[Federal Register Volume 66, Number 156 (Monday, August 13, 2001)]
[Notices]
[Pages 42538-42541]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-20278]


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FEDERAL TRADE COMMISSION


Agency Information Collection Activities; Submission for OMB 
Review; Comment Request

AGENCY: Federal Trade Commission (``FTC'' or ``Commission'').

ACTION: Notice.

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SUMMARY: The Federal Trade Commission (FTC) has submitted to the Office 
of Management and Budget (OMB) for review under the Paperwork Reduction 
Act (PRA) information collection requirements contained in (1) the Rule 
Concerning Disclosure of Written Consumer Product Warranty Terms and 
Conditions; (2) the Rule Governing Pre-Sale Availability of Written 
Warranty Terms; and (3) the Informal Dispute Settlement Procedures Rule 
(collectively, ``Warranty Rules''). The FTC is seeking public comments 
on its proposal to extend through September 30, 2004 the current PRA 
clearance for these information collection requirements. These 
clearances expire on September 30, 2001.

DATES: Comments must be submitted on or before September 12, 2001.

ADDRESSES: Send comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, New Executive Office 
Building, Room 10202, Washington, DC 20503, Attn.: Desk Officer for the 
Federal Trade Commission, and to Secretary, Federal Trade Commission, 
Room H-159, 600 Pennsylvania Ave., NW., Washington, DC 20580. All 
comments should be captioned ``Warranty Rules: Paperwork comment.''

FOR FURTHER INFORMATION CONTACT: Requests for additional information or 
copies of the proposed information requirements should be addressed to 
Carole Danielson, Investigator, Division of Marketing Practices, Bureau 
of Consumer Protection, Federal Trade Commission, Room H-238, 600 
Pennsylvania Ave., NW., Washington, DC 20580, (202) 326-3115.

SUPPLEMENTARY INFORMATION: Under the PRA (44 U.S.C. 3501-3520), Federal 
agencies must obtain approval from OMB for each collection of 
information they conduct or sponsor. On May 31, 2001, the FTC sought 
comment on the information collection requirements associated with the 
Warranty Rules, 16 CFR parts 701, 702, and 703 (OMB Control Numbers 
3084-0111, 3084-0112, and 3084-0113, respectively). See 66 FR 29571. No 
comments were received.
    The Warranty Rules implement the Magnuson-Moss Warranty Act, 15 
U.S.C. 2301 et seq. (``the Act''), which governs written warranties on 
consumer products. The Act directed the FTC to promulgate rules 
regarding the disclosure of written warranty terms and conditions, 
rules requiring that the terms of any written warranty on a consumer 
product be made available to the prospective purchaser before the sale 
of the product, and rules establishing minimum standards for informal 
dispute settlement mechanisms that are incorporated into a written 
warranty. Pursuant to the Act, the Commission published the instant 
three rules.\1\
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    \1\ 40 FR 60168 (December 31, 1975).
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Consumer Product Warranty Rule (``Warranty Rule'')

    The Warranty Rule specifies the information that must appear in a 
written warranty on a consumer product. It sets forth what warrantors 
must disclose about the terms and conditions of the written warranties 
they offer on consumer products that cost the consumer more than 
$15.00. The Rule tracks the disclosure requirements suggested in 
section 102(a) of the Act,\2\ specifying information that must appear 
in the written warranty and, for certain disclosures, mandates the 
exact language that must be used. The Warranty Rule requires that the 
information be conspicuously disclosed in a single document in simple, 
easily understood language. In promulgating this rule, the Commission 
determined that the items required to be disclosed are material facts 
about product warranties, the non-disclosure of which would be 
deceptive or misleading.\3\
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    \2\ 15 U.S.C. 2302(a).
    \3\ 40 FR 60168, 60169-60170.
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The Rule Governing Pre-Sale Availability of Written Warranty Terms 
(``Pre-Sale Availability Rule'')

    In accordance with section 102(b)(1)(A) of the Act, the Pre-Sale 
Availability Rule establishes requirements for sellers and warrantors 
to make the text of any written warranty on a consumer product 
available to the consumer before sale. Following the Rule's original 
promulgation, the Commission amended it to provide sellers with greater 
flexibility in how to make warranty information available.\4\
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    \4\ 52 FR 7569 (March 12, 1987).
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    Among other things the amended Rule requires sellers to make the 
text of the warranty readily available either by (1) displaying 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 (``Informal Dispute Settlement 
Rule'')

