Understanding the Magnuson-Moss Warranty Act

The Magnuson-Moss Warranty Act is basically just the federal law that governs and monitors consumer product warranties. This was passed by Congress in 1975, and requires manufacturers and sellers of consumer products to provide their customers with a lot of detailed information about their warranty coverage.
Also, it is worth noting that this Act affects both the rights of consumers and the obligations of warrantors that are offering written warranties.

To understand the Act, it is probably best that the consumer be aware of Congress' intentions when they first passed it.

First of all, Congress wanted to make sure that consumers could get complete information about warranty terms and conditions up front and in their truest form. By providing people with a way of learning what warranty coverage is offered on a product before they buy, the Act actually gives them a way to know exactly what they should expect if something goes wrong, and it also goes a long way in increasing customer satisfaction.

Secondly, Congress wanted to make sure that people could compare warranty coverages before buying their cars because in doing this, consumers can choose a product that has the best combination of price, features, and warranty coverage to meet their individual needs.

Thirdly, Congress wanted to promote competition on the basis of warranty coverage alone. By making sure that consumers can get warranty information, the Act has practically forced dealers and manufacturers into hosting sales promotions on the basis of warranty coverage and this competition among companies has made it much easier for consumers to seek various levels of warranty coverage. (Are you seeing a trend yet?)

Finally, Congress wanted to strengthen the pre-existing incentives for companies to perform their warranty obligations in a timely and efficient manner so that it would be easier to resolve any consumer disputes with a minimum of delay and expense.

Because of this, the Act makes it easier for consumers to seek a private solution for any breach of warranty in the courts, but it also creates a foundation for companies to set up good operating procedures for resolving disputes inexpensively and informally, without litigation.

What the Magnuson-Moss Act Does Not Require for Businesses

In order for you to be able to understand how the Act affects you as a businessperson, it is important first to understand what the Act does not need from you.

First of all, the Act does not require that any business to provide a written warranty. The Act allows businesses to decide whether or not to warrant their products in writing. Although let me just say that it is just good business to do so.

However, once a business decides to offer a written warranty on a consumer product, it must follow those statutes of the Act.

Secondly, the Act does not apply to oral warranties of any kind. Only written warranties are covered by the Act. Thirdly, the Act does not apply to any warranties that are made on services. They only cover warranties that are made on goods.

However, if your warranty covers both the parts provided for a repair and the labor involved in making that repair, the Act does apply to you.

Finally, the Act does not apply to any warranties on products that are sold for resale or for commercial purposes. The Act covers only warranties on consumer products. This means that only the warranties that are made on tangible property normally used for personal, family, or household purposes are covered. You should note that applicability of the Act to a particular product does not, however, depend upon how an individual buyer will use it.

What the Magnuson-Moss Act Requires

When the Magnuson-Moss Warranty Act was passed, Congress specified a number of requirements that warrantors are obligated to meet. Congress also directed the FTC to adopt some rules that are designed to cover other requirements.

The FTC adopted three Rules under the Act, which are: 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).

Not to mention, the FTC has issued an interpretive rule that helps to clarify certain terms and explains some of the provisions of the Act. This section is going to summarize all of the requirements under the Act and the Rules.

The Act and the Rules set up three basic requirements that may apply to you, either as a warrantor or a seller. These rules are as follows:

1. As a warrantor, you must designate, or title, your written warranty as either full or limited in a clear way.

2. As a warrantor, you have to state certain specified information about the coverage of your warranty in a single, clear, and easy-to-read document.

3. As a warrantor, you must make sure that your warranties are available where your warranted consumer products are sold so that consumers can read them before buying your product.

The titling requirement, which is established by the Act, basically applies to all written warranties on products that cost more than $10. However, the disclosure and pre-sale availability requirements, which were established by FTC Rules, apply to ALL written warranties on products costing more than $15.

What the Magnuson-Moss Act Does Not Allow

There are three limitations under the Magnuson-Moss Act. These involve any implied warranties, which are often referred to as “tie-in sales” provisions, and deceptive or misleading warranty terms. Let’s look at these next.

