Consumer Product Warranty Rule SS-2010 - FINAL

Supporting Statement
Rule on Disclosure of Written Consumer Product
Warranty Terms And Conditions
16 C.F.R. 701
(OMB Control Number 3084-0111)
1.

Necessity for Collecting the Information

Section 102(a) of the Magnuson-Moss Warranty Act (15 U.S.C. Section 2301, et seq.)
requires warrantors of consumer products to disclose fully and conspicuously, in simple and
readily understood language, the terms and conditions of any written warranty they offer.
Congress directed the Commission to promulgate a rule setting out the items that must be
disclosed in such written warranties.
On December 31, 1975, the Commission issued its Rule Concerning Disclosure of
Written Consumer Product Warranty Terms and Conditions, 16 C.F.R. 701 (“the Rule” or “Rule
701”) (40 FR 60168). The Rule applies to written warranties on products costing more than $15
that were manufactured after December 31, 1976 (the date the rule became effective). The Rule
does not require companies to give a written warranty on their products. Nor does the Rule
mandate any particular warranty terms apart from certain general statements concerning
consumers’ rights under state law. Warrantors may set whatever warranty terms and conditions
they wish. However, once the warrantor chooses to give a warranty, the Rule requires that those
warranties disclose certain material facts regarding the terms and conditions of that warranty.
There are no recordkeeping or submission requirements contained in the Rule.
The purpose of the Rule is to prevent deception by providing material facts to consumers
about a given warranty. Absent disclosures about the terms and conditions of the warranty,
consumers might be deceived into purchasing one product (instead of a competing item) based
on what is ostensibly a better, more extensive warranty. In fact, the product chosen may provide
more limited coverage but the warrantor fails to disclose fully all its conditions and limitations.
The Rule also prevents consumers from being surprised when they seek warranty service by
requiring that warrantors disclose what the warrantor will do in the event service is needed and
what consumers must do in order to obtain warranty service. Another purpose of the Rule is to
require minimum uniformity in the type of information disclosed in warranties so consumers will
be able to make valid and informed comparisons of warranties for similar products.
2.

Use of the Information

The Rule requires that written consumer product warranties disclose certain material
information to enable consumers to understand the warranty rights offered with a product and to
compare warranties offered on similar products. Consumers use the information disclosed by
the Rule in making decisions on what goods they purchase. Because of the information required
to be disclosed by the Rule, consumers can compare warranty information on different products
and can learn what type of assistance they will receive if the product turns out to be defective.

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Consideration of the Use of Information Technology to Reduce Burden

The Rule requires clear and conspicuous disclosures of material facts in written
warranties on consumer products. Warrantors are free to decide how to disclose the required
information in the most efficient manner. To assist warrantors, the Commission has published a
manual for businesses entitled “Writing Readable Warranties,” which is designed to provide
practical suggestions for writing a simple and easy-to-understand warranty.1 The Commission
also has issued “A Businessperson’s Guide to Federal Warranty Law” to provide further
assistance.2 As the online marketplace has gained in importance, the Commission has issued
guidance to those warrantors and sellers who market products over the Internet. Thus, in May
2000, the Commission published a manual, “Dot Com Disclosures: Information About Online
Advertising,” which provides guidance to businesses on providing warranty disclosures when
selling products online.3 Moreover, on January 30, 2001, the Commission held a workshop (“ETail Details”) for online retailers to provide guidance on complying with the requirements of
various FTC rules, including Rule 701, when selling over the Internet.
Finally, consistent with the Government Paperwork Elimination Act, Pub. L. No. 105277, Title XVII, 112 Stat. 2681-749, nothing in the Rule prescribes that disclosures be made,
records filed or kept, or signatures executed, on paper or in any particular format that would
preclude the use of electronic methods to comply with the Rule’s requirements. Indeed, on
February 17, 2009, the staff of the Commission issued an advisory opinion stating that, in the
staff’s opinion, providing consumer product warranties via electronic media rather than in paper
form would comply with the Act and the Rule, noting that the Rule only requires that warranties
appear “in a single document in simple and readily understood language,” but that neither the
Act nor the Rule specifies any particular media, form or format for the presentation of
warranties.4
4.

