[Federal Register Volume 61, Number 65 (Wednesday, April 3, 1996)]
[Proposed Rules]
[Pages 14687-14690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-8181]
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FEDERAL TRADE COMMISSION
16 CFR Parts 700, 701, 702, and 239
Request for Comments Concerning Interpretations of Magnuson-Moss
Warranty Act; Rule Governing Disclosure of Written Consumer Product
Warranty Terms and Conditions; Rule Governing Pre-Sale Availability of
Written Warranty Terms; and Guides for the Advertising of Warranties
and Guarantees
AGENCY: Federal Trade Commission.
ACTION: Request for public comments.
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SUMMARY: The Federal Trade Commission (``the Commission'') is
requesting public comment on a set of warranty-related rules and
guides: (1) its Interpretations of the Magnuson-Moss Warranty Act
(``Interpretations''); (2) its Rule Governing Disclosure of Written
Consumer Product Warranty Terms and Conditions (``Rule 701''); (3) its
Rule Governing Pre-Sale Availability of Written Warranty Terms (``Rule
702''); and (4) its Guides for the Advertising of Warranties and
Guarantees (``Guides''). The Commission is also requesting comments
about the overall costs and benefits of these rules and guides and
their overall regulatory and economic impact as part of its systematic
review of all current Commission regulations and guides.
The Interpretations represent the Commission's views on various
aspects of the Magnuson-Moss Warranty Act (``the Act''), 15 U.S.C. et
seq., and are intended to clarify the Act's requirements. They are
similar to industry guides in that they are advisory in nature, but
failure to comply with them may result in corrective action by the
Commission under the applicable statutory provisions. Rule 701
specifies the information that must appear in a written warranty on a
consumer product. Rule 702 details the obligations of sellers and
warrantors to make warranty information available to consumers prior to
purchase. The Guides are intended to help advertisers avoid or
deceptive practices in the advertising of warranties or guarantees.
DATES: Written comments will be accepted until June 3, 1996.
ADDRESS: Comments should be directed to: Secretary, Federal Trade
Commission, Room H-159, Sixth and Pennsylvania Ave., N.W., Washington,
D.C. 20580. Comments about the Interpretations, Rules, and/or Guides
should be identified as ``Warranty Rules--Comment.''
FOR FURTHER INFORMATION CONTACT:
Carole I. Danielson, Investigator, Division of Marketing Practices,
Federal Trade Commission, Washington, D.C. 20580, (202) 326-3115.
SUPPLEMENTARY INFORMATION: The Commission has determined, as part of
its oversight responsibilities, to review rules and guides
periodically. Pursuant to these reviews, the Commission seeks
information about the costs and benefits of the rules and guides under
review, as well as their regulatory and economic impact. The
information obtained will assist the Commission in identifying rules
and guides that warrant modification or rescission. At this time, the
Commission in identifying rules and guides that warrant modification or
rescission. At this time, the Commission solicits written public
comments concerning its warranty rules and guides: (1) the Commission's
Interpretations of the Magnuson-Moss Warranty Act, 16 CFR Part 700; (2)
the Rule Governing Disclosure of Written Consumer Product Warranty
Terms and Conditions, 16 CFR Part 701; (3) the Rule Governing Pre-Sale
Availability of Written Warranty Terms, 16 CFR Part 702; and (4) the
Guides for the Advertising of Warranties and Guarantees, 16 CFR Part
239. These four rules and guides are being reviewed together because
all four pertain to warranties.
A. Background
1. 16 CFR Part 700: Interpretations of the Magnuson-Moss Warranty
Act (``Interpretations''). The Magnuson-Moss Warranty Act, 15 U.S.C.
2301 et seq., which governs written warranties on consumer products,
was signed into law on January 4, 1975. After the Act was passed, the
Commission received many questions concerning the Act's requirements.
In response to these inquiries, the Commission decided to provide
guidance in order to ease compliance with the requirements of the Act.
Initially, the Commission published, on June 18, 1975, a policy
statement in the Federal Register (40 FR 25721) to provide interim
guidance during the initial implementation of the Act. However, as the
Commission continued to receive questions and requests for advisory
opinions, it determined that guidance of a more permanent nature was
appropriate. Therefore, on July 13, 1977, the Commission published in
the Federal Register (42 FR 36112) its Interpretations of the Magnuson-
Moss Warranty Act to assist warrantors and suppliers of consumer
products in complying with the Act.
These Interpretations apply to consumer products distributed in
commerce and sold with a written warranty. They represent the
Commission's views on various terms and provisions of the Act that are
not entirely clear on the face of the statute. Thus, they are intended
to clarify the Act's requirements for consumers, manufacturers,
importers, distributors, and retailers attempting to comply with them.