Disclaimer or Modification of Implied Warranties

The Act does not allow anyone who offers a written warranty from disclaiming or modifying implied warranties. This means that no matter how wide or narrow your written warranty is your customers always get the basic protection of the implied warranty of merchantability.

There is one allotted 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 the implied warranties to two years. However, if you offer a full written warranty, you cannot limit the duration of implied warranties.

If you sell a product with a written warranty that came from the manufacturer, but you do not warrant the product in writing, you can disclaim your implied warranties. (These are the implied warranties where the seller and not the manufacturer, would be responsible.) However, whether or not you warrant the products you sell, as a seller, you have to give your customers copies of any written warranties from product manufacturers.

Most of the time, tie-in sales provisions are not really allowed. These kinds of provisions would require a buyer of the warranted product to buy an item or service from a particular company to use with the warranted product if they want to be eligible to receive a solution to a problem under the warranty. The following are examples of prohibited tie-in sales provisions.

In order to keep your new Proctor Silex Coffee Maker warranty in effect, you must use genuine Proctor Filters. Failure to have scheduled maintenance performed, at your expense, by the Company, will actually voids this warranty.

While you cannot use a tie-in sales provision, your warranty also doesn’t have to 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 Pioneer Stereo System can be performed by any company, you recommend that buyers use only authorized Pioneer dealers. Improper or incorrectly performed maintenance or repairs will void this warranty as well.

Although tie-in sales provisions generally are not permissible, you can include this kind of provision in your warranty if you can effectively show the FTC that your product will not work properly without a specific item or service. If you believe that this is the case for your product, you should contact the warranty staff of the FTC's Bureau of Consumer Protection for information on how you should apply for a waiver of the tie-in sales prohibition.

Deceptive Warranty Terms

Warranties must not contain any lies or misleading terms. You cannot offer a warranty that looks like it appears to provide coverage but, in fact, doesn’t provide any. For example, a warranty that covers only moving parts on an electronic product that has no moving parts would be deceptive and illegal. Also, any warranty that promises service that the warrantor had no intention of providing or could not provide would be deceptive and illegal.

How the Magnuson Moss Act May Affect Warranty problems

To start, the Act makes it easier for consumers to take any of your unresolved warranty problems to court. Secondly, it encourages companies to use a less formal, and cheaper, alternative to going to court. These alternatives, which are commonly known as dispute resolution mechanisms, can be used to settle warranty complaints before they reach the courts.

Consumer Lawsuits

The Act makes it easier for buyers to sue for breach of warranty by making breach of warranty a violation of federal law, and this act also allows buyers 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 their lawyer's fees. It really makes the whole process useless.

Alternatives to Consumer Lawsuits

Although the Act makes consumer lawsuits for breach of warranty easier to bring against you, the goal of the act is not to promote more warranty court visits. The Act encourages companies to use informal dispute resolution mechanisms in order for them to settle warranty disputes with their customers. Just in case you weren’t sure, an informal dispute resolution mechanism is a system that works to resolve warranty problems that are at a stand-still.

This kind of mechanism may be run by an unbiased third party, such as the Better Business Bureau, or by company employees whose only purpose is to administer the informal dispute resolution system. The third party then uses various means like conciliation, mediation, or arbitration to settle the warranty disputes.

The Act lets warranties include a provision that asks customers to try to resolve warranty disputes before going to court. If you include such a requirement in your warranty, your dispute resolution mechanism must meet the requirements as they are stated in the FTC's Rule on Informal Dispute Settlement Procedures (the Dispute Resolution Rule). To put it in short form, the Rule requires that a mechanism must:

Be sufficiently funded and staffed to resolve all disputes quickly;
Be available for free;
Be able to settle disputes on their own, without influence from the parties involved;
Follow written procedures;
Inform both parties when it receives notice of a problem;
Gather, investigate, and organize all information that is necessary in order for them to decide each dispute fairly and quickly;
Provide each party an opportunity to present its side, to submit supporting materials,
Inform both parties of all decisions and the reasons for them supporting it within 40 days of receiving notice of a dispute;
Issue decisions that are not binding;
Keep complete records on all disputes; and
To be audited every year to ensure their compliance with the Rule.
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Danie van Wyk
(c) 2005 www.mybigfatlemon.com