2011-21527. Request for Comment Concerning Interpretations of the Magnuson-Moss Warranty Act; Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions; Rule Governing Pre-Sale Availability of Written Warranty Terms; Rule ...

AGENCY:

Federal Trade Commission.

ACTION:

Request for public comment.

SUMMARY:

As part of its systematic review of all Federal Trade Commission (“AFTC” or “Commission”) rules and guides, the FTC seeks public comment on a set of warranty-related Interpretations, Rules and Guides: its Interpretations of the Magnuson-Moss Warranty Act (“Interpretations” or “Rule 700”); its Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions (“Rule 701”); its Rule Governing Pre-Sale Availability of Written Warranty Terms (“Rule 702”); its Rule Governing Informal Dispute Settlement Procedures (“Rule 703”); and its Guides for the Advertising of Warranties and Guarantees (“Guides”). The Commission requests public comment on the overall costs, benefits, necessity and regulatory and economic impact of these Interpretations, Rules and Guides.

DATES:

Written comments must be received on or before October 24, 2011.

ADDRESSES:

Interested parties may file a comment online or on paper by following the instructions in the Request for Comment portion of the SUPPLEMENTARY INFORMATION section below. Write “Magnuson-Moss Warranty Act Rule Review, 16 CFR Part 700, P114406,” on your comment, and file your comment online at https://ftcpublic.commentworks.com/​ftc/​warrantyrulesanprm by following the instructions on the Web-based form. If you prefer to file your comment on paper, mail or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex G), 600 Pennsylvania Avenue, NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Svetlana S. Gans, Attorney, Division of Marketing Practices, Bureau of Consumer Protection, Federal Trade Commission, H-286, 600 Pennsylvania Avenue, NW., Washington, DC 20580, [phone].

SUPPLEMENTARY INFORMATION:

I. Background

A. 16 CFR 700: Interpretations of the Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act (“Act”), 15 U.S.C. 2301-2312, 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 responding to these inquiries, the Commission initially published, on June 18, 1975, a policy statement in the Federal Register (40 FR 25721) providing interim guidance during the initial implementation of the Act. As the Commission continued to receive questions and requests for advisory opinions, however, it determined that more comprehensive guidance 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 are intended to clarify the Act's requirements for manufacturers, importers, distributors and retailers. The Interpretations provide explanation on a number of topics, including guidance on whether a particular product would be considered a “consumer product” under the Act; permissible uses of warranty registration cards under the Act; illegal tying arrangements under Section 2302(c) of the Act ^[1] ; and service contracts.^[2] These Interpretations, like industry guides, are administrative interpretations of the law. Therefore, they do not have the force of law and are not independently enforceable. The Commission may take action under the FTC Act, however, if a business makes claims inconsistent with the Interpretations. In any such enforcement action, the Commission must prove that the act or practice at issue is unfair or deceptive in violation of Section 5 of the FTC Act.

B. 16 CFR 701: Disclosure of Written Consumer Product Warranty Terms and Conditions

Section 2302(b)(1)(A) of the Act authorizes the Commission to promulgate rules regarding the disclosure of written warranty terms. Accordingly, on December 31, 1975, the Commission published in the Federal Register (40 FR 60188) its Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions. Rule 701 establishes disclosure requirements for written warranties on consumer products that cost more than $15.00 (40 FR 60171-60172). It also specifies the aspects of warranty coverage that must be disclosed in written warranties, as well as the exact language that must be used for certain disclosures regarding state law on the duration of implied warranties and the availability of consequential or incidental damages. Under Rule 701, warranty information must be disclosed in simple, easily understandable, and concise language in a single document. In promulgating Rule 701, the Commission determined that certain material facts about product warranties must be disclosed because failure to do so would be deceptive or misleading. In addition to specifying the information that must appear in a written warranty, Rule 701 also requires 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.

C. 16 CFR Part 702: Pre-Sale Availability of Written Warranty Terms

Section 2302(b)(1)(A) of the Act directs the Commission to promulgate 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 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). Among other things, Rule 702 now requires sellers to make warranties readily available either by (1) Displaying the warranty document in close proximity to the product or (2) furnishing the warranty document on request and posting signs in prominent locations advising consumers that warranties are 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. Though discussed in staff guidelines, Rule 702 currently does not set out the methods by which warranty information can be made available for products sold over the Internet.

