The Magnuson-Moss Warranty Act is the federal law that
governs consumer product warranties. Passed by Congress in 1975, the Act
requires manufacturers and sellers of consumer products to provide consumers
with detailed information about warranty coverage. In addition, it affects both
the rights of consumers and the obligations of warrantors under written
warranties.
To understand the Act, it is useful to be aware of
Congress’ intentions in passing it. First, Congress wanted to ensure that
consumers could get complete information about warranty terms and conditions.
By providing consumers with a way of learning what warranty coverage is offered
on a product before they buy, the Act gives consumers a way to know what to
expect if something goes wrong, and thus helps to increase customer satisfaction.
Second, Congress wanted to ensure that consumers could
compare warranty coverage before buying. By comparing, consumers can choose a
product with the best combination of price, features, and warranty coverage to
meet their individual needs.
Third, Congress intended to promote competition on the
basis of warranty coverage. By assuring that consumers can get warranty
information, the Act encourages sales promotion on the basis of warranty
coverage and competition among companies to meet consumer preferences through
various levels of warranty coverage.
Finally, Congress wanted to strengthen existing incentives
for companies to perform their warranty obligations in a timely and thorough
manner and to resolve any disputes with a minimum of delay and expense to
consumers. Thus, the Act makes it easier for consumers to pursue a remedy for
breach of warranty in the courts, but it also creates a framework for companies
to set up procedures for resolving disputes inexpensively and informally,
without litigation.
What the Magnuson-Moss Act Does Not Require
First, the Act does not require any business to provide a
written warranty. The Act allows businesses to determine whether to warrant
their products in writing. However, once a business decides to offer a written
warranty on a consumer product, it must comply with the Act.
Second, the Act does not apply to oral warranties. Only
written warranties are covered.
Third, the Act does not apply to warranties on services.
Only warranties on goods are covered. However, if your warranty covers both the
parts provided for a repair and the workmanship in making that repair, the Act
does apply to you.
Finally, the Act does not apply to warranties on products
sold for resale or for commercial purposes. The Act covers only warranties on
consumer products. This means that only warranties on tangible property
normally used for personal, family, or household purposes are covered. (This
includes property attached to or installed on real property.) Note that
applicability of the Act to a particular product does not, however, depend upon
how an individual buyer will use it.
The following section of this manual summarizes what the
Magnuson-Moss Warranty Act requires warrantors to do, what it prohibits them
from doing, and how it affects warranty disputes.
What the Magnuson-Moss Act Requires
In passing the Magnuson-Moss Warranty Act, Congress
specified a number of requirements that warrantors must meet. Congress also
directed the FTC to adopt rules to cover other requirements. The FTC adopted
three Rules under the Act, the Rule on Disclosure of Written Consumer Product
Warranty Terms and Conditions (the Disclosure Rule), the Rule on Pre-Sale
Availability of Written Warranty Terms (the Pre-Sale Availability Rule), and
the Rule on Informal Dispute Settlement Procedures (the Dispute Resolution
Rule). In addition, the FTC has issued an interpretive rule that clarifies
certain terms and explains some of the provisions of the Act. This section
summarizes all the requirements under the Act and the Rules.
The Act and the Rules establish three basic requirements
that may apply to a warrantor or a seller.
1. As a warrantor, you must
designate, or title, your written warranty as either "full" or
"limited."
2. As a warrantor, you must state
certain specified information about the coverage of your warranty in a single,
clear, and easy-to-read document.
3. As a warrantor or a seller, you
must ensure that warranties are available where your warranted consumer
products are sold so that consumers can read them before buying.
The titling requirement, established by the Act, applies
to all written warranties on consumer products costing more than $10. However,
the disclosure and pre-sale availability requirements, established by FTC
Rules, apply to all written warranties on consumer products costing more than
$15. Each of these three general requirements is explained in greater detail in
the following chapters.
What the Magnuson-Moss Act Does Not Allow
There are three prohibitions under the Magnuson-Moss Act.
They involve implied warranties, so-called "tie-in sales" provisions,
and deceptive or misleading warranty terms.
Disclaimer or Modification of Implied Warranties
The Act prohibits anyone who offers a written warranty
from disclaiming or modifying implied warranties. This means that no matter how
broad or narrow your written warranty is, your customers always will receive
the basic protection of the implied warranty of merchantability. This is
explained in Understanding Warranties.
There is one permissible modification of implied
warranties, however. If you offer a "limited" written warranty, the
law allows you to include a provision that restricts the duration of implied
warranties to the duration of your limited warranty. For example, if you offer
a two-year limited warranty, you can limit implied warranties to two years.
However, if you offer a "full" written warranty, you cannot limit the
duration of implied warranties. This matter is explained in Titling Written
Warranties as "Full" or "Limited".
If you sell a consumer product with a written warranty
from the product manufacturer, but you do not warrant the product in writing,
you can disclaim your implied warranties. (These are the implied warranties
under which the seller, not the manufacturer, would otherwise be responsible.)
But, regardless of whether you warrant the products you sell, as a seller, you
must give your customers copies of any written warranties from product
manufacturers.
"Tie-In Sales" Provisions
Generally, tie-in sales provisions are not allowed. Such a
provision would require a purchaser of the warranted product to buy an item or
service from a particular company to use with the warranted product in order to
be eligible to receive a remedy under the warranty. The following are examples
of prohibited tie-in sales provisions.