Efforts to Identify Duplication/Availability of Similar Information

Although a few states have enacted warranty disclosure laws that parallel the
requirements of the Magnuson-Moss Warranty Act and Rule 701, there is no other statute or
regulation of nationwide applicability that requires the disclosure of warranty terms for all
consumer products. Therefore, the information required to be disclosed by Rule 701 is
unavailable elsewhere, as there are no alternative sources of complete warranty information.

1

This publication is available at http://www.ftc.gov/bcp/edu/pubs/business/adv/bus20.shtm.

2

This publication is available at http://www.ftc.gov/bcp/edu/pubs/business/adv/bus01.shtm.

3

This publication is available at http://www.ftc.gov/bcp/edu/pubs/business/ecommerce/bus41.pdf.

4

This staff advisory opinion is available at http://www.ftc.gov/bcp/warranties/opinion0901.pdf.

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5.

Efforts to Minimize the Burden on Small Businesses

The warranty disclosure requirements set forth in the Rule and the Act apply to
warrantors of any size, but only for products costing more than $15. The decision whether to
offer a written warranty and the terms of the warranty remain the province of the individual
warrantor. Of course, there is no burden imposed if an entity does not offer a written warranty.
6.

Consequences of Conducting the Collection Less Frequently

The Congressional intent and the objective of the Rule would be defeated if less
disclosure were required. If the terms of a warranty are not disclosed to each consumer who
purchases a product, consumers will purchase products without knowing important information
about their warranty rights and how to exercise those rights.
7.

Special Circumstances Requiring Collection Inconsistent With Guidelines

Not applicable. There are no recordkeeping or submission requirements contained in the
Rule. Therefore, there are no special circumstances involving collection of information to be
made more frequently, for longer periods of time, or in greater quantities than guidelines permit.
Similarly, there are no issues involving statistical surveys or the use of statistical data
classifications. The disclosure information required by the Rule is consistent with all applicable
guidelines contained in 5 C.F.R. § 1320.5(d)(2).
8.

Public Comments/Consultation Outside the Agency

(a) Public comments. As a prelude to this request, the Commission sought public
comment. See 75 FR 38097 (July 1, 2010). No comments were received. Pursuant to the OMB
regulations that implement the PRA (5 C.F.R. Part 1320), the FTC is providing a second
opportunity for public comment while seeking OMB approval to extend the existing paperwork
clearance for the Rule.
(b) Consultation Outside the Agency. During the course of the rulemaking proceeding
in 1975, the Commission held public hearings in five cities. In addition, the public, including
industry, submitted extensive written comments on the proposed Rule.
On April 3, 1996, as part of its program for periodic rule review, the Commission again
solicited written public comments on the costs and benefits of Rule 701, as well as its regulatory
and economic impact (61 FR 14688). Seven organizations submitted comments, including
industry, trade associations, and consumer groups. The comments generally reflected strong
support for the view that the Rule is achieving the objective it was fashioned to achieve – i.e., to
facilitate consumers’ ability to obtain clear, accurate warranty information. The American
Automobile Manufacturer’s Association stated that the current system is working well and is not
unreasonably costly to warrantors. The North American Insulation Manufacturers Association
(“NAIMA”) noted that the costs of the warranty regulations are not imposed upon businesses by
government, but rather are voluntarily assumed by companies that choose to offer written
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warranties. As such, NAIMA stated that any cost incurred by a firm would be calculated into the
firm’s business decision whether to offer a warranty or guarantee and should not be weighed as a
factor to eliminate or diminish the requirement. None of the commenters submitted data on the
cost and hour burden of complying with Rule 701. On April 22, 1999, the Commission
announced that it would retain Rule 701 unchanged (64 FR 19700).
Finally, in 2010, to determine the continued accuracy of its previous estimates, the
Commission staff contacted representatives of the Association of Home Appliance
Manufacturers and the National Association of Manufacturers.
9.

Payments or Gifts to Respondents

Not applicable. There have been no payments or gifts to respondents in connection with
Rule 701.
10. & 11.

Assurances of Confidentiality/Matters of a Sensitive Nature

No issues concerning confidentiality or questions of a sensitive nature are presented by
the Rule. From time to time, the Commission may require a warrantor to submit information as
part of a law enforcement investigation to determine whether the warrantor has engaged in any
practices that might have violated Rule 701. Any information provided to the Commission in
connection with such law enforcement investigations is treated as confidential under Sections
6(f) and 21(f) of the Federal Trade Commission Act, 15 U.S.C. § 46(f) and 61(f).
12.

