In 1975, Congress passed the Magnuson-Moss Warranty Act as a means of providing comprehensive information to consumers about their rights under product warranties. It is important to note once again that companies are not required to provide written warranties on their products. If they do, however, they are subject to the regulations spelled out under Magnuson-Moss.
Oral warranties are not covered by Magnuson-Moss, nor are warranties on services or commercial products. Only written warranties on consumer goods are covered. The company issuing the warranty (the warrantor) or the seller must meet three basic requirements under the Act:
- The warranty must be designated as either full or limited.
- The warranty must be written in a single document that is clearly written and easy to understand.
- The warranty must be readily available for inspection where the product covered is being sold.
Anyone who offers a written warranty is prohibited from disclaiming or modifying implied warranties. In other words, consumers are protected under the implied warranty of merchantability no matter how broad or narrow the scope of the written warranty. The only exception is that the company can restrict the duration of an implied warranty to match that stated in a written limited warranty. If a company offers a three-year limited warranty on a product, for instance, it is permissible to limit the implied warranty to three years as well.
Magnuson-Moss prohibits companies from including tie-in sales provisions in its warranties. In other words, the company cannot state that owners of product X must use only product X accessories or have the product serviced at specific locations. However, companies can void a warranty if the consumer has it serviced or repaired inappropriately or incorrectly. Moreover, if the company can prove to the FTC that its products must be serviced or maintained through tie-in services, the FTC may waive this requirement.
No deceptive or misleading terms are permitted in a written warranty under Magnuson-Moss. A common example is a warranty covering moving parts in an item that has no moving parts. Moreover, the company cannot claim to offer services that it either cannot or will not provide.
Magnuson-Moss makes breach of warranty a violation of federal law and allows plaintiffs to recover court costs and reasonable attorney’s fees. In general, most warranty-related lawsuits are brought in state courts, but class action suits can be brought in federal court. This is not to say that Magnuson-Moss has litigation as its goal. Rather, the goal is to make companies think carefully before they breach a warranty.
Under Magnuson-Moss, companies can include a provision in their warranties that requires customers to attempt to resolve warranty disputes through informal means (informal in the sense that they do not require the same rules of evidence and procedure as found in a courtroom). These informal means are known as dispute resolution mechanisms. For a company to be able to require this option, it has to meet certain requirements as stated in the FTC’s Rule on Informal Dispute Settlement Procedures. The “rule” is actually a set of guidelines that requires the company to provide a means of resolution that is adequately funded and staffed to resolve disputes quickly, free of charge to customers, able to gather all necessary facts and make decisions independently, and audited annually to ensure compliance. This function can be performed by a third party (such as the Better Business Bureau) or by employees specifically on staff to handle warranty disputes objectively. Among the means of settling the dispute can be conciliation, mediation, and arbitration; if either party is still dissatisfied, the matter can still be brought to court.
While having an informal dispute procedure in place eliminates the necessity of going to court, it is clearly still enough of a burden on a company that it makes more sense to offer clear-cut warranties and honor them.