[Federal Register Volume 76, Number 163 (Tuesday, August 23, 2011)]
[Proposed Rules]
[Pages 52596-52599]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21527]


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FEDERAL TRADE COMMISSION

16 CFR Parts 239, 700, 701, 702 and 703


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 Governing Informal Dispute 
Settlement Procedures; and Guides for the Advertising of Warranties and 
Guarantees

AGENCY: Federal Trade Commission.

ACTION: Request for public comment.

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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

[[Page 52597]]

Avenue, NW., Washington, DC 20580, (202) 326-3708.

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.
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    \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, Sec.  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.
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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

[[Page 52598]]

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

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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.
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    \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).
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    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.
[FR Doc. 2011-21527 Filed 8-22-11; 8:45 am]
BILLING CODE 6750-01-P