FTC Federal Register notice, July 13, 1977, 42 FR 36110

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FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY 13, 197/.

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WEDNESDAY, JULY 13, 1977 .

PART IV FEDERAL TRADE COMMISSION MAGNUSON-MOSS W ARRANTY ACT Interpretations and Explanatory Statement

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36112 Title 16— Commercial Practices CHAPTER I— FEDERAL TRADE COMMISSION SUBCHAPTER G— RULES, REGULATIONS, STATE­ MENTS AND INTERPRETATIONS UNDER MAG- NUSON-MOSS WARRANTY ACT PART 700— INTERPRETATIONS OF MAGNUSON-MOSS WARRANTY ACT Adoption of Interpretations and Explanatory Statement A G E N C Y : F ed era l T ra d e C om m ission . A C T IO N : F in a l in te rp reta tio n s. S U M M A R Y : T h e se a re in te rp reta tio n s o f se v era l p ro v isio n s o f th e M a g n u so n - M oss W a rra n ty A ct. T h ey rep resen t th e C o m m issio n ’s v iew s o n v a rio u s a sp e c ts o f th e A ct. T h e co n tin u ed q u estio n s a n d req u ests fo r a d v iso ry o p in io n s d irected to th e C o m m issio n m a k e a p p ro p ria te th e issu a n c e o f t h e In te r p r e ta tio n s a t th is tim e.

T h e In te r p r e ta tio n s a p p ly to co n su m er p ro d u cts d istrib u ted in co m m erce a n d so ld w ith a w r itte n w a rra n ty . T h e y a re in te n d e d to c la r ify th e req u irem en ts o f th e A ct fo r consum ers* m a n u fa ctu rers, im p orters, d istrib u to rs, a n d reta ilers.

T h e y are n o t, h o w ev er, su b sta n tiv e ru les, a n d d o n o t h a v e th e fo r c e or e ffe c t o f sta tu to r y p ro v isio n s; lik e in d u stry g u id es th e y a re a d v iso ry in n a tu re . F a ilu r e to co m p ly w ith th e m , h o w ev er, m a y r esu lt in co rrectiv e a c tio n b y th e C o m m issio n u n d er th e a p p lica b le sta tu to r y p ro v i­ sio n s.

T h e e x p la n a to r y sta te m e n t w h ich p re­ ced es th e In te r p r e ta tio n s d e ta ils th e c h a n g e s m a d e b y th e C o m m issio n _ fro m th e “P ro p o sed In te r p r e ta tio n s”

p u b ­ lish e d in th e F ederal R egister o f A u g u st 16, 1976, 41 F .R . 34654.

E F F E C T IV E D A T E : J u ly 13, 1977. F O R F U R T H E R IN F O R M A T IO N C O N ­ T A C T :

A la n R u b in , A tto rn ey , D iv isio n o f S p e c ia l S ta tu te s, B u rea u o f C on su m er P ro tec tio n , F ed era l T r a d e C o m m issio n , W a sh in g to n , D .C .

20580.

(2 0 2 -7 2 4 - 1100.) S U P P L E M E N T A R Y IN F O R M A T IO N :

F ro m th e tim e th e M a g n u so n -M o ss W a rra n ty A ct, P u b . L. 9 3 -6 3 7 , 15 U .S.C . 2301, w a s sig n e d in to la w in J a n u a ry o f 1975, m a n y q u estio n s c o n cern in g th e A ct h a v e b een d irected to th e C o m m issio n . T h e C o m m issio n h a s d eterm in ed th a t g u id a n c e sh o u ld be p ro v id ed in ord er th a t co m p lia n ce w ith th e term s o f th e A ct b e fa c ilita te d . F or th e se sa m e rea so n s th e C o m m issio n p u b lish ed , o n J u n e 18, 1975, a p o licy s ta te m e n t in th e F ederal R eg­ ister to p ro v id e in te rim g u id a n c e d u rin g th e in itia l im p le m e n ta tio n o f th e sta tu te . A s q u estio n s a n d req u ests fo r a d v i­ so ry o p in io n s c o n tin u e to be d irected to th e C o m m issio n , fu r th e r g u id a n c e o f a m o re p erm a n en t n a tu r e is a p p ro p ria te. T h er efo re , th e C o m m issio n , o n A u g u st 16, 1976, p rop osed in te r p r e ta tio n s o f th e M a g n u so n -M o ss W a rra n ty A ct to a ssist w a rra n to rs a n d su p p liers o f co n su m er p ro d u cts to co m p ly w ith th e A ct, a n d ca lled fo r co m m e n t o n th e m . RULES AND REGULATIONS T w e n ty -fiv e co m m e n ts w ere received b y th e C o m m issio n d u rin g th e co m m e n t p eriod . S o m e o f th e co m m e n ts a d d ressed o n ly o n e p rop osed in te r p r e ta tio n w h ile o th e rs a d d ressed se v era l o f th e m . In r e ­ sp o n se to th e se co m m e n ts th e C o m m is­ sio n h a s m a d e se v era l rev isio n s in th e “P ro p o sed In te r p r e ta tio n s” a n d n o w is ­ su es th e se fin a l In te r p r e ta tio n s o f th e M a g n u so n -M o ss W a rra n ty A ct. T h e e x ­ p la n a to ry sta te m e n t d iscu sses th e se r e ­ v isio n s a n d th e rea so n s th e y w ere m ad e. T h e fin a l In te r p r e ta tio n s in m a n y in ­ sta n c e s p a ra llel th e v iew s th e C o m m is­ sio n ex p ressed in its J u n e 18, 1975, in ­ terim p o licy s ta te m e n t (40 F R 2 5 7 2 1 ). In so m e in sta n c e s th e ex p la n a tio n s in th e ea rlier p o licy sta te m e n t h a v e b een p a ra p h ra sed or a ltered in th e se in te r p r e ­ ta tio n s. T h e fa c t th a t so m e item s fro m th e ea rlier sta te m e n t a re o m itted fro m th e se in te r p r e ta tio n s d oes n o t m ea n th a t th e C o m m ission n o lo n g er h o ld s th o se view s.

T h e se in te r p r e ta tio n s a p p ly to c o n ­ su m er p ro d u cts d istrib u ted in co m m erce a n d so ld w ith a w ritte n w a rra n ty . T h ey a re in te n d e d to cla r ify th e req u irem en ts o f th e A c t fo r co n su m ers, m a n u fa ctu rers, im p o rters, d istrib u to rs, a n d reta ilers.

T h e y a re n o t, h ow ever, su b sta n tiv e ru les, a n d d o n o t h a v e th e fo rce or effe ct o f sta tu to r y p rovision s; lik e in d u stry gu id es th e y a re a d v iso ry in n a tu re . F a ilu r e to co m p ly w ith th e m , h ow ever, m a y resu lt in co rrectiv e a c tio n b y th e C o m m issio n u n d er th e a p p lica b le sta tu to r y p ro v i­ sio n s.

Explanation op Changes From P roposed Interpretations A fter c a refu l co n sid er a tio n o f th e co m m e n ts su b m itted , th e C om m ission h a s rev ised so m e o f th e p rop osed in te r ­ p r eta tio n s. T h e p ro v isio n s s e t fo r th b e­ lo w a re a s th e y a p p ea r in th e fin a l in te r ­ p reta tio n s. T h e te x t b elow e a c h p ro v isio n ex p la in s w h ere a n d w h y th e ch a n g e (s) fro m th e p rop osed v ersio n h a v e b een m a d e.

PRODUCTS COVERED Section 700.1(a) The Act applies to writ­ ten warranties on tangible personal prop­ erty which is normally used for personal, family, or household purposes. This defini­ tion includes property which is intended to be attached to or installed in any real prop­ erty without regard to whether it is so at­ tached or installed. This means that a prod­ uct is a “consumer product” if the use of that type of product for such purposes is not uncommon. The percentage of sales, or the use to which a product is put by an in­ dividual buyer is not determinative. For ex­ ample, products such as automobiles and typewriters which are used for both personal and commercial purposes come within the definition of consumer product. Where it is unclear whether a particular product is cov­ ered under the definition of consumer prod­ uct, any ambiguity will be resolved in favor of coverage.

In a d o p tin g th is fin a l in te rp reta tio n , th e C o m m issio n h a s m a d e tw o rev isio n s fro m th e p rop osed su b sectio n . A d d itio n a l te x t is a d d ed a fte r th e first se n te n c e to e lim in a te th e co n tin u ed m isu n d e r sta n d ­ in g — ev id en ced b y tw o o f th e c o m ­ m e n ts— o f th e sta n d a rd fo r d eterm in in g FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY w h eth er a p ro d u ct is a “con su m er prod­ u c t” u n d er th e A ct. T h e se com m ents in­ d ica ted c o n fu sio n a s t o w h eth er a prod­ u c t u sed fo r b o th co m m ercia l and per­ so n a l p u rp oses, su c h as a p assen ger car u sed b y a sa le s rep resen ta tiv e to make b u sin ess ca lls, is covered b y th e Act. The a d d itio n a l te x t se ts o u t th e correct de­ te r m in in g sta n d a rd ; n a m e ly , th a t it is th e n o rm a l u se o f th e ca teg o ry of prod­ u c ts (e.g., s e d a n s ), n o t th e u se to which a n in d iv id u a l p ro d u ct (e.g., a particular sa le s rep resen ta tiv e’s se d a n ) is normally p la ced . A d d itio n a lly , su b sectio n s (a) and (b ) h a v e b een c o n so lid a ted to improve th e r e a d a b ility o f th e fin a l interpreta­ tio n .

