Business Guide to Federal Warranty Law (Disclosure Rule)


A Businessperson's Guide to
Federal Warranty Law

 

REQUIREMENT II:  THE DISCLOSURE RULE {16 C.F.R. PART 701}.

 

Written warranties must include specified information.  As explained in What the Magnuson-Moss Act Requires, this requirement applies to warranties on products costing more than $15.

 

 

 

 

 

 

The five basic questions about warranty coverage can be used as headings for organizing your warranty.

Say what your warranty covers.

 

 

 

State how long your warranty lasts.

 

 

 

 

 

Tell what you will or will not do.

 

 

 

 

 

 

 

Give a step-by-step guide to getting service.

 

 

 

 

 

Use the FTC "boilerplate" disclosures about state law rights in your warranty.

 


This disclosure about state law must be included in every written warranty on a consumer product.

 

 

 

If you wish to impose other conditions or limitations that are not covered by the five basic questions about coverage, you must state these conditions or limitations in your warranty.

 

 

 

 

 

 

 

Your limited warranty must include this standard disclosure if it limits the duration of implied warranties.

 

 

 

Your warranty must include this standard disclosure if it excludes or limits consequential or incidental damages.

 

You must disclose any restrictions on who is eligible for coverage under a limited warranty.

 

 

 

You must disclose information about any informal dispute resolution mechanism that you require customers to use.

 

 

 

 

 

 

 

 

 

This warranty includes all the necessary disclosures about an informal dispute resolution mechanism that you require your customers to use before taking a dispute to court

Stating Terms and Conditions of Your
Written Warranty

The FTC's Rule on Disclosure of Written Consumer Product Warranty Terms and Conditions (the Disclosure Rule) requires a written warranty on a consumer product that costs more than $15 to be clear, easy to read, and contain certain specified items of information about its coverage.

To help you comply with the law and to make your warranty clear and easy to read, you may wish to refer to Writing Readable Warranties, an FTC manual that is available from the Government Printing Office.

The information you must disclose in your warranty is explained in the remainder of this chapter. This information includes basic information about aspects of warranty coverage common to all written warranties, and specific information that is required only when your warranty contains certain optional terms and conditions.

Basic Information Required for All Warranties
Under the FTC's Disclosure Rule, there are five basic aspects of coverage that your warranty must describe. It is useful to think of these as five questions which your warranty must answer:

1.  What does the warranty cover/not cover? Answering this question is quite simple when the warranty covers every type of malfunction or defect that may appear in all parts of the product. However, if not all parts or not all types of defects are covered, as in the "Counterpoint Carpet" example in Examples of Full Warranties, Limited Warranties, and Multiple Warranties, you should clearly describe the scope of coverage.

2.  What is the period of coverage? If coverage begins at some point in time other than the purchase date, your warranty must state the time or event that begins the coverage. In the "Counterpoint Carpet" example in Examples of Full Warranties, Limited Warranties, and Multiple Warranties, warranty coverage begins when the product is installed, which may be different from when the product is purchased.

Also, you must make it clear when coverage ends if some particular event would terminate it. In the limited warranty  "Magnifisound Corporation" example, coverage lasts until the first purchaser transfers the product to someone else.

3. What will you do to correct problems? This requires an explanation of the remedy you offer under the warranty. This could be repair or replacement of the product, a refund of the purchase price, or a credit toward subsequent purchases.

If necessary for clarity, you must also explain what you will not do. This requires a description of the types of expenses, if any, that you will not cover. These might include, for example, labor charges, consequential damages (the costs of repairing or replacing other property that is damaged when the warranted product fails, such as food spoilage when a refrigerator breaks down), or incidental damages (the costs a consumer incurs in order to obtain warranty service, such as towing charges, telephone charges, time lost from work, transportation costs, and the cost of renting a product temporarily to replace the warranted product).

4. How can the customer get warranty service? Your warranty must tell customers who they can go to for warranty service and how to reach those persons or companies. This means that the warranty needs to include the name and address of your company, and any person or office customers should contact. If they can call you locally or toll-free, you can give the telephone number instead of the address. If you want customers to contact your local or regional service centers first, explain how this should be done. See the examples in Examples of Full Warranties, Limited Warranties, and Multiple Warranties and the "Bauhaus Mobile Home" example.

5. How will state law affect your customer's rights under the warranty? Your warranty must answer this question because implied warranty rights and certain other warranty rights vary from state to state. Rather than require a detailed explanation about this on a state-by-state basis, the FTC adopted the following "boilerplate" disclosure to address this issue. It must be included in every consumer product warranty:

This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.

Specific Information Required When Your Warranty Contains Certain Optional Terms and Conditions
Generally, if you wish to impose on your customers any obligations other than notifying you that they need service, you must state these obligations in your warranty. Also, if you wish to establish any other conditions, limitations, or terms that you intend to enforce, you must state them in your warranty; you cannot have "hidden" requirements. An example of such a condition or limitation would be a provision voiding the warranty if the serial number on the product is defaced.

