[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