Consumer Product Warranty Rule - SS - FINAL - 2013

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. § 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 Rules
does not include any recordkeeping or submission requirements.
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. The information required to be
disclosed by the Rule allows consumers to compare warranty information on different products
and learn what type of assistance they will receive if the product turns out to be defective.
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3.

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 convened a
workshop (“In Short: Advertising & Privacy Disclosures in a Digital World”) to explore
compliance with various FTC rules, including Rule 701, on the Internet and other forms of
digital media. Thereafter, in March 2013, the Commission published a manual, “.Com
Disclosures: How to Make Effective Disclosures in Digital Advertising,” which provides
guidance to businesses on providing warranty disclosures when selling products online.3
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 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 78 Fed. Reg. 47,317 (August 5, 2013) and 78 Fed. Reg. 65,649 (extended
comment period closed on November 8, 2013). 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. On August 23, 2011, as part of the systematic
review of all Commission rules, the Commission solicited written public comments on the costs
and benefits of Rule 701, as well as its regulatory and economic impact. See 76 Fed. Reg.
52,596. None of the commenters submitted data on the cost and hour burden of complying with
Rule 701.
Finally, in 2010, to determine the continued accuracy of its previous estimates,
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
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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 2010, the FTC estimated that the information collection burden of including the
disclosures required by Rule 701 in consumer product warranties was approximately 127,000
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 116,128
hours.
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 2010, Commission staff estimated that there were 15,922 manufacturers selling
warrantied products in this country. Staff now estimates that there are 14,516 manufacturers
subject to the Rule. This results in an annual burden estimate of approximately 116,128
hours (14,516 manufacturers x 8 hours of burden per year). However, this estimate likely
substantially overstates the actual burden because most warrantors would likely 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 $15,710,000, 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 (50%), legal support (paralegals) (25%) and clerical help (25%). Staff
estimates that half of the total burden hours (58,064 hours) requires legal analysis at an
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average hourly wage of $250 for legal professionals, 1 resulting in a labor cost of $14,516,000.
Assuming that 25% of the total burden hours requires legal support at the average hourly
wage of $24.57, and that the remaining 25% requires clerical work at an average hourly wage
of $16.54; the resulting labor cost is approximately $1,193,505 ($713,316 + $480,189). Thus,
the total annual labor cost is approximately $15,709,505 ($14,516,000 for legal professionals
+ $713,316 for legal support + $480,189 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.
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 of burden has been
adjusted downward from 127,000 hours in 2010 to 116,128 hours in 2013 due to a decrease in
the number of manufacturers estimated to be subject to the Rule based on recent Census data
(15,922 total in 2010 and 14,516 total in 2013).
1

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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The decrease in annual hours of burden also lowers the estimated total annual labor costs;
which have been adjusted downward from $16,941,000 in 2010 to approximately $15,710,000 in
2013. This was partially offset by increased hourly rates for clerks and inclusion of a new
category of legal support for work previously covered by clerks. Legal support has a higher
hourly wage rate than do clerks ($24.57/hour compared to $16.54/hour).
16.

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

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