    This rule specifies the minimum standards that must be met by any 
informal dispute settlement mechanism incorporated into a written 
consumer product warranty and that 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, 15 U.S.C. 2310(a), 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. As an incentive to warrantors to establish IDSMs. 
Congress provided in section 110(a)(3), 15 U.S.C. 2310(a)(3), that 
warrantors may incorporate into their written consumer product 
warranties a

[[Page 42539]]

requirement that a consumer must resort to an IDSM before pursuing a 
legal remedy under the Act for breach of warranty. 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. Section 110(a)(2) directed the 
Commission to establish those minimum standards.
    The Informal Dispute Settlement Rule contains extensive procedural 
standards for IDSMs. These standards include 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 
Rule's recordkeeping requirements specify that all records may be kept 
confidential or otherwise made available only on terms specified by the 
mechanism. However, the records are available for inspection by the 
Commission and other law enforcement personnel to determine compliance 
with the Rule, and the records relating to a specific dispute as 
available to the parties in that dispute. In addition, the audits and 
certain specified records are available to the general public for 
inspection and copying.
    The Rule applies only to those firms that choose to be bound by it 
by placing a prior resort requirement in their written consumer product 
warranties. Neither the Rule nor the Act requires warrantors to set up 
IDSMs. Furthermore, a warrantor is free to set up an IDSM that does not 
comply with this rule as long as the warranty does not contain a prior 
resort requirement.

Warranty Rule Burden Statement

    Total annual hours burden: 34,000 hours. In 1998, the FTC estimated 
that the cumulative information collection burden of including the 
disclosures required by the Warranty Rule in consumer product 
warranties was approximately 34,000 hours for affected manufacturers. 
Since the Rule's paperwork requirements have not changed since then, 
and staff believes that the population affected is largely unchanged, 
staff concludes this its prior estimate remains reasonable. Moreover, 
since most warrantors would disclose this information even were there 
no statute or rule requiring them to do so, this estimate and those 
below pertaining to the Warranty Rule likely overstate the paperwork 
burden attributable to it. The Rule has been in effect since 1976, and 
most warrantors have already modified their warranties to include the 
information the Rule requires.
    The above estimate is derived as follows. Based on conversations 
with various warrantors' representatives over the years, staff 
concluded that eight hours per year is a reasonable estimate of 
warrantors' paperwork burden attributable to the Warranty Rule. This 
estimate includes the task of ensuring that new warranties and changes 
to existing warranties comply with the rule. In 1995, staff reported 
that the most recently published census data indicated that there was a 
17% increased in manufacturing establishments during the 1980s. 
Adjusting for these increases, staff estimated in 1995 that the number 
of manufacturing entities subject to the commission's jurisdiction had 
increased to 4,241 (3,625  x  1.17), which produced an adjusted burden 
figure of 33,928 (4,241  x  8 hours annually/manufacturer), rounded to 
34,000. As staff does not believe that the population affected nor the 
burden per entity has changed materially, the prior estimate is still 
valid.
    Total annual labor costs: 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 is predominantly 
clerical. Based on an average hourly rate of $10 for clerical employees 
and 34,000 total burden hours, the annual labor cost is approximately 
$340,000.
    Total annual capital or other non-labor costs: The Rule imposes no 
appreciable current capital or start-up costs. The vast majority of 
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: Staff estimates that the burden of 
including the disclosures required by the Pre-Sale Availability rule in 
consumer product a warranties is 2,760,000 hours, rounded to the 
nearest thousand.
    In 1998, FTC staff estimated that the information collection burden 
of including the disclosures required by the Pre-Sale Availability rule 
in consumer product warranties was approximately 2,759,700 hours per 
year per manufacturer. Since then, some online retailers have begun to 
cost warranty information on their web sites, which should reduce their 
cost of providing the required information. However, this method of 
compliance is still evolving and involves a relatively small number of 
firms. Furthermore, those online retailers that also operate ``brick-
and-mortar'' operations would still have to provide paper copies of the 
warranty for review by those customers who do not do business online. 
Thus, online methods of complying with the Rule do not yet appear to be 
sufficiently widespread so as to significantly alter the measure of 
burden associated with the Rule.
    Given no change in the Rule's paperwork requirements since 1998, 
the considerations noted above, and staff's belief that the population 
affected is largely unchanged, staff believes that its prior estimate 
remains reasonable. That estimate was based on the following 
information and calculations regarding retailers and manufacturers. As 
of 1995, there were 6,552 large retailers, 422,100 small retailers, 146 
large manufacturers, and 4,095 small manufacturers subject to the 
Commission's jurisdiction under the Rule. Because of the reduced burden 
due to the Rule's amendments, large retailers now spend an average of 
26 hours per year and small retailers an average of 6 hours per year to 
comply with the Rule. This yields a total burden of 2,702,952 hours for 
retailers. Large manufacturers spend an average of 52 hours per year 
and small manufacturers spend an average of 12 hours per year, for a 
total burden estimate of 56,732 hours. Thus, the combined total burden 
is 2,760,000 hours, rounded to the nearest thousand.
    Total annual labor cost: 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. Assuming a clerical labor cost rate of $10/hours, the total 
annual labor cost burden is approximately $27,600,000.
    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 simply filing warranties in binders and posting an 
inexpensive sign indicating warranty availability. Manufacturer 
compliance entails providing retailers with a copy of the warranties 
included with their products.

