Magnuson-Moss Warranty Act (15 U.S.C. § 2301 et seq.)

            In 1975, Congress enacted the Magnuson-Moss Warranty Act to standardize product warranties so that consumers could better understand them and the FTC could better enforce their terms. Notably, it does not require warranties on all products, nor does it create implied or non-disclaimable warranties, although it does outline a “floor” of substantive terms that are required for any warranty advertised or presented as a “full warranty.” The Act also requires full, clear, and conspicuous disclosure of the terms and conditions of service contracts in readily understood language. Under the Act, any ambiguous terms contained in a warranty must be construed  against the drafter of the warranty.

 

Which products are covered by the Act?

            The Act primarily covers “consumer products,” which are defined under 15 U.S.C. § 2301(1) as “any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes,” and which cost the consumer more than $5, 15 U.S.C. § 2302(e). Integral parts of real estate (such as structural supports in the home) are covered elsewhere, unless they have been sold “over the counter,” i.e., for the purpose of home improvement undertaken by the homeowner.  16 C.F.R. § 700.1(d)-(f). When there is ambiguity concerning whether a product is covered or not, it is assumed that the product in question is covered. 16 C.F.R. § 700.1(a).

 

Who is covered under the Act?

            The persons covered under the Act include the purchaser of the product (or the “consumer”) as well as any person to whom the product is transferred or who would otherwise be entitled to rights or remedies under the warranty itself or applicable state law. 15 U.S.C. § 2301(3).

 

What is not covered under the Act?

            Warranties for services related to repairs, such as shipping costs, are not covered by the Act, which could potentially lead to abuse by unscrupulous vendors who might legally impede a consumer’s right to repair or replacement by building expensive services into the repair process. See 15 U.S.C. 2304(d) (freeing the warrantor from the obligation to reimburse cosumers for expenses “incidental” to repair, even if the warranty offers repairs at “no charge”).

            Customer satisfaction guarantees, free trial periods, trade-in credit policies, and other such company policies are not governed by Magnuson-Moss, but rather section 5 of the Federal Trade Commission Act, 15 U.S.C. 45. 15 U.S.C. § 2303(b).

            Some representations, such as clothing labels and energy efficiency ratings, are considered express warranties under the Uniform Commercial Code, but not Magnuson-Moss.  16 C.F.R. § 700.3(a).

 

What types of warranties does the Act concern?

            The Act divides warranties into three categories: (a) implied warranties, (b) written warranties, and (c) service contracts.

 

(a) Implied Warranties

            Implied warranties arise under state law, and are mostly unaffected by the Act, although 15 U.S.C. § 2304 and 15 U.S.C. § 2308 place restrictions on the warrantor’s ability to limit their duration.

 

(b) Written Warranties

            Any written “affirmation of fact” about the quality, workmanship, or performance of the product, or “written promise” concerning remedial actions (such as refund, repair, or replacement) in the event of the product’s failure is considered a written warranty, and is covered under the Act. 15 U.S.C. § 2301(6).

 

(c) Service Contracts

            Service contracts are written promises to perform services related to the maintenance or repair for a period of time. 15 U.S.C. § 2301(8). Generally, warrantors can offer a refund on a product for which they have signed a service contract if repair and replacement are not commercially practicable, cannot be made in a timely fashion, or the consumer is willing to accept the refund. 15 U.S.C. § 2301(10).

 

Standard Disclosure Under Magnuson-Moss

            The primary goal of Magnuson-Moss is conspicuous disclosure of the terms of written warranties to “improve the adequacy of information available to consumers, prevent deception, and improve competition in the marketing of consumer products.” 15 U.S.C. § 2302(a). 15 U.S.C. § 2302(a) also lists thirteen items that “may require inclusion” in written warranties, such as step-by-step procedures for obtaining performance of any obligation under the warranty, or a recital of the purchaser’s obligation to make use of informal dispute resolution before pursuing legal remedies in court. The Act also authorizes the FTC to prescribe rules concerning the manner and form in which terms are presented in advertising, labeling, and point-of-sale material. 15 U.S.C. § 2302(b)(1)(B).

 

Types of Written Warranties

A. Full Warranties

            A warranty may be designated as a “full warranty” when it meets certain baseline criteria, outlined in 15 U.S.C. §§ 2304 and 2303(a)(1). First, the warrantor must, within a reasonable time and without charge, remedy their product’s defect, malfunction, or failure. 15 U.S.C. § 2304(a)(1). Second, the warrantor may not limit the duration of any implied warranties. 15 U.S.C. § 2304(a)(2). The warrantor also may not limit consequential damages from breach of warranty, unless such waiver appears on the face of the warranty. 15 U.S.C. § 2304(a)(3). The warrantor must offer a refund or replacement (including free installation of components) to a customer after a “reasonable number” of attempts (determined by the FTC) to remedy the faulty component or product have proven unsuccessful. 15 U.S.C. § 2304(a)(4). And finally, a consumer needs only to inform the warrantor of a defect or malfunction to secure remedy, unless the warrantor has demonstrated the reasonableness of an additional duty. § 2304(b). The FTC has been reluctant to grant “reasonable” status to many additional duties: sellers may not, for instance, require that consumers “activate” their warranties by returning warranty registration cards; customers only need to notify the seller of a defect to secure remedy.  16 C.F.R. § 700.7(b).