Section 700.1 (j) The Act covers written warranties on consumer products “dis­ tributed in commerce” as that term is defined in section 101(3). Thus, by its terms the Act arguably applies to products exported to foreign jurisdictions. However, the public interest would not be served by the use of Commission resources to enforce the Act with respect to such products. Moreover, the legislative intent to apply the requirements of the Act to such products is not sufficiently clear to justify such an extraordinary result. The Commission does not contemplate the enforcement of the Act with respect to con­ sumer products exported to foreign jurisdic­ tions. Products exported for sale at military post exchanges remain subject to the same enforcement standards as products sold, within the United States, its territories, and possessions.

T h e p rop osed in te rp reta tio n stated t h a t th e C o m m issio n d oes n o t contem ­ p la te en fo r c e m e n t o f t h e A ct for prod­ u c ts “m a n u fa c tu r e d so le ly fo r export." T w o co m m e n ts n o te t h a t th is language in th e p rop osed in te rp reta tio n appears to m a k e th e m a n u fa c tu r e r ’s in ten t to ex p o rt th e d e te r m in in g sta n d a rd rather th a n th e a c tu a l ex p o rt o f th e product. A n o th e r co m m e n t n o te d th a t th e word “so le ly ” in th e p rop osed interpretation co u ld b e rea d a s su b je c tin g a m anufac­ tu rer to C o m m issio n en fo rcem en t un­ le ss a ll u n its o f a sin g le p rod u ct are ex­ p orted . T h e C o m m issio n d id n o t intend e ith e r o f th e se rea d in g s. T h erefore, the C o m m issio n h a s substituted^ th e word “ex p o rted ” fo r th e p h ra se “m anufactured so le ly fo r ex p o rt” in th e fin a l interpre­ ta tio n .

W RITTEN WARRANTY Section 700.3(b) Certain terms, or condi­ tions, -of sale of a consumer product may not be “written warranties” as that term is defined in section 101(6), and should not be offered or described in a manner that may deceive consumers as to their enforceability under the Act. For example, a seller of con­ sumer products may give consumers an un­ conditional right to revoke acceptance of goods within a certain number of days after delivery without regard to defects or failure to meet a specified level of performance. Or a seller may permit consumers to return products for any reason for credit toward purchase of another item. Such terms of sale taken alone are not written warranties under the Act. Therefore, suppliers should avoid any characterization of such terms of sal© as warranties. The use of such terms as “free trial period” and “trade-in credit policy’ m this regard would be appropriate. Further­ more, such terms of sale should be Separately from any written warranty, course, the offering and performance of sue 13, 1977

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terms of eale remain subject to section 5 of the Federal Trade Commission Act, 15 Ü.S.C. 45.

The C om m ission h a s m a d e so m e m in o r changes in th e se su b sectio n s. F ir st, a textual ch a n g e is m a d e to m a k e it c lea r that th is su b sectio n refers to u n c o n d i­ tional rig h ts o f rev o ca tio n o f th e c o n ­ sumer, an d n o t to rig h ts w h ich m a y d e ­ pend on th e e x iste n c e o f so m e d e fe c t or other circu m sta n ces. S eco n d , th e fir st sentence o f p rop osed su b sectio n (c) which read “S u ch te r m s o f sa le sh o u ld not be d escrib ed a s w r itte n w a rra n ties, as this m ay d eceiv e co n su m ers, le a d in g them to b eliev e t h a t su c h term s m a y be enforced as w a rra n ties u n d er th e A c t” has been d eleted a s it m erely r e sta te s the first se n te n c e o f p ro p o sed su b sectio n (b), yet ad d s n o th in g to th e m e a n in g of the in terp reta tio n . F in a lly , th e tw o subsections h a v e b een co n so lid a ted in to one to im prove th e rea d a b ility o f th e interpretation.

PARTIES “ ACTUALLY M A K IN G ” A W RITTEN WARRANTY Section 700.4 Section 110(f) of the Act provides that only the supplier “actually making” a written warranty is liable for pur­ poses of FTC and private enforcement of the Act. A supplier who does no more than dis­ tribute or sell a consumer product covered by a written warranty offered by another per­ son or business and which identifies that person or business as the warrantor is not liable for failure of the written warranty to comply with the Act or rules thereunder. However, other actions and written and oral representations of such a supplier in connec­ tion with the offer or sale of a warranted product may obligate that supplier under the Act. If under state law the supplier is deemed to have “adopted” the written af­ firmation of fact, promise, or undertaking, the supplier is also obligated under the Act. Suppliers are advised to consult state law to determine those actions and representations which may make them co-warrantors, and therefore obligated under the warranty of the other person or business. The C om m ission h a s m a d e tw o t e x ­ tual ch anges in th is su b sectio n . F irst, the n ext to la st se n te n c e o f th è p a r a ­ graph h as b een a d d ed to c la r ify w h en a supplier m a y b eco m e o b lig a ted u n d er the w arranty o f a n o th e r p erso n or b u si­ ness—i.e., w h en th e su p p lier “a d o p ts” the w arranty. S eco n d , th e C o m m issio n has added th e p h ra se “o f th e o th e r p e r ­ son or b u sin ess” to th e en d o f t h e su b ­ section to cla rify to w h ic h w r itte n w a r­ ranty th e C o m m issio n is referrin g in th e interpreation. T h ese c h a n g es d o n o t a lte r the m eaning o f th e in te r p r e ta tio n fro m the proposed version .

DESIGNATION OF WARRANTIES Section 700.6(a) Section 103 of the Act provides that written warranties on con­ sumer products manufactured after July 4, -1975, and actually costing the consumer more than $10 excluding tax, must be des­ ignated either “Full (statement of duration) Warranty” or “Limited Warranty.” Warran­ tors may include a statement of duration in a limited warranty designation. The designa­ tion should appear clearly and conspicu- °usly as a caption, or prominent title, clearly separated from the text of the warranty. The full (statement of duration) warranty and limited warranty are the exclusive des- RULES AND REGULATIONS ignations permitted under the Act, unless a specific exception is created by rule. T h e C o m m ission h a s in ser ted a n a d ­ d itio n a l se n te n c e a fte r th e fir st se n ­ te n c e in th is su b sectio n . T h e ad d ed t e x t p ro v id es t h a t “W arran tors m a y in clu d e a sta te m e n t o f d u ra tio n in a lim ite d w a rra n ty d esig n a tio n .” T h is is a r e ite r a ­ tio n o f th e C om m ission 's p rev io u sly a d o p ted in te r p r e ta tio n s e t o u t in P a r t 3 o f th e C o m m issio n ’s “Im p le m e n ta tio n a n d E n fo rcem en t P o licy ,” 40 F R 25721 (J u n e 18, 1 9 7 5 ). T h e a d d ed la n g u a g e in d ic a te s t h a t th e C om m ission h a s n o t c h a n g ed its p o sitio n o n th e q u estio n o f d u ra tio n sta te m e n ts in lim ite d w a rra n ty d esig n a tio n s.

Section 700.6 (b) Section 104(b) (4) states that “the duties under subsection (a) (of section 104) extend from the warrantor to each person who is a consumer with respect to the consumer product.” Section 101(3) defines a consumer as “a buyer (other than for purposes of resale) of any consumer product, any person to whom such product is transferred during the duration of an im­ plied or written warranty (or service con­ tract) applicable to the product * * Therefore, a full warranty may not ex­ pressly restrict the warranty rights of a transferee during its stated duration. How­ ever, where the duration of a full warranty is defined solely in terms of first purchaser ownership there can be no violation of sec­ tion 104(b)(4), sintfe the duration of the warranty expires, by definition, at the time of transfer. No rights of a subsequent trans­ feree are cut off as there is no transfer of ownership “during the duration of (any) warranty.” Thus, these provisions do not pre­ clude the offering of a full warranty with its duration determined exclusively by the pe­ riod during which the first purchaser owns the product, or uses it in conjunction with another product For example, an automo­ tive battery or muffler warranty may be designated as “full warranty for as long as you own your car.” Because this type of warranty leads the consumer to believe that proof of purchase is not needed so long as hie or she owns the product, a duty to fur­ nish documentary proof may not be rea­ sonably imposed on the consumer under this type of warranty. The burden is on the warrantor to prove that a particular claim­ ant under this type of warranty is not the original purchaser or owner of the prod­ uct. Warrantors or their designated agents may, however, ask consumers to state or affirm that they are the first purchaser of the product.

T h e C o m m issio n h a s m a d e th r e e c h a n g e s in th is in te rp reta tio n . F irst, p ro ­ p o sed su b sectio n s (b ) a n d (c) h a v e b een c o n so lid a ted in to o n e to im p rove th e rea d a b ility o f th e in te rp reta tio n . S e c ­ o n d , th e C o m m issio n h a s in ser ted tw o a d d itio n a l se n te n c e s b etw een th e th ir d a n d fo u r th se n te n c e s o f p rop osed in te r ­ p r e ta tio n § 700.6 ( b ) .