[[Page 42540]]

Informal Dispute Settlement Rule Burden Statements

    Total annual hours burden: 34,000 hours. The primary burden from 
the Informal Dispute Settlement Rule comes from its recordkeeping 
requirements that apply to IDSMs incorporated into a consumer product 
warranty. Staff estimates that recordkeeping and reporting burdens are 
24,625 hours per year and the disclosure burdens are 9,235 hours per 
year. The total estimated burden imposed by the Rule is thus 
approximately 34,000 hours, rounded to the nearest thousand. This marks 
an increase over staff's estimates relating to the FTC's prior 
clearance request regarding the Rule. At that time, staff estimated 
that recordkeeping and reporting burden was 4,334 hours per year and 
1,625 hours per year for disclosure requirements or, cumulatively, 
approximately 6,000 hours.
    Although the Rule's paperwork requirements have not changed since 
the FTC's immediately preceding PRA clearance request, staff believes 
that more manufacturers have since chosen to be covered by the Rule. 
The calculations underlying these increased estimates follow.
    Recordkeeping: The Rule requires that IDSMs maintain individual 
case files, update indexes, complete semi-annual statistical summaries, 
and submit an annual audit report to the FTC. The greatest amount of 
time to meet recordkeeping requirements is devoted to compiling 
individual case records. Since maintaining individual case records is a 
necessary function for any IDSM, much of the burden would be incurred 
in any event; however, staff estimates that the Rule's recordkeeping 
requirements impose an additional burden of 30 minutes per case. Staff 
also has allocated 10 minutes per case for compiling indexes, 
statistical summaries, and the annual audit required by the Rule, 
resulting in a total recordkeeping requirement of 40 minutes per case.
    The amount of work required will depend on the total number of 
dispute resolution proceedings undertaken in each IDSM. The 1999 audit 
report for the BBB AUTO LINE states that, during calendar year 1999, it 
handled 21,392 warranty disputes on behalf of 14 manufacturers 
(including General Motors, Saturn, Honda, Volkswagen, Isuzu, and 
Nissan, as well as smaller companies such as Rolls Royce and Land 
Rover). Industry representatives have informed staff that all domestic 
manufacturers and most importers now 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 21,392 disputes handled by the BBB fall within the Rule's 
parameters. Apart from the BBB audit report, 1999 reports were also 
submitted by the two mechanisms that handle dispute resolution for 
Toyota and Ford, both of which are covered by the Rule.\5\ The Ford 
IDSM states that it handled 7,246 total disputes. The audit of the 
Toyota IDSM did not state the total number of disputes handled; 
however, based on consumer publications tracking the auto industry, 
staff conservatively estimates that the Toyota IDSM handled 
approximately 3,600 total disputes. All of the Toyota and Ford disputes 
are covered by the Informal Dispute Settlement Rule. Daimler-Chrysler 
is the only major domestic auto manufacturer for which staff has not 
data. However, assuming that the incidence of disputes relative to 
sales is proportional to that experienced by Ford, the number of 
disputes handled by Chrysler's IDSM \6\ would be approximately two-
thirds of the Ford total, i.e., roughly 4,700 disputes. Based on the 
above data and assumptions, staff projects that the total number of 
disputes handled by the Rule's mechanisms total is 36,938. Thus, staff 
estimates the total burden to be approximately 24,625 hours (36,938 
disputes  x  40 minutes  60 min./hr.).
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    \5\ So far as staff is aware, all or virtually all of the IDSMs 
subject to the Rule are within the auto industry.
    \6\ Toyota and Chrysler share the same IDSM, though each company 
is reported separately.
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    Disclosure: The Rule requires that information about the mechanism 
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 such costs 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 records relating to their disputes. (IDSMs 
