Presale Availability of Written Warranty Terms, National Association of Home Builders

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RULES AND REGULATIONS [6750-01] SUBCHAPTER G— RULES, REGULATIONS, STATEMENTS AND INTERPRETATIONS UNDER THE MAGNUSON-MOSS WARRANTY ACT PART 702— PRESALE AVAILABILITY OF WRITTEN WARRANTY TERMS National Association of Home Builders AGENCY: Federal Trade Commission. ACTION: Advisory opinion. SUMMARY: The Federal Trade Com­ mission issues an advisory opinion on certain situations that arise in the homebuilding industry. The advisory opinion relates to written warrantees and is issued in response to a request from counsel for the National Associ­ ation of Home Builders, Washington, D. C.

DATE: Effective immediately. FOR FURTHER INFORMATION CONTACT:

Jeffrey Karp, Attorney, Divison of Product Reliability, Bureau of Con­ sumer Protection, Federal Trade Commission, Washington, D.C.

20580, 202-523-1753.

SUPPLEMENTARY INFORMATION: By letter of September 28, 1977, the firm of Colton and Boykin requested on behalf of its client the National As­ sociation of Home Builders (“NAHB”), an interpretation of section 102(b) of the Magnuson-Moss Warranty Act, 15 U.S.C. 2302(b), and the Commission’s rule on the presale availability of writ­ ten warranty terms, 16 CFR Part 702, as they apply to certain situations that arise in the homebuilding indus­ try. NAHB also requested an opinion concerning the applicability of section 111(d) of the Magnuson-Moss Warran­ ty Act, 15 U.S.C. 2311(d), to a warran­ ty required on all FHA/VA financed housing.

The Commission responded to NAHB’s request as follows. Herbert S. Colton, Esq., Colton and Boykin, 1133 15th Street NW., Washington, D.C. 20005.

D ear Mr. Colton: This is in reply to your request of September 28, 1977, on behalf of the National Association of Home Builders, for an- advisory opinion concerning sections 102(b), and 111(d) of the Magnuson-Moss Warranty Act, 15 U.S.C. 2301 et seq., and the Commission’s rule on the presale avail­ ability of written warranty terms, 16 CFR Part 702, as they apply to the homebuilding industry.

Your request contains five topics of dis­ cussion, each posing questions for Commis­ sion consideration. The Commission has rephrased your request in eight questions in order to clarify the issues posed. It has de­ termined that the rephrased questions num­ bered 1 through 3 (below) are not appropri­ ate for an advisory opinion under Part 1, Subpart A of the Commission’s rules of practice; instead these questions are treated as a request for an exemption from Rule 702, 16 CFR part 702. Where the Commis­ sion has granted an exemption from Rule 702, that exemption applies to all affected homebuilders and wholesale suppliers. The rephrased questions and the Commis­ sion’s answers are as follows: 1. When a builder gives the purchaser an allowance to select various fixtures or appli­ ances (consumer products) from a third party supplier, is it the builder or the third party who must comply with the presale availability of warranties requirements for “sellers” under 16 CFR part 702.3(a) in each of the following situations: (a) The purchaser makes selections from stock purchased wholesale by, and in the possession of, the builder, and makes pay­ ment to the builder for any items selected in excess of the allowance.

(b) The purchaser makes selections in the showroom of the builder’s supplier, from items not yet purchased by the builder, and makes payments to the builder for any items selected in excess of the allowance. (c) The purchaser makes selections from items not yet purchased by the builder, and makes payment directly to the supplier for any items selected in excess of the allowance.