D. 16 CFR Part 703: Informal Dispute Settlement Procedures

Section 2310(a)(2) of the Act directs the Commission to prescribe the minimum standards for any informal dispute settlement mechanism (“IDSM”) that a warrantor, by including a “prior resort” clause in its written warranty, requires consumers to use before they may file suit under the Act to obtain a remedy for warranty non-performance. Accordingly, on December 31, 1975, the Commission published Rule 703. Rule 703 contains extensive procedural safeguards for consumers that an IDSM must incorporate if a warrantor requires consumers seeking warranty redress to use it. These standards include, but are not limited to, requirements concerning the IDSM's structure (e.g., funding, staffing and neutrality), the qualifications of staff or decision makers, the IDSM's procedures for resolving disputes, recordkeeping and annual audits.

As noted, Rule 703 comes into play only if the warranty includes a “prior resort requirement.” Though few warrantors have such a requirement, many state lemon laws, paralleling Section 2310(a)(3) of the Act, prohibit the consumer from pursuing any state lemon law rights in court unless the consumer first seeks a resolution of the claim through an available IDSM. A threshold question for many state lemon lawsuits is whether the IDSM complies with Rule 703 and thus whether the consumer must use the specified IDSM or may proceed directly to a court action. Thus, in effect, these states incorporate Rule 703 into their lemon laws.

E. 16 CFR Part 239: Guides for the Advertising of Warranties and Guarantees

The Commission first adopted its Guides Against Deceptive Advertising of Guarantees (later re-designated as the “Guides for the Advertising of Warranties and Guarantees”) on April 26, 1960 “for the use of its staff in evaluation of the advertising of guarantees” (32 FR 15541). The Guides were subsequently published in the Federal Register on November 8, 1967, and were codified at 16 CFR part 239. The Guides were revised in 1985 to harmonize them with the Act's requirements (50 FR 18470, May 1, 1985 and 50 FR 20899, May 21, 1985). They were again reviewed in 1996.

The Guides recommend 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 state that sellers or manufacturers should not advertise that a product is warranted or guaranteed unless they promptly and fully perform their warranty obligations. As mentioned previously, these Guides do not have the force of law and are not independently enforceable, however, the Commission may take action under the FTC Act, if a business makes claims inconsistent with the Guides, and the act or practice is unfair or deceptive in violation of Section 5 of the FTC Act.

II. Regulatory Review

The Commission reviews its rules and guides periodically. These reviews seek information about the costs and benefits of the rules and guides as well as their regulatory and economic impact. These reviews assist the Commission in identifying rules and guides that warrant modification or rescission. Therefore, the Commission now solicits comments on, among other things, the economic impact of, and the continuing need for, the Interpretations, Rules and the Guides; their benefits to consumers; and their burdens on firms subject to their requirements.

III. Request for Comment

The Commission invites comment on the Interpretations, Rules 701, 702, 703 and the Guides. In addition, the Commission requests responses to the following general and specific questions.

A. General Questions for Comment

1. Is there a continuing need for specific provisions of the Interpretations, Rules and Guides? Why or why not?

2. What benefits and costs have the Interpretations, Rules and Guides had on businesses or firms that are subject to their requirements?

(a) What changes, if any, should be made to the Interpretations, Rules and Guides to minimize any burden or cost imposed on businesses or firms subject to their requirements?

(b) What evidence supports these proposed changes?

(c) How would these changes affect consumers and businesses, including small businesses?

3. What benefits and costs have the Interpretations, Rules and Guides had on consumers who purchase the warranted products 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) What evidence supports these proposed changes?

(c) How would these changes affect consumers and businesses, including small businesses?

4. Do the Interpretations, Rules and Guides overlap or conflict with other federal, state, or local laws or regulations? What evidence supports these asserted conflicts? Should the Interpretations, Rules or Guides be changed in light of these asserted conflicts? If so, how?

5. Provide any evidence concerning the degree of industry compliance with the Interpretations, Rules and Guides. Does this evidence indicate the Interpretations, Rules or Guides should be modified? If so, why and how? If not, why not?

6. Have changes in technology, including but not limited to, the Internet and mobile technology, or economic conditions affected the need or purpose for the Interpretations, Rules and Guides? Should the Interpretations, Rules or Guides be changed because of these developments? If so, how?

7. What are the effects, if any, of the Interpretations, Rules and Guides on the costs, profitability, competitiveness and employment of small business entities?