They are not substantive rules, and do not have the force or effect of
statutory provisions; like industry guides, they are advisory in
nature. Nonetheless, failure to comply with the Interpretations could
result in enforcement action by the Commission under the applicable
statutory provisions.
The Interpretations cover a wide range of subjects, including which
types of products are considered ``consumer products'' under the Act;
whether warrantors have a duty to install under a full warranty; how to
distinguish between ``written warranty,'' ``service contract,'' and
``insurance''; what constitutes an ``expression of general policy'' and
the requirements for expressions of general policy; the use of warranty
registration cards under full and limited warranties; and what may be
an illegal tying arrangement under Section 102(c) of the Act.
2. 16 CFR Part 701: Disclosure of Written Consumer Product Warranty
Terms and Conditions (``Rule 701''). The language of the Act and its
legislative history indicate that Congress intended that the Commission
promulgate rules regarding the disclosure of written warranty terms and
conditions. Accordingly, on December 31, 1975, the Commission published
in the Federal Register (40 FR 60188) its Rules Governing Disclosure of
Written Consumer Product Warranty Terms and Conditions. Rule 701
establishes requirements for warrantors for disclosing the terms and
conditions of written warranties on consumer products actually costing
the consumer more than $15.00. It tracks the disclosure requirements
suggested in Section 102(a) of the Act. It also specifies the
information that must appear in the written warranty, as well as the
exact language that must be used for certain disclosures. Under Rule
701, the information must be disclosed in simple, easily understood,
and concise language in a single document. In promulgating Rule 701,
the Commission determined that the items required to be disclosed are
material facts about product warranties, the nondisclosure of which
would be deceptive or misleading.
In addition to specifying the information that must appear in a
written warranty, Rule 701 also requires
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that, if the warrantor uses a warranty registration or owner
registration card, the warranty must disclose whether return of the
registration card is a condition precedent to warranty coverage.
Finally, it clarifies that, in connection with some ``seal of
approval'' programs, the disclosures required by the Rule do not have
to be given in the actual seal itself, but rather must be made in a
publication.
3. Pre-Sale Availability of Written Warranty Terms, 16 CFR Part 702
(``Rule 702''). Section 102(b)(1)(A) of the Act directs the Commission
to prescribe rules requiring that the terms of any written warranty on
a consumer product be made available to the prospective purchaser prior
to the sale of the product. Accordingly, on December 31, 1975, the
Commission published in the Federal Register (40 FR 60189) its Rules
Governing the Pre-Sale Availability of Written Warranty Terms (``Rule
702''). In promulgating Rule 702, the Commission determined that the
availability of warranty information prior to sale is an important tool
for consumers in making a purchasing decision either about the product
itself or about buying a service contract for the product. The Rule was
amended on March 12, 1987 (52 FR 7569).
Rule 702 establishes requirements for sellers and warrantors for
making the terms of any written warranty on a consumer product
available to the consumer prior to sale. Among other things, the Rule
require sellers to make warranty information 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 warranty information 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 prior to the sale if the
product is sold through catalogs, mail order or door-to-door sales.
4. Guides for the Advertising of Warranties and Guarantees, 16 CFR
Part 239 (``Guides''). In May, 1985, the Commission published in the
Federal Register its Guides for the Advertising of Warranties and
Guarantees, 16 CFR Part 239 (50 FR 18470, May 1, 1985 and 50 FR 20899,
May 21, 1985). The Guides were intended to help advertisers avoid
unfair or deceptive practices when advertising warranties or
guarantees. They took the place of the Commission's ``Guides Against
Deceptive Advertising of Guarantees,'' 16 CFR Part 239, adopted April
26, 1960, which had become outdated due to developments in Commission
case law and, more importantly, changes in circumstances brought about
by the Magnuson-Moss Warranty Act and by Rules 701 and 702 under that
Act. The 1985 Guides advise that advertisements mentioning warranties
or guarantees should contain a disclosure that the actual warranty
document is available for consumers to read before they buy the
advertised product. In addition, the Guides set forth advice for using
the terms ``satisfaction guarantees,'' ``lifetime,'' and similar
representations. Finally, the Guides advise that sellers or
manufacturers should not advertise that a product is warranted or
guaranteed unless they promptly and fully perform their warranty
obligations.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act provides for analysis of the
potential impact on small businesses of Rules proposed by federal
agencies. (5 U.S.C. 603, 604). Rules 701 and 702 are the only warranty-
related matters currently under review that require such an analysis.