T h e se se n te n c e s are in te n d e d to c la rify th e ra tio n a le u n ­ d erly in g th e C o m m issio n ’s in te r p r e ta ­ tio n . F in a lly , th e C o m m issio n h a s su b ­ s titu te d th e w ord “d o cu m e n ta ry ” fo r th e w ord “s u c h ” in th e la s t se n te n c e o f th e p ro p o sed in te r p r e ta tio n a n d h a s a d d ed a n a d d itio n a l se n te n c e a t th e en d o f th e in te rp reta tio n . T h e p u rp ose o f th e se tw o ch a n g e s is to m a k e clea r t h a t th e C om ­ m issio n d o es n o t in te n d th is in te r p r e ta ­ tio n to p ro h ib it a w a rra n to r o r se lle r fro m sim p ly in q u irin g a t th e tim e a w a r - 36113 r a n ty c la im is m a d e w h eth er th e c o n ­ su m er w a s th e first p u rch a ser o f th e w a rra n ted p rod u ct. T h e C om m ission in ­ te n d s th is in te r p r e ta tio n to o n ly p ro ­ h ib it th e w a rra n to r fro m req u irin g w r itte n p roof, su c h as sa le s slip s, title s, etc. fro m th e co n su m er a s a co n d itio n o f th e w a rra n ty ’s v a lid ity . U SE OF WARRANTY REGISTRATION CARDS Section 700.7(a) Under section 104(b) (1) of the Act, a warrantor offering a full warranty may not impose on consumers any duty other than notification of a defect as a condition of securing remedy of the defect or malfunction, unless such additional duty can be demonstrated by the warrantor to be reasonable. Warrantors have in the past stip­ ulated the return of a “warranty registra­ tion” or similar card. By “warranty registra­ tion card” the Commission .means a card which must be returned by the consumer shortly after purchase of the product and which is stipulated or implied in the war­ ranty to be a condition precedent to war­ ranty coverage and performance. T h e C o m m issio n h a s a d d ed a d d itio n a l t e x t to th e e n d o f th e p rop osed in te r p r e ­ ta tio n to c la r ify th e d e fin itio n o f “w a r­ r a n ty r e g istr a tio n ca r d ” a s th a t term is u sed in th e in te r p r e ta tio n . T h e C o m m is­ sio n h a s a d d ed th is t e x t to d istin g u ish b etw een th e m o re co m m o n w a rra n ty r e g istr a tio n ca rd (a s d efin e d ) a n d o th e r ty p e s o f ca rd s or e v id en ce o f p u rch a se or w a rra n ty co v era g e, retu rn o f w h ic h m a y b e a stip u la te d co n d itio n fo r w a rra n ty co v era g e. T h e C o m m issio n in te n d s o n ly th e fo rm e r ty p e o f ca rd to b e covered b y th is in te r p r e ta tio n . Section 700.7(b) A requirement that the consumer return a warranty registration card or a similar notice as a condition of perform­ ance under a full warranty is an unreason­ able duty. Thus, a provision such as “This warranty is void unless the warranty regis­ tration card is returned to the warrantor” is not permissible in a full warranty, nor is it permissible to imply such a condition in a full warranty.

T h e C o m m issio n h a s d eleted th e p a r ­ e n th e tic a l p h r a se “o th e r th a n a n o tic e o f a d e fe c t” fro m th e p ro p o sed in te r p r e ­ ta tio n .

T h e p ro p o sed in te r p r e ta tio n co u ld b e rea d a s C o m m issio n a p p ro v a l o f a req u irem en t in a fu ll w a rra n ty th a t n o tific a tio n o f a d e fe c t b e in w ritin g . T h is r e a d in g is n o t in te n d e d b y th e C o m ­ m issio n sin c e su c h a req u irem en t m a y be a n u n rea so n a b le d u ty u n d er se c tio n 104(b ) (1) o f th e A ct.

Section 700.7(c) This does not prohibit the use of such registration cards where a warrantor suggests use of the card as one possible means of proof of the date the produot was purchased. For example, it is per­ missible to provide in a full warranty that the consumer may fill out and return a card to place on file proof of the date the product was purchased. Any such suggestion to the consumer must include notice that failure to return the card will not affect rights un­ der the warranty, so long as the consumer can show in a reasonable manner the dat» the product was purchased. Nor does this In­ terpretation prohibit a seller from obtaining from purchasers at the time of sale informa­ tion requested by the warrantor. T h e C o m m issio n h a s ad d ed a se n te n c e a t th e e n d o f th is su b sectio n . T h is se n ­ te n c e w a s ad d ed to m a k e cle a r t h a t th e FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY 13, 1977

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36114 RULES AND REGULATIONS in te r p r e ta tio n a b o v e d o es n o t p ro h ib it w a rra n to rs fro m e m p lo y in g re g istr a tio n sy ste m s w h ic h d o n o t im p o se o n c o n ­ su m ers a d u ty to retu rn a w a rra n ty re g istr a tio n ca rd sh o r tly a fte r p u rch a se. T h is se n te n c e w a s a lso a d d ed to ex p ress­ ly p erm it sellers to g a th e r in fo r m a tio n a t th e p o in t o f sa le fo r th e ir w a rra n ty record s, or fo r p ro d u ct s a fe ty reca ll or o th e r p u rp o ses.

DUTY TO INSTALL UNDER A FULL WARRANTY Section 700.9 Under section 104(a)(1) of the Act, the remedy under a full warranty must be provided to the consumer without charge. If the warranted product has utility only when installed, a full warranty must provide such installation without charge re­ gardless of whether or not the consumer originally paid for installation by the war­ rantor or his agent. However, this does not preclude the warrantor from imposing on the consumer a duty to remove, return, or re­ install where such duty can be demonstrated by the warrantor to meet the standard of reasonableness under section 104(b)(1). O n e c o m m e n t n o te d t h a t th e p ro p o sed in te r p r e ta tio n d id n o t in d ic a te , a s th e C o m m issio n h a d p rev io u sly d o n e in its a d v iso ry o p in io n to A rm stro n g C ork Co. o f D ecem b er 1 ,1 9 7 5 , t h a t th e d u ty to r e ­ in s ta ll u n d er a w a rra n ty a p p lies “r e ­ g a rd less o f w h e th e r or n o t th e co n su m er o r ig in a lly p a id fo r in sta lla tio n b y th e w a rra n to r or h is a g e n t.” T h is ra ises th e q u estio n w h e th e r th is o m issio n in d ic a te s a p a r tia l retr a c tio n b y th e C o m m issio n o f its a d v iso ry o p in io n in Arm strong Cork. T h e in te r p r e ta tio n w a s in te n d e d b y th e C o m m issio n a s a r e sta te m e n t o f th e p rev io u s a d v iso ry o p in io n ; th u s th e a d d itio n o f th e p h ra se a t th e en d o f th e se co n d se n te n c e in th e fin a l in te r p r e ta ­ tio n is m a d e to e lim in a te a n y p o ssib le m isin te r p r e ta tio n .

SECTION 102(0 Section 700.io(a) Section 102(c) prohib­ its tying arrangements that condition cov­ erage under a written warranty on the con­ sumer’s use of an article or service identified by brand, trade, or corporate name unless that article or service is provided without charge to the consumer.

T h er e a re tw o co m m e n ts in th is in ­ te r p r e ta tio n .

E a c h m ista k e n ly sta te d th a t th e C o m m issio n h a s m issta te d th e la w b y o m ittin g th e p ro v isio n t h a t a l­ lo w s “t ie -in s ” if th e tie d a r tic le or se rv ­ ic e is p rovid ed w ith o u t ch a r g e to th e co n su m er. T h e p ro p o sed in te r p r e ta tio n d id n o t o m it t h is a s it sta te d th a t se c tio n 1 0 2 (c) p ro h ib its ty in g a r ra n g em en ts w h ere co n su m ers m u st p u rch a se th e tied a r tic le or serv ice. T h is rep h ra sin g w a s d o n e to sh o r te n th e p ro p o sed in te r p r e ta ­ tio n a n d to im p ro v e its rea d a b ility . H o w ­ ever, it a p p ea rs t h a t th is rep h ra sin g h a s ca u se d so m e c o n fu sio n . T h erefo re, th e C o m m issio n h a s rev ised t h e w o rd in g o f th e in te r p r e ta tio n to tra ck m o re clo sely th e la n g u a g e o f th e sta tu te so a s to a v o id u n d u e co n fu sio n .

S e c tio n 7 0 0 .1 0 (d ). (T h is se c tio n h a s b een d eleted .) T h e r e w ere m a n y c o m m e n ts critic a l o f th e p ro p o sed in te rp reta tio n . T h e c o m ­ m e n ta to r s a rg u ed t h a t th e C o m m issio n ’s p o sitio n w a s n e ith e r ju stifie d u n d er th e s ta tu te n o r reflectiv e o f m a rk etp la ce rea lities. T h e C o m m issio n h a s d ecid ed to d e le te t h e p rop osed in te r p r e ta tio n fro m th e fin a l “In te r p r e ta tio n s.” T h e C o m m issio n is p ersu a d ed th a t th e p ro p o sed in te r p r e ta tio n d o es n o t r eflect th e C o n g ressio n a l p u rp ose or in te n t b e ­ h in d se c tio n 1 0 2 (c ). S e c tio n 1 0 2(c) p ro ­ h ib its ty in g a rra n g em en ts in w a rra n ties th a t effe ctiv ely r e str ic t th e co n su m er’s a b ility to ch o o se a m o n g co m p etin g b ra n d s o f p ro d u cts or se rv ices t h a t c a n b e u sed in c o n ju n c tio n w ith th e w a r­ r a n te d p ro d u ct.

