[Federal Register Volume 61, Number 65 (Wednesday, April 3, 1996)] [Proposed Rules] [Pages 14687-14690] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-8181] ----------------------------------------------------------------------- [[Page 14688]] FEDERAL TRADE COMMISSION 16 CFR Parts 700, 701, 702, and 239 Request for Comments Concerning Interpretations of Magnuson-Moss Warranty Act; Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions; Rule Governing Pre-Sale Availability of Written Warranty Terms; and Guides for the Advertising of Warranties and Guarantees AGENCY: Federal Trade Commission. ACTION: Request for public comments. ----------------------------------------------------------------------- SUMMARY: The Federal Trade Commission (``the Commission'') is requesting public comment on a set of warranty-related rules and guides: (1) its Interpretations of the Magnuson-Moss Warranty Act (``Interpretations''); (2) its Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions (``Rule 701''); (3) its Rule Governing Pre-Sale Availability of Written Warranty Terms (``Rule 702''); and (4) its Guides for the Advertising of Warranties and Guarantees (``Guides''). The Commission is also requesting comments about the overall costs and benefits of these rules and guides and their overall regulatory and economic impact as part of its systematic review of all current Commission regulations and guides. The Interpretations represent the Commission's views on various aspects of the Magnuson-Moss Warranty Act (``the Act''), 15 U.S.C. et seq., and are intended to clarify the Act's requirements. They are similar to industry guides in that they are advisory in nature, but failure to comply with them may result in corrective action by the Commission under the applicable statutory provisions. Rule 701 specifies the information that must appear in a written warranty on a consumer product. Rule 702 details the obligations of sellers and warrantors to make warranty information available to consumers prior to purchase. The Guides are intended to help advertisers avoid or deceptive practices in the advertising of warranties or guarantees. DATES: Written comments will be accepted until June 3, 1996. ADDRESS: Comments should be directed to: Secretary, Federal Trade Commission, Room H-159, Sixth and Pennsylvania Ave., N.W., Washington, D.C. 20580. Comments about the Interpretations, Rules, and/or Guides should be identified as ``Warranty Rules--Comment.'' FOR FURTHER INFORMATION CONTACT: Carole I. Danielson, Investigator, Division of Marketing Practices, Federal Trade Commission, Washington, D.C. 20580, (202) 326-3115. SUPPLEMENTARY INFORMATION: The Commission has determined, as part of its oversight responsibilities, to review rules and guides periodically. Pursuant to these reviews, the Commission seeks information about the costs and benefits of the rules and guides under review, as well as their regulatory and economic impact. The information obtained will assist the Commission in identifying rules and guides that warrant modification or rescission. At this time, the Commission in identifying rules and guides that warrant modification or rescission. At this time, the Commission solicits written public comments concerning its warranty rules and guides: (1) the Commission's Interpretations of the Magnuson-Moss Warranty Act, 16 CFR Part 700; (2) the Rule Governing Disclosure of Written Consumer Product Warranty Terms and Conditions, 16 CFR Part 701; (3) the Rule Governing Pre-Sale Availability of Written Warranty Terms, 16 CFR Part 702; and (4) the Guides for the Advertising of Warranties and Guarantees, 16 CFR Part 239. These four rules and guides are being reviewed together because all four pertain to warranties. A. Background 1. 16 CFR Part 700: Interpretations of the Magnuson-Moss Warranty Act (``Interpretations''). The Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et seq., 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 response to these inquiries, the Commission decided to provide guidance in order to ease compliance with the requirements of the Act. Initially, the Commission published, on June 18, 1975, a policy statement in the Federal Register (40 FR 25721) to provide interim guidance during the initial implementation of the Act. However, as the Commission continued to receive questions and requests for advisory opinions, it determined that guidance of a more permanent nature 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 apply to consumer products distributed in commerce and sold with a written warranty. They represent the Commission's views on various terms and provisions of the Act that are not entirely clear on the face of the statute. Thus, they are intended to clarify the Act's requirements for consumers, manufacturers, importers, distributors, and retailers attempting to comply with them. They are not substantive rules, and do not have the force or effect of statutory provisions; like industry guides, they are advisory in nature. Nonetheless, failure to comply with the Interpretations could result in enforcement action by the Commission under the applicable statutory provisions. The Interpretations cover a wide range of subjects, including which types of products are considered ``consumer products'' under the Act; whether warrantors have a duty to install under a full warranty; how to distinguish between ``written warranty,'' ``service contract,'' and ``insurance''; what constitutes an ``expression of general policy'' and the requirements for expressions of general policy; the use of warranty registration cards under full and limited warranties; and what may be an illegal tying arrangement under Section 102(c) of the Act. 2. 