this three-year period is 21,775 disputes.^[17] According to the 2005 audit report for the BBB AUTO LINE, ten out of the twelve manufacturers reviewed include a “prior resort” requirement in their warranties, and thus are covered by the Informal Dispute Settlement Rule. Therefore, staff assumes that virtually all of the average 21,775 disputes handled by the BBB fall within the Rule.

Apart from the BBB audit report, audit reports were submitted on behalf of the National Center for Dispute Settlement (NCDS), the mechanism that handles dispute resolutions for Toyota, Lexus, DaimlerChrysler, Mitsubishi, and Porsche, all of which are covered by the Rule. The 2005 audit of the NCDS operations show that 2,154 disputes were filed in 2005. In addition, the NCDS audit shows that in 2004 and 2003, it handled 2,246 and 3,722 disputes, respectively. Thus, the NCDS handled an average of 2,707 disputes each year from 2003 through 2005.

Based on the above figures, staff estimates that the average number of disputes handled annually by IDSMs covered by the Rule is approximately 24,482 (21,775 disputes handled by BBB AUTO LINE + 2,707 disputes handled by NCDS). Accordingly, staff estimates the total annual recordkeeping burden attributable to the Rule to be approximately 12,241 hours (24,482 disputes x 30 minutes of burden ÷ 60 minutes).

Reporting: The Rule requires IDSMs to update indexes, complete semi-annual statistical summaries, and submit an annual audit report to the FTC. Staff retains its previous estimate that covered entities spend approximately 10 minutes per case for these activities, resulting in a total annual burden of approximately 4,080 hours (24,482 disputes x 10 minutes of burden ÷ 60 minutes).

Disclosure: The Rule requires that information about the IDSM be disclosed in the written warranty. Any incremental costs to the warrantor of including this additional information in the warranty are negligible. The majority of the disclosure burden would be borne by the IDSM, which is required to provide to interested consumers upon request copies of the various types of information the IDSM possesses, including annual audits. Consumers who have dealt with the IDSM also have a right to copies of their records. (IDSMs are permitted to charge for providing both types of information.)

Based on discussions with representatives of the IDSMs, staff estimates that the burden imposed by the disclosure requirements is approximately 408 hours per year for the existing IDSMs to provide copies of this information. This estimate draws from the average number of consumers who file claims each year with the IDSMs (24,482) and the assumption that twenty percent of consumers individually request copies of the records pertaining to their disputes, or approximately 4,896 consumers. Staff estimates that copying such records would require approximately 5 minutes per consumer, including a negligible number of requests for copies of the annual audit.^[18] Thus, the IDSMs currently operating under the Rule have an estimated total disclosure burden of 408 hours (4,896 consumers x 5 minutes of burden ÷ 60 minutes).

Accordingly, the total PRA-related annual hours burden attributed to the Rule is approximately 16,729 hours (12,241 hours for recordkeeping + 4,080 hours for reporting + 408 hours for disclosures).

Total annual labor cost: $266,000, rounded to the nearest thousand.

Recordkeeping: Staff assumes that IDSMs use skilled clerical or technical support staff to comply with the recordkeeping requirements contained in the Rule at an hourly rate of $16. Thus, the labor cost associated with the 12,241 annual burden hours for recordkeeping is approximately $195,856 (12,241 burden hours x $16 per hour).

Reporting: Staff assumes that IDSMs also use skilled clerical support staff at an hourly rate of $16 to comply with the reporting requirements. Thus, the labor cost associated with the 4,080 annual burden hours for reporting is approximately $65,280 (4,080 burden hours x $16 per hour).

Disclosure: Staff assumes that IDSMs use clerical support at an hourly rate of $12 to reproduce records and, therefore, the labor cost associated with the 408 annual burden hours for disclosures is approximately $4,896 (408 burden hours x $12 per hour).

Accordingly, the combined total annual labor cost for PRA-related burden under the Rule is approximately $266,032 ($195,856 for recordkeeping + $65,280 for reporting + $4,896 for disclosures).

