[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
[[Page 52599]]
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