May 27, 2015

Two Key Takeaways from the FTC's Consumer Product Warranty Rule Review Process

Seller Beware: Consumer Protection Insights for Industry

Last week, the FTC announced that after completing its review of the FTC rules governing consumer product warranties under the Magnuson-Moss Warranty Act, it has decided to keep many of the rules in their current form, with only slight modifications. The warranty rules have implications for a broad range of retailers and manufacturers as the rules cover warranties on automobiles, personal computers, mobile devices, appliances, and a host of other consumer products.

As we previously reported, the FTC began its review of the warranty rules, guidance, and interpretations in 2011 as part of its periodic regulatory review program; it received twenty-nine comments in response.

Although the FTC left many of the rules in their current form, there are two key takeaways from the FTC's review process that should be useful to anyone in the business of making or selling consumer products that come with warranties, whether online, in brick and mortar stores, or both:

  • Implied "Tying" Arrangements Are Deceptive. One aspect of the interpretations of the warranty rules that has received increased attention in recent years is the prohibition on the practice of "tying" – that is, conditioning warranty coverage on the consumer's use of a particular replacement product or repair service identified by brand or name. For example, a provision such as "This warranty is void if service is performed by anyone other than an authorized 'ABC' dealer and all replacement parts must be genuine 'ABC' part'" is not permissible. In response to comments suggesting that manufacturers often use language in their warranties that give the impression that a warranty will be void if non-original parts or non-dealer services are utilized, the FTC has amended its interpretations of the warranty rules to clarify that implying that warranty coverage requires the consumer's purchase of a product or service identified by brand or trade name – for example, warranty language that says "use only an authorized 'ABC' dealer" or "use only 'ABC' replacement parts – may be deceptive.
  • Online Sellers Should Not Bury Warranty Information in Terms & Conditions; Brick and Mortar Sellers Should Not Simply Tell Consumers That Warranty Information Is Available Online. One of the warranty rules up for review was the "pre-sale availability rule," which requires that warranty information be made available to consumers prior to sale. This rule, which was promulgated in 1975, does not expressly apply to online sales. Although the FTC received requests to amend the rule to expressly address online sales, the FTC declined to do so. In its view, the FTC has already made clear through other guidance documents that warranty disclosure obligations are the same whether a sale takes place online or in a brick and mortar store, and that online sellers can comply with the rules by using a clearly-labeled hyperlink with text such as "get warranty information here" to lead to the full text of the warranty. In the Federal Register Notice that explains the FTC's reasoning for why no rule change is necessary, the FTC provides two helpful pieces of guidance for online and brick and mortar sellers. First, because the rules require that warranty information be displayed clearly and conspicuously, warranty terms buried within voluminous online terms and conditions would not satisfy the rules' disclosure requirements, nor would general references to warranty coverage, such as a statement saying nothing more than "one year warranty applies." Second, a brick and mortar seller that simply advises a customer that warranty information is available online would not be in compliance with the pre-sale availability rule. According to the FTC, "[t]he intent of the Rule is to make warranty information available at the point of sale. For brick and mortar transactions, the point of sale is in the store; for online transactions, the point of sale is where consumers purchase the product online." Therefore, simply directing a consumer in the store to consult warranty information online would not satisfy the retailer's or manufacturer's obligations under the rule.

Although the FTC's interpretations as set forth in the Federal Register Notice do not have the force of law and cannot be enforced independently, they provide helpful guidance on where the FTC is leaning on these issues if the FTC were to bring an action for a violation of Section 5 of the FTC Act or under the Magnuson-Moss Warranty Act.

© Arnold & Porter Kaye Scholer LLP 2015 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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