16 CFR Part 701: Disclosure of Written Consumer Product Warranty Terms and Conditions (``Rule 701''). The language of the Act and its legislative history indicate that Congress intended that the Commission promulgate rules regarding the disclosure of written warranty terms and conditions. Accordingly, on December 31, 1975, the Commission published in the Federal Register (40 FR 60188) its Rules Governing Disclosure of Written Consumer Product Warranty Terms and Conditions. Rule 701 establishes requirements for warrantors for disclosing the terms and conditions of written warranties on consumer products actually costing the consumer more than $15.00. It tracks the disclosure requirements suggested in Section 102(a) of the Act. It also specifies the information that must appear in the written warranty, as well as the exact language that must be used for certain disclosures. Under Rule 701, the information must be disclosed in simple, easily understood, and concise language in a single document. In promulgating Rule 701, the Commission determined that the items required to be disclosed are material facts about product warranties, the nondisclosure of which would be deceptive or misleading. In addition to specifying the information that must appear in a written warranty, Rule 701 also requires [[Page 14689]] 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. Finally, it clarifies that, in connection with some ``seal of approval'' programs, the disclosures required by the Rule do not have to be given in the actual seal itself, but rather must be made in a publication. 3. Pre-Sale Availability of Written Warranty Terms, 16 CFR Part 702 (``Rule 702''). Section 102(b)(1)(A) of the Act directs the Commission to prescribe 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 in the Federal Register (40 FR 60189) its Rules Governing the Pre-Sale Availability of Written Warranty Terms (``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). Rule 702 establishes requirements for sellers and warrantors for making the terms of any written warranty on a consumer product available to the consumer prior to sale. Among other things, the Rule require sellers to make warranty information readily available either by (1) displaying it in close proximity to the product or (2) furnishing it on request and posting signs in prominent locations advising consumers that warranty information 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 prior to the sale if the product is sold through catalogs, mail order or door-to-door sales. 4. Guides for the Advertising of Warranties and Guarantees, 16 CFR Part 239 (``Guides''). In May, 1985, the Commission published in the Federal Register its Guides for the Advertising of Warranties and Guarantees, 16 CFR Part 239 (50 FR 18470, May 1, 1985 and 50 FR 20899, May 21, 1985). The Guides were intended to help advertisers avoid unfair or deceptive practices when advertising warranties or guarantees. They took the place of the Commission's ``Guides Against Deceptive Advertising of Guarantees,'' 16 CFR Part 239, adopted April 26, 1960, which had become outdated due to developments in Commission case law and, more importantly, changes in circumstances brought about by the Magnuson-Moss Warranty Act and by Rules 701 and 702 under that Act. The 1985 Guides advise 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 advise that sellers or manufacturers should not advertise that a product is warranted or guaranteed unless they promptly and fully perform their warranty obligations. B. Regulatory Flexibility Act The Regulatory Flexibility Act provides for analysis of the potential impact on small businesses of Rules proposed by federal agencies. (5 U.S.C. 603, 604). Rules 701 and 702 are the only warranty- related matters currently under review that require such an analysis. In 1987, the Commission conducted a Regulatory Flexibility Act analysis of Rule 702 in connection with its amendment of that Rule. See 52 FR 7569. This is the first review of Rule 701 since it was promulgated in 1975 and thus presents the first opportunity to conduct such an analysis for that Rule. Therefore, this notice includes questions to elicit information for that analysis. The Commission believes that a very high