are permitted to charge for providing both types of information.) Given 
the small number of entities that have operated programs over the 
years, staff estimates that the burden imposed by the disclosure 
requirements is approximately 9,235 hours per year for the existing 
IDSMs to provide copies of this information. This estimate draws from 
the estimated number of consumers who file claims each year with the 
IDSMs (36, 938) and the assumption that each consumer individually 
requests copies of the records relating to their dispute. Staff 
estimates that the copying would require approximately 15 minutes per 
consumer, including copies of the annual audit.\7\ Thus, the IDSMs 
currently operating under the Rule would have a total estimated burden 
of about 9,235 hours (36,938 disputes  x  15 min.  60 min./
hr.).
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    \7\ This estimate incorporates any additional time needed to 
reproduce copies of audit reports for consumers upon their request. 
Inasmuch as consumers request such copies in only a minority of 
cases, this estimate is likely an overstatement.
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    Total annual labor cost: $461,725.
    Assuming that IDSMs use skilled clerical or technical support staff 
to compile and maintain the records required by the Rule at an hourly 
rate of $15, the labor cost associated with the 24,625 recordkeeping 
burden hours would be $369,375. If IDSMs use clerical support at an 
hourly rate of $10 to reproduce records, the labor costs of the 9,235 
disclosure burden hours is approximately $92,350. The combined total 
labor cost for recordkeeping and disclosures is $461,725.
    Total annual capital or other non-labor costs: $300,000.
    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.
    The only additional cost imposed on IDSMs subject to the Rule that 
would not be incurred for other IDSMs is the annual audit requirement. 
One of the IDSMs currently operating under the Rule, the BBB AUTO LINE, 
estimated the total annual costs of this requirement to be under 
$100,000.\8\ Since there are three IDSMs operating under the Rule, 
staff estimates the total non-labor costs associated with the Rule to 
be three times that amount, or $300,000. This extrapolated total, 
however, also reflects an estimated $120,000 for copying costs, which 
is accounted for separately under the category below. Thus, estimated 
costs attributable solely to capital or start-up expenditures is 
$180,000.
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    \8\ The BBB did not break down this estimate by cost item. Staff 
conservatively included the entire $100,000 in its estimate of 
capital and other non-labor costs, even though some of this burden 
is likely already accounted for as labor costs.
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    Other non-labor costs: $120,000 in copying costs. This total is 
based on

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estimated copying costs of 5 cents per page and several conservative 
assumptions or estimates. Staff estimates that the ``average'' dispute-
related file is about 25 pages long and that a typical annual audit 
file is about 200 pages in length. For purposes of estimating copying 
costs, staff assumes that every consumer complainant (or approximately 
36,938 consumers) requests a copy of the file relating to his or her 
dispute. Staff also assumes that, for about 7,388 (20%) of the 
estimated 36,938 disputes each year, consumers request copies of 
warrantors' annual audit reports (although, based on requests for audit 
reports made directly to the FTC, the indications are that considerably 
fewer requests are actually made). Thus, the estimated total annual 
copying costs for average-sized files would be approximately $46,173 
(25 pages/file  x  36,938 requests) and $73,880 for copies of annual 
audits (200 pages/audit report  x  .05  x  7,388 requests), for total 
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copying costs of $120,053, rounded to $120,000).

John D. Graubert,
Acting General Counsel.
[FR Doc. 01-20278 Filed 8-10-01; 8:45 am]
BILLING CODE 6750-01-M