Total annual capital or other non-labor costs: $329,000

Total capital and start-up costs: The Rule imposes no appreciable current capital or start-up costs. The vast majority of warrantors have already developed systems to retain the records and provide the disclosures required by the Rule. Rule compliance does not require the use of any capital goods, other than ordinary office equipment, to which providers would already have access. In addition, according to a representative of one IDSM, it has already developed systems to collect and retain information needed to produce the indexes and statistical summaries required by the Rule, and thus, estimated very low capital or start-up costs.

The only additional cost imposed on IDSMs operating under the Rule that would not be incurred for other IDSMs is the annual audit requirement. According to representatives of each of the IDSMs currently operating under the Rule, the vast majority of costs associated with this requirement are the fees paid to the auditors and their staffs to perform the annual audit. Representatives of the IDSMs estimated a combined cost of $300,000 for both IDSMs currently operating under the Rule

Other non-labor costs: $29,000 in copying costs. This total is based on estimated copying costs of 7 cents per page and several conservative assumptions. Staff estimates that the average dispute-related file is 35 pages long and that a typical annual audit file is approximately 200 pages in length. As discussed above, staff assumes that twenty percent of consumers using an IDSM currently operating under the Rule (approximately 4,896 consumers) request copies of the records relating to their disputes.

Staff also estimates that a very small minority of consumers request a copy of the annual audit. This assumption is based on (1) the number of consumer requests actually received by the IDSMs in the past; and (2) the fact that the IDSMs’ annual audits are available online. For example, annual audits are available on the FTC’s web site, where consumers may view and or print pages as needed, at no cost to the IDSM. In addition, the Better Business Bureau makes available on its web site the annual audit of the BBB AUTO LINE. Therefore, staff conservatively estimates that only five percent of consumers using an IDSM covered by the Rule (approximately 1,224 consumers) will request a copy of the IDSM’s audit report.

Thus, the total annual copying cost for dispute-related files is approximately $11,995 (35 pages per file x $.07 per page x 4,896 consumer requests) and the total annual copying cost for annual audit reports is approximately $17,136 (200 pages per audit report x $.07 per page x 1,224 consumer requests). Accordingly, the total cost attributed to copying under the Rule is approximately $29,131 and the total non-labor cost under the Rule is approximately $329,131 ($300,000 for auditor fees + $29,131 for copying costs).

William Blumenthal

General Counsel

Footnotes

1. Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. The request will be granted or denied by the Commission's General Counsel, consistent with applicable law and the public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).

2. 72 FR 44140 (Aug. 7, 2007). The FTC issued a correction Notice on August 10, 2007 (72 FR 45050) in order to provide the appropriate weblink for submitting electronic comments.

3. 40 FR 60168 (Dec. 31, 1975).

4. 15 U.S.C. 2302(a).

5. 40 FR 60168, 60169-60170.

6. 15 U.S.C. 2310(a).

7. 15 U.S.C. 2310(a)(3).

8. Id.

9. 15 U.S.C. 2310(a)(2).

10. 69 FR 60877 (Oct. 13, 2004).

11. Because some manufacturer likely make products that are not priced above $15 or not intended for household use—and thus would not be subject to the Rules—this figure is likely an overstatement.

12. Staff has derived an hourly wage rate for legal professionals based upon industry knowledge. The remaining wage rates used throughout this Notice reflect recent data from the Bureau of Labor Statistics National Compensation Survey.

13. Staff took note of this change in 2004 but, due to the small number of retailers engaging in the practice at that time, declined to make an adjustment to its burden estimate.

14. This conservative estimate takes into account that staff reviewed a limited number of websites. Moreover, some online retailers also operate “brick-and-mortar” operations and still provide paper copies of warranties for review by customers who do not do business online.

15. Although some retailers may choose to display a more elaborate or expensive sign, that is not required by the Rule.

16. So far as staff is aware, all or virtually all of the IDSMs subject to the Rule are within the auto industry.

17. Because the number of annual disputes filed has fluctuated, staff believes that taking the average number of disputes filed between 2003 and 2005 (the most recent available data) is the best way to project what will happen over the next three years of the OMB clearance for the Rule.

18. This estimate includes the additional amount of time required to copy the annual audit upon a consumer’s request. However, because staff has determined that a very small minority of consumers request a copy of the annual audit, this estimate is likely an overstatement. In addition, at least a portion of case files are provided to consumers electronically, which further would reduce the paperwork burden borne by the IDSMs.