percentage of businesses subject to Rule 701 are ``small'' based on Small Business Administration size standards. Unfortunately, the available data do not provide a precise measurement of the impact Rule 701 has had on small businesses nor the economic impact that would result from leaving the Rule unchanged. For example, in the regulatory analysis conducted for Rule 702, the Commission's investigation found that nearly all the manufacturers (11,365 companies or 97 percent) and nearly all retailers (952,916 companies or 99.3 percent) affected by Rule 702 were considered ``small'' using the size standards promulgated by the Small Business Administration. That investigation indicated that, if the companies were compared according to annual receipts, small retailers would represent about 47 percent and small manufacturers about 23 percent of the gross annual receipts in their respective industries. In 1984, the FTC's Office of Impact Evaluation issued a study evaluating the Impact of the Warranty Rules [Market Facts, Warranty Rules Consumer Follow-Up: Evaluation Study, Final Report, Washington, D.C., July 1984 (``the Study'')]. The Study found that some type of warranty was offered for 87 percent of the consumer products surveyed. Of those warranted products, almost 63 percent carried only a manufacturer's warranty, about 12 percent were warranted only by the retailer, and about 13 percent were covered by both a manufacturer's and a retailer's warranty. Thus, the costs of Rule 701 would appear to fall principally on manufacturers, since those entities are more likely to provide a written warranty. However, we do not know how many of those manufacturers or retailers who give written warranties are also small entities. Section 102 of the Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et seq., requires warrantors who use written warranties to disclose fully and conspicuously the terms and conditions of the warranty. The Act lists a number of items that may be included in any rules requiring disclosure that the Commission might prescribe, and, in Rule 701, the Commission tracked those items. In promulgating the Rule, the Commission attempted to comply with the congressional mandate in Section 102 of the Act while minimizing the economic impact on affected business. For example, the Commission limited the disclosure requirements to warranties on consumer products actually costing the consumer more than $15.00. Furthermore, the Commission exempted ``seal of approval'' programs from providing the disclosures on the actual seal. The Commission nonetheless wishes to ensure that no substantial economic impact is being overlooked. Therefore, public comment is requested on the effect of Rule 701 on the costs to, profitability and competitiveness of, and employment in small entities. C. Issues for Comment At this time, the Commission solicits written public comments on the following questions with regard to the Interpretations, Rule 701, Rule 702, and the Guides: 1. Is there a continuing need for these Interpretations, Rules, and Guides? 2. Have the Interpretations, Rules, and Guides had a significant economic impact (costs or burdens) on consumers? What significant benefits or costs (including costs of compliance) have they had on firms who are subject to their requirements? 3. What benefits have the Interpretations, Rules, and Guides provide to consumers who purchase the [[Page 14690]] warranted products or services 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) How would these changes affect the costs the Interpretations, Rules, and Guides impose on firms subject to their requirements? 4. What changes, if any, should be made to the Interpretations, Rules and Guides to minimize any burden or cost imposed on firms subject to their requirements? 5. Do the Interpretations, Rules, and Guides overlap or conflict with other federal, state, or local government laws or regulations? 6. Since the Interpretations, Rules, and Guides were issued, have changed in technology or economic conditions affected the need or purpose for them? 7. What has been the effect of Rule 701 on the costs, profitability, competitiveness, and employment of small business entities? (a) What would be the economic impact on small businesses from leaving Rule 701 unchanged? (b) Are there regulatory alternatives that would reduce any adverse economic impact of Rule 701, yet comply with the mandate of the Magnuson-Moss Warranty Act? (c) What are the aggregate costs and benefits of Rule 701? Are there provisions in the Rule that are not necessary to implement the Magnuson-Moss Warranty Act or that have imposed costs not outweighed by benefits? Who has benefited and who has borne the cost? Have the costs or benefits of the Rule dissipated over time? List of Subjects in 16 CFR Part 700 Warranties, trade practices. Authority: 15 U.S.C. 41-58. By direction of the Commission. Donald S. Clark, Secretary. [FR Doc. 96-8181 Filed 4-2-96; 8:45 am] BILLING CODE 6750-01-M