T h e p rop osed in te r ­ p r e ta tio n w a s p rem ised o n th e e x is te n c e o f a c la ss o f co n su m ers w h o se ch o ice w o u ld b e r e str ic te d u n d er su c h w a rra n ty p ro v isio n s, i.e., th o se co n su m ers w h o w ou ld e le c t to h a v e th e p ro d u ct in sta lle d b y a n o th e r co m m e rcia l in sta lle r b u t fo r th e f a c t t h a t th e w a rra n ty o n th e p ro d ­ u c t co n d itio n s th e rem ed y o f r e in s ta l­ la tio n o n th e co n su m er’s u se o f th e w a r­ ra n to r ’s in sta lla tio n serv ice. T h is p rem ­ ise, h o w ev er, d oes n o t r e flect m a r k e t­ p la ce r e a lities.

I t a p p ea rs th a t th e r e a re o n ly tw o g ro u p s o f b u y ers o f p ro d u cts ca rry in g su c h w a rra n ties. (T h e p ro d u cts su b ject to th e se w a rra n ty term s a re a lm o st e x ­ clu siv e ly a u to m o tiv e r e p la cem en t p a rts.) O n e grou p , th e “d o -it-y o u r se lf­ e r s,” b u y th e p ro d u ct a t a low er p rice a n d in sta ll i t th e m se lv e s. T h e se co n d grou p is co m p o sed o f co n su m ers w h o b u y th e p ro d u ct k n o w in g t h a t th e se lle r w ill a lso in sta ll it fo r th e m a t a n a d d itio n a l ch a rg e. U n d er th e C o m m issio n ’s p ro ­ p o sed in te r p r e ta tio n n e ith e r o f th e se tw o g ro u p s w o u ld b e aid ed . I f th e w a rra n to r a g rees t o p ro v id e fr e e r e -in sta lla tio n r e ­ g a rd less o f w h eth er th e w a rra n to r d id th e o r ig in a l in sta lla tio n , th e c o sts o f r e - in ­ sta lla tio n fo r co n su m ers w h o o rig in a lly p u rch a sed th e p ro d u ct u n in sta lle d w ill b e reflected in a h ig h e r p u rch a se p rice fo r th e p ro d u ct.

T h is w o u ld r esu lt in th e “d o -it-y o u r se lfe r ” grou p p a y in g fo r a r e in sta lla tio n w a rra n ty , w h e n h is o r h e r o r ig in a l re a so n fo r p u rch a sin g t h e p ro d ­ u c t w a s to sa v e th e c o s t o f in sta lla tio n . T h e w a rra n to r’s o th e r a lte r n a tiv e is to n o t p ro v id e r é in s ta lla tio n fo r a n yb od y, re su ltin g in a p o te n tia l lo ss o f w a rra n ty co v era g e fo r co n su m ers w h o p u rch a se th e p ro d u ct in sta lle d . T h u s, th e p rop osed in te r p r e ta tio n m ig h t r e su lt in h a r m to co n su m ers w ith o u t fu lfillin g th e in te n t o f th e sta tu to r y p ro v isio n o n w h ic h it is b a sed .

T h e d e le tio n o f th is in te r p r e ta tio n d oes n o t c h a n g e th e C o m m issio n ’s in te r p r e ta ­ tio n t h a t u n d er a fu ll w a rra n ty , th e w a r ­ ra n to r m u st u n d erta k e to r e in s ta ll a n y p ro d u ct w ith o u t c h a rg e a s p a r t o f th e rem ed y u n d er se c tio n 1 0 4 (a ) ( 1 ). A n e x ­ c ep tio n is p erm itted w h ere th e w a rra n to r c a n d e m o n stra te t h a t it is rea so n a b le u n ­ d er se c tio n 1 0 4(b ) (1) to im p o se th e d u ty o f r e in sta lla tio n o n th e co n su m er, se e th e C o m m issio n ’s a d v iso ry o p in io n to A rm stro n g C ork Co. o f D ecem b er 1 ,1 9 7 5 , a n d § 700.9 o f th e se “In te r p r e ta tio n s.” WRITTEN WARRANTY, SERVICE CONTRACT, AND IN­ SURANCE DISTINGUISHED FOR PURPOSES OF COMPLIANCE UNDER THE ACT Section 700.11(a) The Act recognizes two types of agreements which may provide simi­ lar coverage of consumer products, the writ­ ten warranty, and the service contract. In ad­ dition, other agreements may meet the statu­ tory definition of either “written warranty” or “service contract”, but are sold and regu­ lated under state law as contracts of insur­ ance. One example is the automobile break­ down insurance policies sold in many jurisdictions and regulated by the state as a form of casualty insurance. The McCarran- Ferguson Act, 15 U.S.C. 1011 et seq. pre­ cludes jurisdiction under federal law over “the business of insurance” to the extent an agreement is regulated by state law as in­ surance. Thus, such agreements are subject to the Magnuson-Moss Warranty Act only to the extent they are not regulated in a par­ ticular state as the business of insurance. T h er e w ere n o co m m e n ts su bm itted on th is in te rp reta tio n . H ow ever, th e Com­ m issio n a d d ed o n its o w n in itia tiv e, addi­ tio n a l t e x t a t th e en d o f th e third sen­ te n c e o f th e p rop osed in terp retation to c la r ify th a t a n a g reem en t is on ly insur­ a n ce, a n d n o t su b je c t to th e Commis­ s io n ’s ju r isd ictio n , if it is regulated as su c h by sta te la w . T h is a d d itio n a l phrase r ein fo rces th e p o in t t h a t th e p arty offer­ in g th e c o n tr a c t c a n n o t em p loy th e name or title o f “b reak d ow n in su ra n ce” to es­ ca p e ju r isd ictio n o f th e A c t v ia th e pro­ v isio n s o f th e M cC arran -F ergu son Act; ra th e r th e d istin c tio n rests o n th e active r eg u la tio n b y a s ta te o f a p articu lar un­ d erta k in g a s th e b u sin ess o f insurance. Section 700.11(b) “Written warranty”

and “service contract” are defined in sections 101(6) and 101(8) of the Act, respectively. A written warranty must be “part of the basis of the bargain.” This means that it must be conveyed at the time of sale of the consumer product and the consumer must not give any consideration beyond the purchase price of the consumer product in order to benefit from the agreement. It is not a requirement of the Act than an agreement obligate a sup­ plier of the consumer product to be a writ­ ten warranty, but merely that it be part of the basis of the bargain between a supplier and a consumer. This contemplates written warranties by third-party non-suppliers. O n e co m m e n t su g g e ste d th a t the word “p r ic e ” b e in ser ted a fte r th e w ord “pur­ c h a se ” in th e se co n d se n te n c e to clarify th e in te r p r e ta tio n . T h e C om m ission has a d o p ted th is su g g e stio n to avoid any mis­ u n d ersta n d in g .

A cco rd in g ly , th e C om m ission hereby a m en d s T itle 16 o f th e C ode of Federal R eg u la tio n s (C F R ), C h a p ter I, 'Subchap­ ter G , R u les, R eg u la tio n s, Statem ents, a n d In te r p r e ta tio n s u n d er th e M agnu­ so n -M o ss W a rra n ty A ct, b y adding a n ew P a r t 700, rea d in g as follow s: Sec.

700.1 Products covered.

700.2 Date of manufacture.

700.3 Written warranty.

700.4 Parties “actually making” a written warranty.

700.5 Expressions of general policy.

700.6 Designation of warranties.

700.7 Use of Warranty Registration Cards. 700.8 Warrantor’s decision as final.

700.9 Duty to install under a full war­ ranty.

700.10 Section 102(c).

~ 700.11 Written warranty, service contract, and insurance distinguished I purposes of compliance under th Act.

FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY 13, 1977

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X RULES AND REGULATIONS 36115 700.12 Effective date of 16 CPR, Parts 701 and 702.

Au t h o r it y :

Magnuson-Moss Warranty Act, Pub. L. 93-637, 15 U.S.C. 2301. § 700.1 Products covered.

