Locke Lord QuickStudy: FTC Decides to Retain Existing Magnuson-Moss Rules with Limited Modifications

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The Federal Trade Commission (FTC) completed its review of the rules under the Magnuson-Moss Warranty Act (the MM Act)1 and voted to retain the current rules with limited modifications. The MM Act provides certain disclosure and other requirements for written warranties on consumer products and to a limited extent, service contracts covering consumer products. The FTC has promulgated several rules, interpretations and guides (collectively, the Rules) regarding the MM Act.2

In 2011, the FTC began a review of the Rules. As part of the review process, the FTC sought public comment on the Rules, including comments on specific questions raised by the FTC. On its website, the FTC recently posted a notice to be published in the Federal Register (the Notice) discussing the review of the Rules and the comments received.3 The Notice also includes the text of certain changes to the Rules, including two substantive changes to the Rules.

The first substantive change to the Rules involves the MM Act’s prohibition on certain tying arrangements. As described in the current Rules (15 CFR § 700.10), the MM Act “prohibits tying arrangements that condition coverage under a written warranty on the consumer’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.” This Rule is now being revised to add the following clarifying language:

warranty language that implies to a consumer acting reasonably in the circumstances that warranty coverage requires the consumer’s purchase of an article or service identified by brand, trade or corporate name is similarly deceptive. For example, a provision in the warranty such as, “use only an authorized ‘ABC’ dealer” or “use only ‘ABC’ replacement parts,” is prohibited where the service or parts are not provided free of charge pursuant to the warranty.

Besides this Rule change, the tying restriction in the MM Act has been the subject of recent FTC attention, including an FTC consumer alert (published in 2011 and updated in 2015) and a recently announced proposed settlement between the FTC and a motor vehicle manufacturer for alleged violations of the tying restriction.

The second substantive change to the Rules relates to the application of the MM Act to service contracts that are regulated under state law as contracts of insurance. Trying to clarify the extent to which the McCarran-Ferguson Act may preempt the application of the MM Act to such service contracts, the revised language of the Rule (15 CFR § 700.11) states: “… to the extent the Magnuson-Moss Warranty Act’s service contract provisions apply to the business of insurance, they are effective so long as they do not invalidate, impair, or supersede a State law enacted for the purpose of regulating the business of insurance.” The Notice’s discussion of this change includes one commentator’s example, with which the FTC appears to agree, where “state insurance law provides a remedial scheme for breach of a service contract regulated as insurance, [and] the additional availability of Magnuson-Moss remedies for the same misconduct does not ‘impair’ the insurance regulatory scheme.” We note that in most states, service contracts are not regulated as insurance contracts.

The Notice includes changes to other Rules, but the changes are limited to technical changes. Specifically, the Rules currently include citations to sections of the public law enacting the MM Act. The Rule adds parallel citations to the applicable sections of the United States Code.

The Notice also discusses certain comments that were received by the FTC regarding the Rules where the FTC declined to make a change. For example, the MM Act expressly states that FTC may prescribe by rule the manner and form for disclosing the terms and conditions of service contracts. Certain commentators urged the FTC to amend the Rules to include such disclosure requirements. The FTC declined to add service contract disclosure requirement to the Rules, citing the MM Act’s existing requirement that a service contract “fully, clearly, and conspicuously discloses its terms and conditions in simple and readily understood language.”

Endnotes
115 U.S.C. §§2301-2312.
216 CFR Part 700 (Interpretations of the MM Act), 16 CFR Part 701 (Disclosure of Written Consumer Product Warranty Terms and Conditions), 16 CFR Part 702 (Pre-Sale Availability of Written Warranty Terms), 16 CFR Part 703 (Informal Dispute Resolution Procedures) and 16 CFR Part 239 (Guides for the Advertising of Warranties and Guarantees).
3For the text of the Notice, go to
https://www.ftc.gov/policy/federal-register-notices/final-action-magnuson-moss-warranty-act-interpretations-rules.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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