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

[[Page 14688]]

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.

-----------------------------------------------------------------------

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

[[Page 14689]]

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

[[Page 14690]]

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