(a) T he A ct a p p lies to w ritte n w a r­ ranties on ta n g ib le p erso n a l p ro p erty which is n o rm a lly u sed fo r p erso n a l, family, or h o u seh o ld p u rp o ses. T h is d efi­ nition in clu d es p ro p erty w h ich is in ­ tended to fee a tta c h e d to or in sta lle d in any real p ro p erty w ith o u t reg a rd to whether it is so a tta c h e d or in sta lle d . This m eans t h a t a p ro d u ct is a “c o n ­ sumer p rod u ct” if th e u se o f t h a t ty p e of product is n o t u n co m m o n . T h e p e r ­ centage of sa le s or th e Use to w h ich a product is p u t b y a n y in d iv id u a l b u y er is not d eterm in a tiv e. F o r ex a m p le, p ro d ­ ucts such as a u to m o b iles a n d ty p ew riters which are u sed fo r b o th p erso n a l a n d commercial p u rp oses co m e w ith in th e definition o f co n su m er p ro d u ct. W h ere it is unclear w h eth er a p a rticu la r p ro d ­ uct is covered u n d er th e d e fin itio n o f consumer p rod u ct, a n y a m b ig u ity w ill be resolved in fa v o r o f co v era g e. (b) A gricultural p ro d u cts su c h as fa rm machinery, stru ctu res a n d im p le m e n ts used in th e b u sin ess or o ccu p a tio n o f farming are n o t co v ered b y th e A ct where their p erso n a l, fa m ily , or h o u s e ­ hold use is u n co m m o n . H ow ever, th o se agricultural p ro d u cts n o rm a lly u sed fo r personal or h o u seh o ld g a rd en in g (fo r example, to p rod u ce g o o d s fo r p erso n a l consumption, a n d n o t fo r resa le) are. c o n ­ sumer products u n d er th e A ct. (c) The d efin itio n o f “C o n su m er p ro d ­ uct” lim its th e a p p lica b ility o f th e A ct to personal p rop erty, “in c lu d in g a n y su ch property in ten d ed to be a tta c h e d to or installed in a n y r ea l p ro p erty w ith o u t regard to w h eth er it is so a tta c h e d or installed.” T h is p ro v isio n b rin g s u n d er the Act sep arate ite m s o f eq u ip m en t a t ­ tached to real p rop erty, su ch a s a ir c o n ­ ditioners, fu rn a ces, a n d w a te r h e a te r s. (d) The coverage o f se p a r a te ite m s o f equipment a tta ch ed to rea l p ro p erty in ­ cludes, but is n o t lim ite d to , a p p lia n c es and other th erm a l, m e c h a n ic a l, a n d e le c ­ trical equipm ent. (It d o es n o t e x te n d to the wiring, p lu m b in g, d u cts, a n d o th e r items w hich are in te g r a l co m p o n e n t parts of th e stru ctu re.) S ta te la w w ou ld classify m any su ch p ro d u cts a s fix tu res to, and th erefore a p a r t o f, r e a lty . T h e statutory d efin itio n is d esig n ed to b rin g such products u n d er th e A ct reg a rd less o f whether th ey m a y b e co n sid ered fix tu res under state law .

(e) T he coverage o f b u ild in g m a ter ia ls which are n o t se p a r a te ite m s o f eq u ip ­ ment is based on th e n a tu r e o f th e p u r­ chase tran saction . A n a n a ly sis o f th e transaction w ill d eterm in e w h e th e r th e goods are real or p erso n a l p ro p erty . T h e numerous p rod u cts w h ic h g o in to th e construction of a co n su m er d w ellin g are all consum er p ro d u cts w h e n so ld “o v er the counter,” as b y h a rd w a re a n d b u ild mg supply reta ilers. T h is is a lso tru e where a con su m er c o n tr a c ts fo r th e p u r­ chase of su ch m a te r ia ls in co n n e c tio n with the im provem en t, rep a ir, or m o d ifi­ cation of a h o m e (fo r ex a m p le, p a n elin g , d ro p p ed ceilin g s, sid in g , roofin g, sto rm w in d o w s, r e m o d e lin g ). H ow ever, w h ere su c h p ro d u cts a re a t t h e tim e o f s a le in ­ te g ra ted in to th e str u c tu r e o f a d w ellin g th e y a re n o t co n su m er p ro d u cts as th e y c a n n o t b e p r a c tic a lly d istin g u ish e d fro m rea lty . T h u s, fo r ex a m p le, th e b ea m s, w a llb o a rd , w irin g , p lu m b in g , w in d ow s, ro o fin g , a n d o th e r stru ctu ra l co m p o n e n ts o f a d w ellin g a re n o t co n su m er p ro d u cts w h en th e y a re so ld a s p a rt o f rea l e s ta te co v ered b y a w ritte n w a rra n ty . * (f) In th e c a se w h ere a co n su m er c o n ­ tr a c ts w ith a b u ild er to c o n str u c t a h o m e, a su b sta n tia l a d d itio n to a h o m e, or o th e r r e a lty (su ch a s a g a ra g e or a n in -g r o u n d sw im m in g p o o l) th e b u ild in g m a te r ia ls to b e u sed a re n o t co n su m er p ro d u cts. A lth o u g h th e m a te r ia ls a re se p a r a te ly id en tifia b le a t th e tim e th e c o n tr a c t is m a d e, it is th e in te n tio n o f th e p a rties to c o n tr a c t fo r th e co n str u c tio n o f r e a lty w h ich w ill in te r g r a te th e co m p o n e n t m a ­ teria ls. O f cou rse, a s n o te d ab ove, a n y se p a r a te ite m s o f e q u ip m en t to b e a t ­ ta c h e d to su c h r e a lty are co n su m er p ro d ­ u cts u n d er th e A ct.

(g) C erta in p ro v isio n s o f th e A c t a p p ly o n ly to p ro d u cts a c tu a lly co stin g th e co n su m er m o re th a n a sp ecified a m o u n t. S e c tio n 103 a p p lies to co n su m er p ro d u cts a c tu a lly co stin g ,-th e co n su m er m o re th a n $10, e x clu d in g ta x . T h e $10 m in im u m w ill b e in te rp rete d to in clu d e m u ltip le -p a c k a g e d ite m s w h ic h m a y in ­ d iv id u a lly se ll fo r less th a n $10, b u t w h ich h a v e b een p a ck a g ed in a m a n n er th a t d o es n o t p erm it b rea k in g th e p a c k ­ a g e to p u rch a se a n ite m or ite m s a t a p rice less th a n $10. T h u s, a w r itte n w a r ­ r a n ty o n a d o zen ite m s p a ck a g ed an d p riced fo r sa le a t $12 m u st b e d esig n a ted , ev en th o u g h id e n tic a l ite m s m a y be o f ­ fered in sm a lle r q u a n titie s a t u n d er $10. T h is in te r p r e ta tio n a p p lies in th e sa m e m a n n e r to th e m in im u m d o lla r lim its in se c tio n 102 a n d ru les p ro m u lg a ted u n d er th a t se c tio n .

• (h ) W a rra n ties o n re p la c e m e n t p a rts a n d co m p o n e n ts u sed to rep a ir con su m er p ro d u cts a re co vered ;

w a rra n ties o n se rv ices a re n o t covered . T h er efo re , w a r­ ra n tie s w h ich a p p ly so le ly to a rep a irer’s w o rk m a n sh ip in p erfo rm in g rep a irs are n o t su b je c t to th e A ct. W h ere a w ritte n a g r e e m e n t w a rra n ts b o th th e p a rts p ro ­ v id ed to effe c t a rep a ir a n d th e w ork ­ m a n sh ip in m a k in g th a t rep air, th e w a r­ r a n ty m u st co m p ly w ith th e A ct a n d th e ru les th ereu n d er.

(i) T h e A ct co v ers w r itte n w a rra n ties o n co n su m er p ro d u cts “d istrib u ted in co m m e rce” a s t h a t term is d efin éd in se c tio n 1 0 1 (3 ). T h u s, b y its term s th e A ct a rg u a b ly a p p lies to p ro d u cts e x ­ p o rted to fo r e ig n ju r isd ictio n s. H ow ever, th e p u b lic in te r e st w ou ld n o t b e serv ed b y th e u se o f C o m m issio n reso u rces to en fo rce th e A ct w ith r e sp ect to su ch p ro d u cts. M oreover, th e le g isla tiv e in ­ te n t to a p p ly th e req u irem en ts o f th e A ct to su c h p ro d u cts is n o t su fficien tly c le a r to ju s tify su c h a n ex tra o rd in a ry resu lt. T h e C o m m issio n d o es n o t c o n ­ te m p la te th e e n fo r c e m e n t o f th e A ct w ith rèsp ect to co n su m er p ro d u cts e x ­ p o rted to fo r e ig n ju r isd ictio n s. P ro d u c ts ex p o rted fo r sa le a t m ilita r y p o st e x ­ c h a n g e s rem a in su b ject to th e sa m e e n ­ fo r c e m e n t sta n d a r d s a s p ro d u cts so ld w ith in th e U n ite d S ta te s, its territo ries a n d p o ssessio n s.

§ 700.2 Date of manufacture.

S e c tio n 112 o f th e A c t p ro v id es th a t th e A c t sh a ll a p p ly o n ly to th o s e c o n ­ su m er p ro d u cts m a n u fa c tu r e d a fte r J u ly 4, 1975. W h en a co n su m er p u rch a ses rep a ir o f a co n su m er p ro d u ct th e d a te o f m a n u fa c tu r e o f a n y r e p la cem en t p a rts u sed in th e m ea su rin g d a te fo r d eterm in in g co v era g e u n d er th e A ct. T h e d a te o f m a n u fa c tu r e o f th e co n su m er p ro d u ct b ein g rep a ired is in th is in sta n c e n o t relev a n t. W h ere a co n su m er p u r­ c h a se s or o b ta in s o n a n e x c h a n g e b asis a reb u ilt co n su m er p ro d u ct, th e d a te t h a t th e reb u ild in g p ro cess is co m p leted d eterm in es th e A c t’s a p p lica b ility . § 700.3 Written warranty.

