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Promises, Promises: Consumer Contracts and the Magnuson-Moss Warranty Act
Practical Law Legal Update w-003-7454 (Approx. 7 pages)
Promises, Promises: Consumer Contracts and the Magnuson-Moss Warranty Act
by Practical Law Commercial Transactions
| Law stated as of 11 Oct 2016 • USA (National/Federal) |
When selling products to consumers, businesses often include written warranties describing what the warrantor promises to do if the product is defective or malfunctions. These written warranties can provide consumers with a degree of security, but also subject businesses to federal laws and regulations under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act (Magnuson-Moss Act). This legal update discusses the federal rules for written consumer warranties and provides resources to help businesses comply with the Magnuson-Moss Act and related regulations.
Many retailers and manufacturers offer written warranties when selling consumer goods. Providing written warranties to consumers can be an effective means of:
- Showing consumers that a retailer or manufacturer is reliable.
- Giving consumers a sense of security in the products they purchase.
- Distinguishing a company's product from competitor's products.
However, by providing a written warranty on a consumer product, a business also subjects itself to federal warranty requirements under the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act (Magnuson-Moss Act) and related regulations. This legal update discusses the federal requirements for written consumer warranties and recent amendments that make it easier to provide written warranties online. This update also provides resources to help businesses comply with the Magnuson-Moss Act and related regulations.
This legal update does not discuss state laws governing written warranties. Therefore, businesses should carefully review the consumer protection laws of the states where they sell goods. These state laws could have additional requirements for written warranties and create separate obligations and liabilities from the Magnuson-Moss Act (see, for example, Legal Update, The Rise in Class Actions Under NJ Consumer Protection Law).
Complying with the Magnuson-Moss Act
The Magnuson-Moss Act does not require manufacturers or sellers to offer written warranties on consumer goods. It applies only when a business has decided to provide a written warranty on a consumer product. Under the Magnuson-Moss Act and related FTC regulations, if a seller or manufacturer provides a written warranty on a consumer product that costs over a certain amount, the seller or manufacturer must:
- Identify its warranty as either "full" or "limited" (see Title of the Warranty).
- Disclose certain information about the warranty's coverage (see The Disclosure Rule).
- Make the warranty available to the consumer before the consumer buys the warranted product (see The Pre-Sale Availability Rule).
A consumer product includes any tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes.
These federal rules also:
- Generally prohibit warrantors from:
- disclaiming or modifying implied warranties;
- using deceptive warranty terms; and
- using "Tie-in Sales" provisions (see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods: Prohibited Acts under Federal Law).
- Allow warrantors to establish an informal alternative dispute resolution (ADR) procedure for resolving consumer disputes outside of court (see Practice Note, Alternative Dispute Resolution Mechanisms).
If a party fails to comply with the Magnuson-Moss Act, it can face:
- Federal enforcement actions from the Federal Trade Commission (FTC) and the US Department of Justice (DOJ).
- Private individual or class action lawsuits from consumers, in either state or federal court.
Title of the Warranty
A written warranty must be clearly and conspicuously labeled as either a full or a limited warranty. This title should be featured prominently at the top of the warranty. This rule applies to written warranties on consumer goods that cost more than $10.
A warranty is considered a full warranty if it:
- Provides warranty service to any consumer who owns the product during the warranty period (i.e., the warranty is not limited to the first purchaser).
- Remedies product defects and malfunctions within a reasonable time and free of charge.
- Does not impose any limitations on the duration of any implied warranties on the product.
- Allows the consumer to receive a refund or free replacement if the product is still defective after the warrantor has made a reasonable number of attempts to fix it.
- Does not impose any duty on the consumer as a precondition for using the warranty, other than the duty to notify the warrantor of the defect.
If the warranty does not meet all of the above requirements, it is a limited warranty.