            If a warranty is designated as a “full warranty” but does not contain the above terms, the warranty will nonetheless be deemed to incorporate them as minimum requirements. 15 U.S.C. § 2304(e).

 

B. Limited Warranties

            “Limited warranties” are all warranties that do not meet the minimum baseline for full warranties outlined in 15 U.S.C. § 2304. 15 U.S.C. § 2303(a)(2). Because limited warranties usually offer less protection than full warranties, they must be conspicuously designated as such to prevent deception and consumer confusion. See 15 U.S.C. § 2303(a).

 

C. Multiple Warranties

            In some instances, a merchant may sell products with both full warranties and limited warranties. For instance, a laptop CPU may be sold under full warranty while the peripherals and other components are covered by a limited warranty. In these instances, the separate warranties must be “clearly and conspicuously differentiated.” 15 U.S.C. § 2305. The Act also allows sellers to enter into service contracts in conjunction with other warranties, so long as the terms of the service contract are fully, clearly, and conspicuously disclosed. 15 U.S.C. § 2306(b).

 

How does the Act affect state consumer protection law?

            The Act neither invalidates nor restricts state law consumer protections, including implied warranties or other rights and remedies, or the rights and remedies consumers have under other federal laws. 15 U.S.C. § 2311. The Act does allow warrantors to limit the duration of some implied warranties to that of a reasonable written warranty, so long as the limitation is conscionable and prominently displayed on the face of the warranty, but the instances in which this is allowed is determined primarily by state law concerning waivability of implied warranties. 15 U.S.C. § 2308.

 

Substantive Terms Enforced By The Act

            Magnuson-Moss also allows the FTC to prescribe rules that extend a written warranty or service contract’s duration if the consumer is deprived of the use of the product due to failure for an unreasonable length of time (no less than 10 days). 15 U.S.C. § 2302(b)(3). It also restricts a warrantor from requiring a consumer to use, at the consumer’s expense, any article or service that the warrantor identifies by brand name in order to retain remedies provided by the warranty, unless the FTC is satisfied that the product will not function properly otherwise or that such a waiver is in the public interest. 15 U.S.C. § 2302(c).

 

What are the limitations of the Act?

            There are several limitations to the Magnuson-Moss Warranty Act that offer opportunities for improvements in consumer protection. First, the list of required terms is quite lengthy, and provides ample opportunity for sellers to generate warranties whose terms, while simple to understand in isolation, are so numerous that purchasers may be unable to comprehend them all. Magnuson-Moss does a good job of preventing sellers from issuing outright deceptive warranties, mostly by construing ambiguous terms in favor of the non-drafting party, but it does not hinder sellers from writing warranties that are too long for the average consumer to read properly. Futhermore, many warranties fulfill certain disclosure obligations by referring the purchaser to other agreements or documents. The warranty that comes with Sony’s Playstation 3 Computer Entertainment System, for example, includes repair or replacement of the unit in the case of a defect, but under methods for notification, it merely refers to another document that outlines the steps a consumer must go through to notify Sony of the need for repair.

            Additionally, it is standard practice for the written warranty to disclaim all implied warranties, with an additional disclaimer that “Some states do not allow limitations as to how long an implied warranty lasts and/or exclusions or limitations of consequential damages, so the above limitations and/or exclusions of liability may not apply to you.” See Playstation 3 Limited Warranty. This leaves many consumers unsure of the legal rights or remedies available to them, and my in some cases prevent them from exercising their legal privileges.

            Many of these documents are actually boilerplates designed by the FTC, which sellers are allowed to incorporate by reference into their own contracts. It is not clear how much help such documents are when they are not available at the time of purchase. One potential improvement would be a rule requiring merchants who offer warranties that make reference to FTC boilerplate documents to have those documents on hand during a sale.

            Perhaps most problematically, the Act explicitly states that Congress’s policy in enacting Magnuson-Moss was to promote the use of informal dispute resolution, 15 U.S.C. § 2310(a)(1), which is sometimes abused by warrantors to disenfranchise customers seeking to bring suit, although the FTC has mitigated much of this abuse by issuing a rule that restricts a warrantor from reserving the exclusive right to determine what constitutes a “defect” or giving itself or a third party the power to issue final, binding decisions concerning a warranty dispute. 16 C.F.R. § 700.8.

                  

 

The full text of Magnuson-Moss can be found at: http://uscode.house.gov/download/pls/15C50.txt

The regulations concerning interpretation of Magnuson-Moss can be found at: http://law.justia.com/us/cfr/title16/16-1.0.1.7.71.html

The full text of the Playstation 3 Limited Warranty can be found at: http://www.us.playstation.com/Support/Warranties/PS3