(a ) T h e A ct im p o ses sp ecific d u ties a n d lia b ilitie s o n su p p liers w h o offer w r itte n w a rra n ties o n co n su m er p ro d ­ u cts. C erta in r e p resen ta tio n s, su c h a s e n erg y efficien cy ra tin g s fo r e le c tr ic a l a p p lia n c es, ca re la b e lin g o f w ea rin g a p ­ p arel, a n d o th e r p ro d u ct in fo r m a tio n d is­ clo su res m a y b e ex p ress w a rra n ties u n ­ d er th e U n ifo r m C o m m ercia l C ode. H o w ­ ever, th e se d isclo su res a lo n e a re n o t w rit­ te n w a rra n ties u n d er th is A ct. S e c tio n 101(6) p rovid es th a t a w r itte n affirm a­ tio n o f f a c t or a w r itte n p ro m ise o f a sp ecified lev el o f p erfo rm a n c e m u s t r e ­ la te to a sp ec ified p eriod o f tim e in ord er to b e con sid ered a “w ritte n w a r r a n ty .” 1 A p ro d u ct in fo r m a tio n d isclo su re w ith ­ o u t a sp ec ified tim e p eriod to w h ic h th e d isclo su re r e la te s is th e r e fo r e n o t a w rit­ te n w a rra n ty . In a d d itio n , se c tio n 1 1 1 (d ) ex e m p ts fr o m t h e A c t (ex c e p t se c tio n 1 0 2 (c )) a n y w r itte n w a rra n ty th e m a k ­ in g or c o n te n t o f w h ic h is req u ired b y fe d e r a l la w . T h e C o m m issio n en co u ra g es th e d isclo su re o f p ro d u ct in fo r m a tio n w h ich is n o t d ecep tiv e a n d w h ic h m a y b en efit co n su m ers, a n d w ill n o t co n stru e th e A c t to im p e d e in fo r m a tio n d isclo su re in p ro d u ct a d v e r tisin g or la b elin g . (b ) C erta in term s, o r co n d itio n s, o f s a le o f a co n su m er p ro d u ct m a y n o t b e “w r itte n w a r r a n tie s” a s t h a t term is d e ­ fin e d in S e c tio n 1 0 1 (6 ), a n d sh o u ld n o t b e offered or d escrib ed in a m a n n e r th a t m a y d eceiv e co n su m ers a s t o th e ir e n ­ fo r c e a b ility u n d er th e A ct. F o r ex a m p le, a se lle r o f co n su m er p ro d u cts m a y g iv e co n su m ers a n u n c o n d itio n a l r ig h t to r e ­ v o k e a c c e p ta n c e o f g ood s w ith in a c e r ­ ta in n u m b er o f d a y s a fte r d eliv ery w ith ­ o u t reg a rd to d e fe c ts or fa ilu r e to m e e t a sp ecified le v e l o f p erfo rm a n c e. O r a se lle r m a y p erm it co n su m ers to retu rn p ro d u cts fo r a n y rea so n fo r cr e d it to w a rd p u rch a se o f a n o th e r ite m . S u c h term s o f sa le ta k e n a lo n e a r e n o t w r itte n w a r­ r a n tie s u n d er th e A ct. T h erefo re, su p ­ p liers sh o u ld av o id a n y ch a r a c te r iz a tio n o f su c h term s o f sa le a s w a rra n ties. T h e u se o f su c h term s as “free tr ia l p erio d ” *A “written warranty” is also created by a written affirmation of fact or a written promise that the product is defect free, or by a written undertaking of remedial ac­ tion within the meaning of § 101(6) (B). FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY 13, 1977

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36116 a n d “tr a d e -in c r ed it p o lic y ” in .this r e ­ g a rd w o u ld b e a p p ro p ria te. F u r th e r ­ m ore, su c h term s o f sa le sh o u ld b e s ta te d se p a r a te ly fro m a n y w r itte n w a rra n ty . O f cou rse, th e o fferin g a n d p erfo rm a n c e o f su c h term s o f s a le rem a in su b je c t to se c tio n 5 o f th e F ed era l T r a d e C o m m is­ sio n A ct, 15 UJ3.C. 45.

(c ) T h e M a g n u so n -M o ss W a rra n ty A ct g e n era lly a p p lies to w ritte n w a rra n ­ tie s co v erin g co n su m er p ro d u cts. M a n y co n su m er p ro d u cts a r e co v ered b y w a r­ r a n tie s w h ic h a re n e ith e r in te n d e d fo r, n o r e n fo rcea b le b y, co n su m ers. A c o m ­ m o n e x a m p le is a w a rra n ty g iv en b y a c o m p o n e n t su p p lier to a m a n u fa ctu rer o f c o n su m er p rod u cts. (T h e m a n u fa c tu r ­ e r m a y , in tu rn , w a r r a n t th e s e co m p o ­ n e n ts t o co n su m ers.) T h e c o m p o n e n t su p p lier’s w a rra n ty is g e n e r a lly g iv e n so le ly to th e p ro d u ct m a n u fa ctu rer, a n d is n e ith e r in te n d e d to b e co n v ey ed to th e c o n su m er n o r b ro u g h t t o th e c o n su m ­ e r ’s a tte n tio n in c o n n e c tio n w ith th e sa le . S u c h w a rra n ties a r e n o t su b je c t to th e A ct, sin c e a w r itte n w a rra n ty u n d er se c tio n 1 0 1 (6 ) o f th e A c t m u s t b eco m e “p a r t o f th e b a sis o f th e b a rg a in b etw een a su p p lier a n d a b u y er fo r p u rp o ses o t h ­ er th a n r e sa le.” H ow ever, th e A ct a p ­ p lie s to a c o m p o n e n t su p p lier’s w a rra n ty in w ritin g w h ic h is g iv en to th e co n su m ­ er. A n e x a m p le is a su p p lier’s w r itte n w a rra n ty to th e co n su m er co v erin g a re­ fr ig e r a to r t h a t is so ld in sta lle d in a b o a t o r r e c r e a tio n a l v e h ic le . T h e su p p lier o f th e refrig era to r r e lie s o n th e b o a t o r v e­ h ic le a ssem b le r to c o n v ey th e w r itte n a g r e e m e n t to th e co n su m er. In th is ca se, t h e su p p lier’s w r itte n w a rra n ty is to a co n su m er, a n d is co v ered b y th e A ct. § 700.4 Parlies “actually making” a written warranty.

S e c tio n 1 1 0 (f) o f th e A ct p ro v id es th a t o n ly th e su p p lier “a c tu a lly m a k in g ” a w r itte n w a r r a n ty is lia b le fo r p u rp o ses o f F T C a n d p r iv a te e n fo r c e m e n t o f th e A ct. A su p p lier w h o d o es n o m o re th a n d istrib u te or s e ll a co n su m er p ro d u ct c o v ­ ered b y a w r itte n w a rra n ty o ffered b y a n o th e r p erso n or b u sin ess a n d wh^ch id e n tifie s t h a t p erso n o r b u sin e ss a s th e w a rra n to r is n o t lia b le fo r fa ilu r e o f th e w r itte n w a rra n ty to co m p ly w ith th e A ct o r r u les th e reu n d e r. H ow ever, o th e r a c ­ tio n s a n d -w r itte n a n d o ra l re p r e se n ta ­ tio n s o f su c h a su p p lier in co n n e c tio n w ith th e o ffer or s a le o f a w a rra n ted p ro d u ct m a y o b lig a te t h a t su p p lier u n d er th e A ct. I f u n d er s t a t e la w th e su p p lier is d eem ed to h a v e “a d o p ted ” th e w r it­ te n a ffirm a tio n o f fa c t, p ro m ise, o r u n ­ d erta k in g , th e su p p lier is a lso o b lig a ted u n d er th e A ct. S u p p lier s a re a d v ised to c o n su lt s ta te la w to d eterm in e th o se a c ­ tio n s a n d r e p r e se n ta tio n s w h ich m a y m a k e th e m co -w a rra n to rs, a n d th e r e ­ fo re o b lig a ted u n d er th e w a rra n ty o f th e o th e r p erso n o r b u sin ess. § 700.5 Expressions of general policy.

(a ) U n d er se c tio n 1 0 3 (b ), sta te m e n ts o r rep r e se n ta tio n s o f g e n e r a l p o licy c o n ­ c e r n in g cu sto m er s a tisfa c tio n w h ic h a re n o t su b je c t to a n y sp ec ific lim ita tio n n e e d n o t b e d e sig n a te d a s fu ll o r lim ite d w a rra n ties, a n d are e x em p t fro m th e r e - RULES AND REGULATIONS q u irem en ts o f se c tio n s 102, 103, a n d 104 o f t h e A c t a n d ru les th e reu n d e r. H o w ­ ev er, su c h s ta te m e n ts rem a in su b je c t to th e e n fo r c e m e n t p ro v isio n s o f se c tio n 110 o f th e A ct, a n d to se c tio n 5 o f th e F ed era l T ra d e C o m m issio n A ct, 15 U .S .C . 45.