B. Specific Questions for Comment

1. Should Rule 700.10, specifically, its interpretation of the Act's tying prohibition contained in Section 2302(c), be revised to improve the effectiveness of the prohibition? Why or why not? What changes, if any, should be considered? What evidence supports these changes?

2. Should the Interpretations, Rules or Guides be amended to address service contracts? Why or why not? What changes, if any, should be considered? What evidence supports these changes?

3. Should Rule 702 be amended to specifically address making warranty documents accessible via online commerce? Why or why not? What changes, if any, should be considered? What evidence supports these changes?

4. Should the informal dispute settlement mechanism requirements of Rule 703 be changed? Why or why not? What changes, if any, should be made? What evidence supports these changes?

IV. Instructions for Comment Submissions

You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before October 24, 2011. Write “Magnuson-Moss Warranty Act Rule Review, 16 CFR part 700, P114406,” on your comment. Your comment—including your name and your state—will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at http://www.ftc.gov/​os/​publiccomments.shtm. As a matter of discretion, the Commission tries to remove individual' home contact information from comments before placing them on the Commission Web site.

Because your comment will be made public, you are solely responsible for making sure that your comment does not include any sensitive personal information, like anyone's Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, like medical records or other individually identifiable health information. In addition, do not include any “[t]rade secret or any commercial or financial information which is obtained from any person and which is privileged or confidential,” as provided in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes or customer names.

If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you have to follow the procedure explained in FTC Rule 4.9(c), 16 CFR 4.9(c).^[3] Your comment will be kept confidential only if the FTC General Counsel, in his or her sole discretion, grants your request in accordance with the law and the public interest.

Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, we encourage you to submit your comment online. To make sure that the Commission considers your online comment, you must file it at https://ftcpublic.commentworks.com/​ftc/​warrantyrulesanprm,, by following the instructions on the Web-based form. If this Notice appears at http://www.regulations.gov/​#!home,, you also may file a comment through that Web site.

If you file your comment on paper, write “Magnuson-Moss Warranty Act Rule Review, 16 CFR part 700, P114406,” on your comment and on the envelope, and mail or deliver it to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex G), 600 Pennsylvania Avenue, NW., Washington, DC 20580. If possible, submit your paper comment to the Commission by courier or overnight service.

Visit the Commission Web site at http://www.ftc.gov to read this Notice and the news release describing it. The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before October 24, 2011. You can find more information, including routine uses permitted by the Privacy Act, in the Commission's privacy policy, at http://www.ftc.gov/​ftc/​privacy.shtm.

By direction of the Commission.

Richard C. Donohue,

Acting Secretary.

Footnotes

1.  Section 2302(c) prohibits warrantors from employing “tying” arrangements—i.e., conditioning a written warranty's coverage on the consumer's using, in connection with the warranted product, an article or service identified by brand, trade, or corporate name (unless the warrantor provides that article or service to the consumer without charge). The interpretations contained in Section 700.10 explain that “[n]o warrantor may condition the continued validity of a warranty on the use of only authorized repair service and/or authorized replacement parts for non-warranty service and maintenance.” 16 CFR 700.10. Section 700.10 further provides that a warrantor is prohibited from denying liability where the warrantor cannot demonstrate that the defect or damage was caused by the use of unauthorized articles or services. Id.

2.  The Act specifies that “[t]he term ‘service contract’ means a contract in writing to perform, over a fixed period of time or for a specified duration, services relating to the maintenance or repair (or both) of a consumer product.” 15 U.S.C. 2301(8). Although a service contract is similar to a written warranty, § 700.11 distinguishes a service contract from a warranty on the basis that a warranty must be “part of the basis of the bargain [to purchase a consumer product].” 16 CFR 700.11(a). In other words, to be a warranty, it “must be conveyed at the time of sale of the consumer product and the consumer must not give any consideration beyond the purchase price of the consumer product in order to benefit from the agreement.” Id. By contrast, a service contract is not part of the basis of the bargain—it is often sold separately and for consideration additional to the price of the product itself. “An agreement which would meet the [Act's] definition of written warranty * * * but for its failure to satisfy the basis of the bargain test is a service contract.” 16 CFR 700.11(c). The interpretations, however, do not set forth the specific manner in which service contract terms and conditions should be disclosed.

3.  In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. See FTC Rule 4.9(c), 16 CFR 4.9(c).