In 1987, the Commission conducted a Regulatory Flexibility Act analysis
of Rule 702 in connection with its amendment of that Rule. See 52 FR
7569. This is the first review of Rule 701 since it was promulgated in
1975 and thus presents the first opportunity to conduct such an
analysis for that Rule. Therefore, this notice includes questions to
elicit information for that analysis.
The Commission believes that a very high percentage of businesses
subject to Rule 701 are ``small'' based on Small Business
Administration size standards. Unfortunately, the available data do not
provide a precise measurement of the impact Rule 701 has had on small
businesses nor the economic impact that would result from leaving the
Rule unchanged.
For example, in the regulatory analysis conducted for Rule 702, the
Commission's investigation found that nearly all the manufacturers
(11,365 companies or 97 percent) and nearly all retailers (952,916
companies or 99.3 percent) affected by Rule 702 were considered
``small'' using the size standards promulgated by the Small Business
Administration. That investigation indicated that, if the companies
were compared according to annual receipts, small retailers would
represent about 47 percent and small manufacturers about 23 percent of
the gross annual receipts in their respective industries.
In 1984, the FTC's Office of Impact Evaluation issued a study
evaluating the Impact of the Warranty Rules [Market Facts, Warranty
Rules Consumer Follow-Up: Evaluation Study, Final Report, Washington,
D.C., July 1984 (``the Study'')]. The Study found that some type of
warranty was offered for 87 percent of the consumer products surveyed.
Of those warranted products, almost 63 percent carried only a
manufacturer's warranty, about 12 percent were warranted only by the
retailer, and about 13 percent were covered by both a manufacturer's
and a retailer's warranty. Thus, the costs of Rule 701 would appear to
fall principally on manufacturers, since those entities are more likely
to provide a written warranty. However, we do not know how many of
those manufacturers or retailers who give written warranties are also
small entities.
Section 102 of the Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et
seq., requires warrantors who use written warranties to disclose fully
and conspicuously the terms and conditions of the warranty. The Act
lists a number of items that may be included in any rules requiring
disclosure that the Commission might prescribe, and, in Rule 701, the
Commission tracked those items. In promulgating the Rule, the
Commission attempted to comply with the congressional mandate in
Section 102 of the Act while minimizing the economic impact on affected
business. For example, the Commission limited the disclosure
requirements to warranties on consumer products actually costing the
consumer more than $15.00. Furthermore, the Commission exempted ``seal
of approval'' programs from providing the disclosures on the actual
seal.
The Commission nonetheless wishes to ensure that no substantial
economic impact is being overlooked. Therefore, public comment is
requested on the effect of Rule 701 on the costs to, profitability and
competitiveness of, and employment in small entities.
C. Issues for Comment
At this time, the Commission solicits written public comments on
the following questions with regard to the Interpretations, Rule 701,
Rule 702, and the Guides:
1. Is there a continuing need for these Interpretations, Rules, and
Guides?
2. Have the Interpretations, Rules, and Guides had a significant
economic impact (costs or burdens) on consumers? What significant
benefits or costs (including costs of compliance) have they had on
firms who are subject to their requirements?
3. What benefits have the Interpretations, Rules, and Guides
provide to consumers who purchase the
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warranted products or services affected by the Act?
(a) What changes, if any, should be made to the Interpretations,
Rules, and Guides to increase the benefits to consumers?
(b) How would these changes affect the costs the Interpretations,
Rules, and Guides impose on firms subject to their requirements?
4. What changes, if any, should be made to the Interpretations,
Rules and Guides to minimize any burden or cost imposed on firms
subject to their requirements?
5. Do the Interpretations, Rules, and Guides overlap or conflict
with other federal, state, or local government laws or regulations?
6. Since the Interpretations, Rules, and Guides were issued, have
changed in technology or economic conditions affected the need or
purpose for them?
7. What has been the effect of Rule 701 on the costs,
profitability, competitiveness, and employment of small business
entities?
(a) What would be the economic impact on small businesses from
leaving Rule 701 unchanged?
(b) Are there regulatory alternatives that would reduce any adverse
economic impact of Rule 701, yet comply with the mandate of the
Magnuson-Moss Warranty Act?
(c) What are the aggregate costs and benefits of Rule 701? Are
there provisions in the Rule that are not necessary to implement the
Magnuson-Moss Warranty Act or that have imposed costs not outweighed by
benefits? Who has benefited and who has borne the cost? Have the costs
or benefits of the Rule dissipated over time?
List of Subjects in 16 CFR Part 700
Warranties, trade practices.
Authority: 15 U.S.C. 41-58.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-8181 Filed 4-2-96; 8:45 am]
BILLING CODE 6750-01-M