(b ) T h e se c tio n 1 0 3(b ) e x e m p tio n a p ­ p lies o n ly to g en era l p o licies, n o t to th o se w h ic h a re lim ite d t o sp e c ific co n su m er p ro d u cts m a n u fa c tu r e d or so ld b y th e su p p lier o fferin g su c h a p o licy . In a d d i­ tio n , to q u a lify fo r a n e x e m p tio n u n d er se c tio n 1 0 3(b ) su c h p o licies m a y n o t b e su b je c t to a n y sp ecific lim ita tio n s. F o r ex a m p le, p o licies w h ic h h a v e a n e x ­ p ress lim ita tio n o f d u ra tio n o r a lim ita ­ tio n o f th e a m o u n t to b e refu n d e d are n o t ex em p ted . T h is d o es n o t p reclu d e th e im p o sitio n o f r ea so n a b le lim ita tio n s b a sed o n th e c ircu m sta n ces in e a c h in ­ sta n c e a co n su m er se e k s to in v o k e su c h a n a g reem en t. F o r in sta n c e , a w a rra n to r m a y r efu se to h o n o r su c h a n ex p ressio n o f p o licy w h ere a co n su m er h a s u sed a p ro d u ct fo r 10 y ea rs w ith o u t p rev io u sly ex p r e ssin g a n y d iss a tis fa c tio n w ith th e p ro d u ct. S u c h a r e fu sa l w ou ld n o t b e a sp ecific lim ita tio n u n d er th is p rovision . § 700.6 Designation of warranties.

(a ) S e c tio n 103 o f th e A c t p rovid es t h a t w r itte n w a rra n ties o n co n su m er p ro d u cts m a n u fa c tu r e d a fte r J u ly 4 ,1 9 7 5 , a n d a c tu a lly c o stin g th e co n su m er m o re th a n $10, ex c lu d in g ta x , m u st b e d e sig ­ n a te d e ith e r “F u ll (sta te m e n t o f d u ra ­ tio n ) W a rra n ty ” o r “L im ited W a r r a n ty ”, W a rra n to rs m a y in c lu d e a sta te m e n t o f d u r a tio n in a lim ite d w a rra n ty d e sig n a ­ tio n . T h e d e sig n a tio n or d e sig n a tio n s sh o u ld a p p ea r clea rly a n d co n sp icu o u sly a s a ca p tio n , o r p ro m in e n t title , clea rly se p a r a te d fro m th e t e x t o f th e w a rra n ty . T h e fu ll (sta te m e n t o f d u ra tio n ) w a r­ r a n ty a n d lim ite d w a rra n ty a r e th e e x ­ clu siv e d e sig n a tio n s p er m itte d u n d er th e A ct, u n le ss a sp ec ific ex c e p tio n is crea ted b y ru le.

(b ) S e c tio n 104(b ) (4) s ta te s t h a t “th e d u ties u n d er su b se c tio n (a ) (o f se c tio n 104) e x te n d fr o m th e w a rra n to r to e a c h p erso n w h o is a co n su m er w ith r e sp ect to th e co n su m er p ro d u ct.” S e c tio n 101 (3) d efin es a co n su m er a s “ a b u yer (o th er th a n fo r p u rp o ses o f resa le) o f a n y c o n ­ su m er p ro d u ct, a n y p erso n to w h o m su c h • p ro d u ct is tr a n sfe r r e d d u rin g th e d u ra ­ tio n o f a n im p lied o r w r itte n w a rra n ty (or serv ice c o n tr a c t) a p p lica b le to th e p ro d u ct * * T h er efo re , a fu ll w a r ­ r a n ty m a y n o t ex p ressly r estr ic t th e w a r ­ r a n ty r ig h ts o f a tr a n sfe r e e d u rin g its sta te d d u ra tio n .

H ow ever, w h ere th e d u ra tio n o f a fu ll w a r r a n ty is d efin ed so le ly in term s o f fir st p u rch a ser o w n ­ ersh ip th e r e c a n b e n o v io la tio n o f s e c ­ tio n 104 (b ) ( 4 ), sin c e th e d u ra tio n o f th e w a r r a n ty ex p ires, b y d efin itio n , a t th e tim e o f tra n sfer. N o r ig h ts o f a su b se­ q u en t tr a n sfe r e e a re c u t off a s th e r e is n o tr a n sfe r o f o w n ersh ip “d u rin g th e d u ra tio n o f (a n y ) w a r r a n ty .” T h u s, th e se p ro v isio n s d o n o t p reclu d e th e o ffer in g o f a fu ll w a rra n ty w ith its d u ra tio n d eter­ m in e d ex c lu siv e ly b y th e p eriod d u rin g, w h ic h th e fir st p u rch a ser ow n s th e p ro d ­ u ct, o r u ses it in c o n ju n c tio n w ith a n ­ o th e r p rod u ct. F o r ex a m p le, a n automo­ tiv e b a tte r y or m uffler w a rra n ty m ay be d e sig n a te d as “fu ll w a rra n ty fo r as long a s y o u o w n y o u r c a r .” B e ca u se this type o f w a rra n ty lea d s th e co n su m er to be­ lie v e t h a t p ro o f o f p u r c h a se is n o t needed so lo n g as h e or sh e ow n s th e product a d u ty to fu r n ish d o cu m e n ta ry proof may n o t b e r ea so n a b ly im p o sed on th e con­ su m er u n d er th is ty p e o f w arran ty. The b u rd en is o n th e w a rra n to r to prove that a p a rticu la r c la im a n t u n d er th is type of w a rra n ty is n o t th e o rig in a l purchaser or ow n er o f th e p rod u ct. W arrantors or th e ir d e sig n a te d a g e n ts m a y , however, ask co n su m ers to sta te or affirm th a t they a re th e first p u rch a ser o f t h e product. § 700.7 Use of warranty registration cards.

(a ) U n d er se c tio n 104(b ) (1) of the Act a w a rra n to r o fferin g a fu ll w arran ty may n o t im p o se o n co n su m ers a n y d u ty other th a n n o tific a tio n o f a d e fe c t as a condi­ tio n o f se cu rin g rem ed y o f th e defect or m a lfu n c tio n , u n le ss su c h ad d ition al duty' c a n b e d e m o n str a te d b y th e w arrantor to b e rea so n a b le . W a rra n to rs h a v e in the p a st stip u la te d th e retu rn o f a “warranty r e g is tr a tio n ” or sim ila r card . B y “war­ ra n ty r e g istr a tio n ca r d ” th e Commission m e a n s a ca rd w h ich m u st b e returned by th e co n su m er sh o r tly a fte r purchase of t h e p ro d u ct a n d w h ich is stip u lated or im p lied in th e w a rra n ty to b e a condition p reced en t to w a r r a n ty coverage and p erfo rm a n c e.

(b ) A req u irem en t th a t th e consumer retu rn a w a rra n ty reg istra tio n card or a sim ila r n o tic e a s a co n d itio n o f perform­ a n c e u n d er a fu ll w a rra n ty is an unrea­ so n a b le d u ty . T h u s, a p rovision such as, “T h is w a rra n ty is void u n less th e war­ r a n ty r e g istr a tio n ca rd is retu rn ed to the w a rra n to r” is n o t p erm issib le in a full w a rra n ty , n o r is it p erm issib le to imply su c h a co n d itio n in a fu ll w arranty. (c) T h is d o es n o t p ro h ib it th e use of su c h reg istr a tio n ca rd s w h ere a warran­ to r su g g ests u se o f th e card as one pos­ sib le m e a n s o f p ro o f o f th e date the p ro d u ct w a s p u rch a sed . F or exam ple, it is p erm issib le to p rovid e in a fu ll war­ r a n ty t h a t a co n su m er m a y fill out and retu rn a ca rd to p la c e o n file proof of th e d a te th e p ro d u ct w a s p u rchased. Any su c h su g g e stio n to th e con su m er must in clu d e n o tic e th a t fa ilu r e to return the ca rd w ill n o t a ffec t rig h ts u n d er th e war­ ra n ty , so lo n g a s th e co n su m er can show in a rea so n a b le m a n n e r th e date the p ro d u ct w a s p u rch a sed . N or does this in te r p r e ta tio n p ro h ib it a se lle r from ob­ ta in in g fro m p u rch a sers a t th e tim e of sa le in fo r m a tio n req u ested by the w arra n to r.

§ 700.8 Warrantor’s decision as final.

A w a rra n to r sh a ll n o t in d ica te in any w ritte n w a rra n ty or se rv ice con tract ei­ th e r d ir e c tly or in d irectly th a t th e deci­ sio n o f th e w arra n to r, service contractor, or a n y d esig n a te d th ir d p a rty is final or b in d in g in a n y d isp u te con cern in g the w a rra n ty or se rv ice co n tra ct, ^ o r shall a w a rra n to r or se rv ice con tractor state t h a t it a lo n e sh a ll d eterm in e w h at is a d e fe c t u n d er th e a g reem en t. S u ch state- FEDERAL REGISTER, VOL. 42, NO. 134— WEDNESDAY, JULY 13, 1977

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ments are d ecep tiv e sin c e se c tio n 1 1 0 (d ) of the A ct g iv es s ta te a n d fe d era l co u rts jurisdiction over su its fo r b rea ch o f w a r­ ranty and serv ice c o n tr a c t. 8 700.9 Duly to install under a full warranty.