There are also a number of other disclosures you must make in your warranty if it contains certain optional terms and conditions. These requirements are explained in the following paragraphs.

If your warranty contains a provision that restricts the duration of implied warranties, the Disclosure Rule requires you to include a statement that state law may override such restrictions. This is required because some states prohibit any restrictions on implied warranties. The requirement applies only to limited warranties, because only in limited warranties can you restrict the duration of implied warranties. This is discussed in Titling Written Warranties as "Full" or "Limited". To tell consumers that state law may not permit such a restriction, the Disclosure Rule requires you to use the following language:

Some states do not allow limitations on how long an implied warranty lasts, so the above limitation may not apply to you.

If your warranty contains a provision intended to restrict or eliminate your potential liability for consequential or incidental damages, explained in Stating Terms and Conditions of Your Written Warranty, you must include a statement that state law may not allow such a provision. To inform consumers that state law may not permit such a restriction, the Disclosure Rule requires that you use the following sentence:

Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or exclusion may not apply to you.

If your warranty contains a provision that restricts who has rights under the warranty, you must include a statement explaining specifically who is covered. For example, if your limited warranty is valid only for the first purchaser, your warranty must state that. Note that this applies only to limited warranties. A full warranty must cover anyone who owns the product during the period of coverage, as discussed in Titling Written Warranties as "Full" or "Limited".

If your warranty contains a provision that requires your customers to use a dispute resolution mechanism before suing under the federal Magnuson-Moss Warranty Act for breach of warranty, you must include:

  • a statement informing consumers that they can sue under state law without first using the mechanism, but that before suing under the Magnuson-Moss Act, they must first try to resolve the dispute through the mechanism; and

  • information and materials about the dispute mechanism, including the name and address or a toll-free telephone number, or a form for filing a claim.

Of course, if you include a dispute resolution requirement in your warranty, the informal dispute resolution mechanism must comply with the FTC's Dispute Resolution Rule. This is discussed in How the Magnuson-Moss Act May Affect Warranty Disputes.

The example below shows how to make the required disclosures about an informal dispute resolution mechanism that you require customers to use before taking a dispute to court.

 

Bauhaus Mobile Homes, Inc.
Limited Warranty

What This Warranty Covers
This warranty covers substantial defects in materials and workmanship in your new Bauhaus Mobile Home, including the heating, air conditioning, plumbing and electrical systems, and all original appliances installed in your Bauhaus Mobile Home.

What This Warranty Does Not Cover
This warranty does not cover any problems which result from improper transportation or set-up of the home, abuse, accidents, or acts of God, such as hurricanes or floods.

How Long The Warranty Lasts
The coverage of this warranty lasts for two years after the date of installation of your new Bauhaus Mobile Home.

How To Get Service
If something goes wrong, contact the Bauhaus dealer from whom you purchased your home. Arrange a mutually convenient time for the dealer's service representative to come to your home and, if possible correct the problem. In most cases your dealer will be able to correct the problem, but if he is not able to do so, you should contact Bauhaus directly in writing at the following address:

Bauhaus Mobile Homes, Inc.
Customer Relations Dept.
10101 Factory Blvd.
Manufacturing City, CA.

Bauhaus will send a representative to your home to inspect the problem and to correct it if possible. All service under this warranty will be performed at your home site.

What To Do If You Are Not Satisfied With Service
We believe you will be fully satisfied by the service you receive from your Bauhaus dealer and from Bauhaus. However, because our aim is your complete and lasting satisfaction, Bauhaus adds another feature to your warranty's protection. In the unlikely event that you feel our response to a warranty service request is not satisfactory, Bauhaus offers you an opportunity to air your complaint to an impartial dispute-handling organization. The paragraph below explains how this works.

If you believe your dealer and Bauhaus have not performed as stated in this warranty, you may submit a request for further consideration to the National Reconciliation Board of Home Owners and Producers ("NRBHOP"). You should make any such request by mailing the attached "Request for Dispute Resolution" form to NRBHOP, or by sending a letter specifically demanding such dispute resolution and identifying yourself, Bauhaus, the defect, and the remedy you seek to this address:

NRBHOP
Box 8613
Redress, OK

Upon receiving your "Request for Dispute Resolution, NRBHOP will notify Bauhaus and ask for a response to your complaint. If Bauhaus disagrees with your complaint, NRBHOP will arrange for informal dispute settlement between you and Bauhaus. See the section of your Owners Manual entitled "The NRBHOP Program" for more detailed information about how the informal dispute settlement process works.

You may not file suit against Bauhaus under the Magnuson-Moss Warranty Act until your claim has been submitted to NRBHOP for informal dispute settlement and a decision has been reached, or you have waited 40 days for a decision following your submission of a Request for Dispute Resolution, whichever comes first. However, you may be entitled to file suit under state laws without waiting.

How State Law Applies
This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.

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