Hours and Labor Cost Burden

In 2007, the FTC estimated that the information collection burden of including the
disclosures required by Rule 701 in consumer product warranties was approximately 107,000
hours per year. Although the Rule’s paperwork requirements have not changed since then, staff
has increased its estimate of the number of manufacturers subject to the Rule based on recent
Census data.
Total annual hours burden. Staff estimates that the burden of including the disclosures
required by Rule 701 in consumer product warranties is approximately 127,000 hours, rounded
to the nearest thousand).
Rule 701 requires that certain material information be disclosed in a written consumer
product warranty. Based on conversations with various warrantors’ representatives, staff has
concluded that eight hours per year is a reasonable estimate of a warrantor’s burden in order to
comply with Rule 701. This estimate includes the task of ensuring that new warranties and
changes to existing warranties comply with the Rule.
In 2007, Commission staff estimated that there were 13,369 manufacturers selling
warrantied products in this country. Staff now estimates that there are 15,922 manufacturers
subject to the Rule. This results in an annual burden estimate of approximately 127,376 hours
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(15,922 manufacturers x 8 hours of burden per year). However, this estimate likely substantially
overstates the actual burden because most warrantors would disclose the terms and conditions of
their warranties even in the absence of the Rule.
Total annual labor cost burden. Staff estimates that the annual labor cost is
approximately $16,941,000, rounded to the nearest thousand.
Labor costs are derived by applying appropriate hourly cost figures to the burden hours
described above. The work required to comply with the Warranty Rule – ensuring that new
warranties and changes to existing warranties comply with the Rule – requires a mix of legal
analysis and clerical support. Staff estimates that half of the total burden hours (63,688 hours)
requires legal analysis at an average hourly wage of $250 for legal professionals,5 resulting in a
labor cost of $15,922,000. Assuming that the remaining half of the total burden hours requires
clerical work at an average hourly wage of $16, the resulting labor cost is approximately
$1,019,008. Thus, the total annual labor cost is approximately $16,941,008 ($15,922,000 for
legal professionals + $1,019,008 for clerical workers).
13.

Estimated Capital/Other Non-Labor Costs Burden

(a) Total capital and start-up costs. The Rule imposes no appreciable current capital
or start-up costs that businesses do not already spend in the normal course of business. To
comply with Rule 701, warrantors need only the ordinary office equipment to draft new
warranties and to change the wording of existing warranties to include the required disclosures.
Thus, compliance requires no capital equipment or special technology apart from what the
manufacturer or seller would already be using as part of the normal course of business, such as
typewriters, word processing equipment, and photocopying equipment. Similarly, distribution of
the warranty does not impose any special capital costs apart from the packaging and printing
equipment already in use by the business. It is not possible to state with any precision what
fraction of the cost of that equipment could be attributed to distributing the warranty.
(b) Total operation/maintenance/purchase of services costs. The only ongoing costs
involved with compliance are those costs associated with maintenance and repair of typewriters
and word processing and photocopying equipment used to generate the warranty document that
contains the required disclosures. These are costs that the seller or manufacturer already bears in
the normal cost of business; it is unlikely that Rule 701 compliance would impose significant
incremental costs. Likewise, the cost of distributing warranty information involves such things
as the purchase of supplies (such as paper), the maintenance of equipment, or the purchase of
services to print, package, and distribute the warranty. These are costs that would be already
built into the packaging and distribution of the product itself and which are already assumed as
part of the normal course of business.

5

Staff has derived an hourly wage rate for legal professionals based upon industry knowledge. The
clerical wage rate used in this Notice is based on recent data from the Bureau of Labor Statistics National
Compensation Survey.

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14.

Estimated Cost to the Federal Government

Staff estimates that the yearly cost to the Federal Government resulting from
administration of the Rule’s warranty disclosure requirements is $10,000, which is the cost of
one-tenth of a professional work year.
15.

Program Changes or Adjustments

There are no program changes. The estimated total annual hours burden has been
adjusted upward from 107,000 hours in 2007 to 127,000 hours in 2010 due to an increase in the
number of manufacturers estimated to be subject to the Rule based on recent Census data
(13,369 total in 2007 and 15,922 total in 2010).
The estimated total annual labor costs have been adjusted upward from $14,118,000 in
2007 to $16,941,000 in 2010. This was due to increasing wage rates for clerks.
16.

Plans for Tabulation and Publication
There are no plans to publish any information.

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