Under se c tio n 1 0 4 (a ) (1) o f th e A ct, th e remedy u n d er a fu ll w a rra n ty m u st b e provided to th e co n su m er w ith o u t ch a rg e. If the w arran ted p ro d u ct h a s u tility o n ly when in stalled , a fu ll w a rra n ty m u st p ro ­ vide such in sta lla tio n w ith o u t ch a rg e regardless o f w h e th e r or n o t th e c o n ­ sumer origin a lly p a id fo r in sta lla tio n b y the w arrantor or h is a g en t. H ow ever, th is does not p reclu d e th e w a rra n to r fro m im ­ posing on th e co n su m er a d u ty to rem ove, return, or r ein sta ll w h ere su ch d u ty c a n be dem onstrated b y th e w a rra n to r to meet th e sta n d a rd o f rea so n a b len ess under section 1 0 4 (b )(1 ).

§700.10 Section 102(c).

(a) S ection 1 0 2 (c) p ro h ib its ty in g a r ­ rangements t h a t co n d itio n co v era g e under a w ritte n w a rra n ty o n th e c o n ­ sumer’s u se o f a n a r tic le or se rv ice id e n ­ tified by brand, tra d e, o r co rp o ra te n a m e unless th a t a rticle o r serv ice is p ro v id ed without ch arge to th e co n su m er. (b) U nder a lim ite d w a rra n ty t h a t p ro ­ vides only fo r r ep la cem en t o f d e fe c tiv e parts and n o p o rtio n o f la b o r ch a rg es, section 102(c) p ro h ib its a co n d itio n t h a t the consum er u se o n ly se rv ice (lab or) identified by th e w a rra n to r to in sta ll th e replacement p a rts. A w a rra n to r or h is designated rep resen ta tiv e m a y n o t p ro ­ vide parts u n d er th e w a rra n ty in a m a n ­ ner w hich im p ed es or p reclu d es th e choice by th e co n su m er o f th e p erso n or business to p erfo rm n ecessa ry la b o r to install such p arts.

(c ) . No w a rra n to r m a y co n d itio n th e continued v a lid ity o f a w a rra n ty o n th e use of on ly a u th o rized rep a ir se rv ice and/or au th orized r e p la cem en t p a rts fo r non-warranty se rv ice a n d m a in te n a n c e . For exam ple, p ro v isio n s su c h a s, “T h is warranty is v oid if se rv ice is p erfo rm ed by anyone o th e r th a n a n a u th o rized ‘ABC’ dealer a n d a ll r ep la cem en t p a rts must be gen u in e ‘A B C ’ p a r ts,” a n d th e RULES AND REGULATIONS lik e, a re p ro h ib ited w h ere th e serv ice or p a rts a re n o t co v ered b y th e w a rra n ty . T h e se p ro v isio n s v io la te th e A ct in tw o w a y s. F ir st, th e y v io la te th e se c tio n 102 (c) b a n a g a in st ty in g a rra n g em en ts. S eco n d , su c h p ro v isio n s a re d ecep tiv e u n d er se c tio n 110 o f th e A ct, b eca u se a w a rra n to r ca n n o t, a s a m a tte r o f law , a v o id lia b ility u n d er a w r itte n w a rra n ty w h ere a d e fe c t is u n rela ted to th e u se b y a co n su m er o f “u n a u th o rized ” a r tic le s or serv ice. T h is d o es n o t p reclu d e a w a r­ ra n to r fro m ex p ressly ex clu d in g lia b ility fo r d e fe c ts o r d a m a g e ca u sed b y su ch “u n a u th o rized ” a r tic le s or serv ice; n or d o es it p reclu d e th e w a rra n to r from d en y in g lia b ility w h ere th e w a rra n to r c a n d em o n stra te t h a t th e d e fe c t or d am age w a s so ca u sed .

§ 700.11 Written .warranty, service con­ tract, and insurance distinguished for purposes of compliance under the Act.

(a ) T h e A ct reco g n izes tw o ty p e s o f a g r e e m e n ts w h ic h m a y p rovid e sim ila r co v era g e o f co n su m er p ro d u cts, th e w rit­ te n w a rra n ty , a n d th e se rv ice c o n tra ct. I n a d d itio n , o th e r a g reem en ts m a y m e e t th e sta tu to r y d efin itio n s o f e ith e r “w rit­ te n w a r r a n ty ” or “se rv ice c o n tr a c t,” b u t a re so ld a n d reg u la ted u n d er s ta te la w a s c o n tr a c ts o f in su ra n ce. O n e ex a m p le is th e a u to m o b ile b reak d ow n ' in su ra n ce p o licies so ld in m a n y ju r isd ic tio n s a n d r eg u la ted b y th e s ta te as a fo rm o f c a su ­ a lty in su ra n ce. T h e M cC a rra n -F erg u so n A ct, 15 U .S .C . 1011 e t seq., p reclu d es ju r isd ic tio n u n d er fe d e r a l la w over “th e b u sin ess o f in su r a n c e ” to th e e x te n t a n a g reem en t is r eg u la ted b y s ta te la w as in su ra n ce. T h u s, su c h a g reem en ts a re su b je c t to th e M a g n u so n -M o ss W a r­ r a n ty A ct o n ly to th e e x te n t th e y are n o t reg u la ted in a p a rticu la r sta te as th e b u sin ess o f in su ra n ce.

(b ) “W r itte n w a r r a n ty ” a n d “se rv ice c o n tr a c t” a re d efin ed in se c tio n s 101(6) a n d 1 0 1 (8 ) o f th e A ct, resp ectiv e ly . A w r itte n w a rra n ty m u st b e “p a rt o f th e b a sis o f th e b a rg a in .” T h is m e a n s t h a t it m u st b e co n v ey ed a t th e tim e o f sa le o f th e co n su m er p ro d u ct a n d th e co n su m er m u st n o t g iv e a n y co n sid er a tio n b eyon d th e p u rch a se p rice o f th e co n su m er 36117 p ro d u ct in ord er to b en efit fr o m th e a g reem en t. I t is n o t a req u irem en t o f th e A ct th a t a n a g r e e m e n t o b lig a te a su p p lier o f th e c o n su m er p ro d u ct to a w r itte n w a rra n ty , b u t m erely th a t it be p a rt o f th e b a sis o f th e b a rg a in b etw een a su p p lier a n d a co n su m er. T h is c o n te m ­ p la te s w r itte n w a rra n ties b y th ir d -p a r ty n o n -su p p lie r s.

(c) A serv ice c o n tr a c t u n d er th e A ct m u st m e e t th e d e fin itio n s o f se c tio n 1 0 1 (8 ). A n a g r e e m e n t w h ic h w ou ld m e e t th e d e fin itio n o f w r itte n w a rra n ty in se c tio n 101(6) (A ) or (B ) b u t fo r its fa ilu r e to s a tisfy th e b a sis o f th e b a rg a in te s t is a se rv ice co n tra ct. F or ex a m p le, a n a g r e e m e n t w h ic h c a lls fo r so m e c o n ­ sid er a tio n in a d d itio n to th e p u rch a se p rice o f th e co n su m er p ro d u ct, o r w h ich is en tered in to a t so m e d a te a fte r th e p u rch a se o f th e co n su m er p ro d u ct to w h ic h it a p p lies, is a se rv ice c o n tra ct. A n a g r e e m e n t w h ich re la te s o n ly to th e p erfo rm a n c e o f m a in te n a n c e a n d /o r in ­ sp e c tio n serv ices a n d w h ich is n o t a n u n d erta k in g , p rom ise, or a ffirm ation w ith resp ect to a sp ecified le v e l o f p e r ­ fo rm a n ce , or th a t th e p ro d u ct is fr e e o f d e fe c ts in m a te r ia ls or w o rk m a n sh ip , is a se rv ice c o n tr a c t. A n a g r e e m e n t to p erfo rm p erio d ic c le a n in g a n d in sp e c tio n o f a p ro d u ct over a sp ecified p eriod o f tim e, ev en w h en -offered a t th e tim e o f sa le a n d w ith o u t ch a rg e to th e co n su m er r is a n e x a m p le o f su c h a se rv ice c o n ­ tr a c t.

§ 700.12 Effective date of 16 CFR, Parts 701 and 702.

T h e S ta te m e n t o f B a sis a n d P u rp ose o f th e fin a l ru les p ro m u lg a ted o n D e ­ cem b er 31, 1975, p ro v id es t h a t P a r ts 701 a n d 702 w ill b eco m e effe c tiv e o n e y ea r a fte r th e d a te o f p ro m u lg a tio n , D e c e m ­ b er 31, 1976. T h e C o m m issio if in te n d s th is to m e a n t h a t th e se ru les a p p ly o n ly to w ritte n w a rra n ties o n p ro d u cts m a n ­ u fa c tu red a fte r D ecem b er 31, 1976. B y d irectio n o f th e C o m m issio n d a te d J u n e 8, 1977.

John F. D ugan, A cting Secretary.

[PR Doc.77-19901 Plied 7-12-77;8;45 am]