In order to keep your new Plenum Brand Vacuum Cleaner
warranty in effect, you must use genuine Plenum Brand Filter Bags. Failure to
have scheduled maintenance performed, at your expense, by the Great American
Maintenance Company, Inc., voids this warranty.
While you cannot use a tie-in sales provision, your
warranty need not cover use of replacement parts, repairs, or maintenance that
is inappropriate for your product. The following is an example of a permissible
provision that excludes coverage of such things.
While necessary maintenance or repairs on your AudioMundo
Stereo System can be performed by any company, we recommend that you use only
authorized AudioMundo dealers. Improper or incorrectly performed maintenance or
repair voids this warranty.
Although tie-in sales provisions generally are not
allowed, you can include such a provision in your warranty if you can
demonstrate to the satisfaction of the FTC that your product will not work
properly without a specified item or service. If you believe that this is the
case, you should contact the warranty staff of the FTC's Bureau of Consumer
Protection for information on how to apply for a waiver of the tie-in sales
prohibition.
Deceptive Warranty Terms
Obviously, warranties must not contain deceptive or
misleading terms. You cannot offer a warranty that appears to provide coverage
but, in fact, provides none. For example, a warranty covering only "moving
parts" on an electronic product that has no moving parts would be
deceptive and unlawful. Similarly, a warranty that promised service that the
warrantor had no intention of providing or could not provide would be deceptive
and unlawful.
How the Magnuson Moss Act May Affect Warranty Disputes
Two other features of the Magnuson-Moss Warranty Act are
also important to warrantors. First, the Act makes it easier for consumers to
take an unresolved warranty problem to court. Second, it encourages companies
to use a less formal, and therefore less costly, alternative to legal
proceedings. Such alternatives, known as dispute resolution mechanisms, often
can be used to settle warranty complaints before they reach litigation.
Consumer Lawsuits
The Act makes it easier for purchasers to sue for breach
of warranty by making breach of warranty a violation of federal law, and by
allowing consumers to recover court costs and reasonable attorneys' fees. This
means that if you lose a lawsuit for breach of either a written or an implied
warranty, you may have to pay the customer's costs for bringing the suit,
including lawyer's fees.
Because of the stringent federal jurisdictional
requirements under the Act, most Magnuson-Moss lawsuits are brought in state
court. However, major cases involving many consumers can be brought in federal
court as class action suits under the Act.
Although the consumer lawsuit provisions may have little
effect on your warranty or your business, they are important to remember if you
are involved in warranty disputes.
Alternatives to Consumer Lawsuits
Although the Act makes consumer lawsuits for breach of
warranty easier to bring, its goal is not to promote more warranty litigation.
On the contrary, the Act encourages companies to use informal dispute
resolution mechanisms to settle warranty disputes with their customers.
Basically, an informal dispute resolution mechanism is a system that works to
resolve warranty problems that are at a stalemate. Such a mechanism may be run
by an impartial third party, such as the Better Business Bureau, or by company
employees whose only job is to administer the informal dispute resolution
system. The impartial third party uses conciliation, mediation, or arbitration
to settle warranty disputes.
The Act allows warranties to include a provision that
requires customers to try to resolve warranty disputes by means of the informal
dispute resolution mechanism before going to court. (This provision applies
only to cases based upon the Magnuson-Moss Act.) If you include such a
requirement in your warranty, your dispute resolution mechanism must meet the
requirements stated in the FTC's Rule on Informal Dispute Settlement Procedures
(the Dispute Resolution Rule). Briefly, the Rule requires that a mechanism
must:
Be adequately
funded and staffed to resolve all disputes quickly;
Be available
free of charge to consumers;
Be able to
settle disputes independently, without influence from the parties involved;
Follow written
procedures;
Inform both
parties when it receives notice of a dispute;
Gather, investigate,
and organize all information necessary to decide each dispute fairly and
quickly;
Provide each
party an opportunity to present its side, to submit supporting materials, and
to rebut points made by the other party; (the mechanism may allow oral presentations,
but only if both parties agree);
Inform both
parties of the decision and the reasons supporting it within 40 days of
receiving notice of a dispute;
Issue
decisions that are not binding; either party must be free to take the dispute
to court if dissatisfied with the decision (however, companies may, and often
do, agree to be bound by the decision);
Keep complete
records on all disputes; and
Be audited
annually for compliance with the Rule.
It is clear from these standards that informal dispute
resolution mechanisms under the Dispute Resolution Rule are not
"informal" in the sense of being unstructured. Rather, they are
informal because they do not involve the technical rules of evidence,
procedure, and precedents that a court of law must use.
Currently, the FTC's staff is evaluating the Dispute
Resolution Rule to determine if informal dispute resolution mechanisms can be
made simpler and easier to use. To obtain more information about this review,
contact the FTC's warranty staff.
As stated previously, you do not have to comply with the
Dispute Resolution Rule if you do not require consumers to use a mechanism
before bringing suit under the Magnuson-Moss Act. You may want to consider
establishing a mechanism that will make settling warranty disputes easier, even
though it may not meet the standards of the Dispute Resolution Rule.
Source: Federal Trade Commission