2. What are a custom builder’s duties as a “seller” under 16 CFR part 702 when the purchaser can choose from among virtually all brands of appliances available in the marketplace? 3. If the builder has made the presale war­ ranty information available to the purchas­ er for all appliances from which the pur­ chaser can choose, does the builder have any obligation under 16 CFR Part 702 to make warranty information available, after a contract is signed, for substitute appli­ ances which the purchaser must select due to a manufacturer’s discontinuation or re­ placement of the appliance initially chosen by the purchaser? 4. Does the Magnuson-Moss Warranty Act require that all builders’ warranties contain a clause assigning the manufacturers’ war­ ranties on consumer products to the pur­ chaser, or does the act have the effect of automatically making all manufacturers’ warranties on such appliances run to the ul­ timate purchaser? 5. Is the builder or the purchaser the proper party to complete and return the warranty registration cards for consumer products installed in the home? 6. Does section 111(d) exempt the manda­ tory FHA/VA warranty from the require­ ments of the Magnuson-Moss Warranty Act? 7. Is a builder who gives only the manda­ tory FHA/VA warranty required to comply with 16 CFR Part 702 for those consumer products sold with warranties that are cov­ ered by the act? 8. If a builder both gives the mandatory FHA/VA warranty, and voluntarily offers an additional warranty not required by any Federal law (e.g., a one year warranty against defects in materials and workman­ ship), to what extent is the additional war­ ranty subject to the Magnuson-Moss War­ ranty Act? The Commission has carefully considered the matters set forth in your letter. It is the Commission’s determination that: 1.

(a) When a builder gives a purchaser an allowance to select consumer products, and the purchaser makes selections directly FEDERAL REGISTER, V O L 43, NO. 156— FRIDAY, AUGUST 11, 1978

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RULES AND REGULATIONS 35685 from the builder’s stock, the builder must comply with the sellers’ duties under 16 CFR 702.3(a) to make warranty terms avail­ able prior to sale.

(b) and (c) When a builder gives a pur­ chaser an allowance to select , consumer products from the stock of the builder's sup­ plier, the builder is exempted from compli­ ance with 16 CFR 702.3(a). In this latter sit­ uation, the builder’s supplier is also not re­ quired to comply with the seller’s presale duties under the rule if the supplier’s sales are totally wholesale, including builder-re­ ferred sales.

2. When a purchaser contracts to have a custom home built, and pursuant to the contract can choose appliances from among virtually all of those available in the mar­ ketplace, the builder is exempted from com­ pliance with the seller’s duties under 16 CFR 702.3(a) to make the text of written warranties available prior to sale. 3. A builder must make warranty terms available for inspection by a purchaser if, after a contract is signed, the purchaser must make a second selection because origi­ nally selected items have become unavail­ able. The builder is not exempted from com­ pliance with 16 CFR 702.3(a) in this situa­ tion.

4. The Magnuson-Moss Warranty Act does not govern the issue of whether a manufac­ turer’s warranty on a consumer product must be assigned by a builder to the home purchaser. This question is governed by State law.

5. Registration cards would be prohibited for all full warranties under the Commis­ sion’s rule on reasonable duties under a full warranty, as proposed in 42 FR 39223 (August 3, 1977); see also the Commission’s interpretations of the act, 16 CFR 700.7(b). However, registration cards are permitted for limited warranties. When a limited war­ ranty offered on a consumer product by a manufacturer includes the registration card, the home purchaser is the proper party to complete and return the card, unless the warranty specifically requires this of retail­ ers.

6. Section 111(d) of the Magnuson-Moss Warranty Act exempts the mandatory FHA/VA warranty offered by a builder from the requirements of the act (except for section 102(c)).

7. A builder who gives only a FHA/VA warranty must still make available under 16 CFR Part 702 those warranties that are cov­ ered by the act; the fact that the FHA/VA warranty is generally exempt from the act does not affect the builder's status as a “seller” of consumer products covered by warranties that are governed by the act. 8. Any warranty offered by a builder on a consumer product that is not required by Federal law is subject to the provisions of the Magnuson-Moss Warranty Act. By direction of the Commission dated June 21, 1978.

Carol M. T homas, Secretary.

[FR Doc. 78-22454 Filed 8-10-78; 8:45 am]