The Disclosure Rule
Written warranties on consumer products that cost more than $15 must be easy to read and must clearly and conspicuously disclose certain information to consumers (16 C.F.R. pt. 701). The Disclosure Rule specifies:
- The aspects of warranty coverage that must be disclosed in written warranties, such as:
- who can use the warranty;
- a description of the product or parts the warranty covers;
- the warranty's coverage period; and
- step-by-step instructions for how a consumer can use the warranty.
- The exact language that must be included for certain disclosures related to state laws regarding:
- the duration of implied warranties; and
- the availability of consequential or incidental damages.
For more detailed information about the Disclosure Rule, see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods: Written Warranty Disclosure Rule.
If a warranty does not comply with the Disclosure Rule, the FTC can consider it deceptive or misleading. For more information on FTC enforcement actions, see Practice Note, FTC Consumer Protection Investigations and Enforcement.
The Pre-Sale Availability Rule
Under the Pre-Sale Availability Rule, sellers and warrantors must make the text of any written warranty on a consumer product available to the consumer prior to sale (16 C.F.R. pt. 702). This rule applies to consumer goods that cost more than $15.
Among other things, this rule requires sellers to make warranties readily available by either:
- Displaying the warranty document in close proximity to the product.
- Providing the warranty document on request and posting signs in prominent locations to inform consumers that warranties are available.
For more detailed information about the Pre-Sale Availability Rule, see Practice Note, The Magnuson-Moss Warranty Act for Consumer Goods: Pre-Sale Availability of Written Warranty Rule.
Recent Amendments to Federal Written Warranty Requirements
In September 2015, President Obama signed the E-Warranty Act of 2015 into law amending the Magnuson-Moss Act (see Legal Update, Obama Signs E-Warranty Act of 2015 Into Law Amending Magnuson-Moss Act). Under the E-Warranty Act, manufacturers can now make the terms of a product's warranty available exclusively on their websites. The FTC issued a final rule in September 2016 to implement the E-Warranty Act's amendments to the Magnuson-Moss Act.
The FTC's final rule amends the:
- Pre-Sale Availability Rule by allowing:
- warrantors to post warranty terms online if they satisfy certain conditions and also provide a non-internet based method for consumers to obtain the warranty terms; and
- certain sellers to display warranty terms pre-sale in an electronic format if the warrantor has used the online method of disseminating warranty terms.
- Disclosure Rule by specifying that, for a warranty posted online or displayed electronically, disclosures that must appear "on the face of the warranty" must be placed in close proximity to the location where the text of the warranty terms begin.
For more detailed information on the FTC's final rule amending the Magnuson-Moss Act, see Legal Update, FTC Revises Magnuson-Moss Regulations to Comply With E-Warranty Act.
Drafting A Written Warranty
Whether full or limited, a written warranty serves as both a:
- Legal document that describes what the warrantor promises to do if its product is defective or malfunctions.
- Guide for consumers explaining what remedies they can request if their product is defective or malfunctions.
Because consumers often use and rely on warranties, warrantors should ensure that their warranties are well organized, use simple, direct language, and are easy for a reasonable consumer to read and understand. For example, consumer warranties should not contain ambiguous terms and unnecessary legalese, which can confuse many consumers. A clear, well-written warranty is more effective at:
- Defining the warrantor and consumer's respective rights and obligations.
- Creating confidence in the warrantor's product.
- Assuring consumers that they have adequate remedies if their product is defective or malfunctions.
- Meeting legal requirements.
For a sample full warranty, see Standard Document, Full Consumer Product Warranty. For a sample limited warranty, see Standard Document, Limited Consumer Product Warranty.
Businesses often also include warranties as part of their online terms and conditions with consumers. These online warranties must also comply with the Magnuson-Moss Act and related regulations. For sample online terms and conditions, see Standard Documents, Terms and Conditions for Online Sales by Manufacturers to Consumers and Terms and Conditions for Online Sales by Retailers to Consumers.
Businesses can also consult the FTC's guide on writing consumer warranties for more information on drafting warranties (see FTC: Writing Readable Warranties).