Rule 702 - Supporting Statement - 2014-FINAL

Supporting Statement
Rule Governing Pre-Sale Availability of
Written Warranty Terms
16 C.F.R. § 702
(OMB Control Number 3084-0112)
1.

Necessity for Collecting the Information

Section 102(b)(1)(A) of the Magnuson-Moss Warranty Act (15 U.S.C. § 2301, et seq.)
directed the Commission to prescribe rules requiring that the terms of any written consumer
product warranty be made available to consumers prior to sale. On December 31, 1975, the
Commission issued its Rule on Pre-Sale Availability of Written Warranty Terms and Conditions,
16 C.F.R. § 702 (“the Rule” or “Rule 702”). The Rule requires that sellers make warranty texts
available to consumers for those consumer products that cost more than $15. Manufacturers
must provide materials sufficient for retailers to meet their obligations. The Rule also contains
requirements for disclosing the availability of warranty information for catalog and door-to-door
sales. The Rule imposes no recordkeeping or reporting requirements.
The Commission issued the Rule to provide consumers with the opportunity to compare
the warranty terms and conditions of competing products prior to purchase in order to allow
consumers to make informed purchasing decisions. In the absence of the opportunity to review
the warranty terms and conditions prior to purchase, consumers might purchase a product based
on the assumption that the product includes a comprehensive warranty when, in fact, the
warranty may provide less coverage than the warranties provided with other, similar products.
The Rule allows consumers to compare warranty information for different products prior to
purchase. Thus, the Rule enhances both informed purchasing decisions and competition among
warrantors.
2.

Use of the Information

Congress mandated that retailers make warranty information available to consumers
before they purchase a product. The warranty terms are part of the consumer’s contract with the
seller. Rule 702 does not require that a manufacturer provide a written warranty nor does it
mandate any warranty terms. However, if the manufacturer chooses to provide a written
warranty, the terms of that warranty must be made available to consumers before they buy the
product. Thus, Rule 702 enables consumers to understand the coverage provided by the warranty
and to compare warranties for similar products before making a purchase decision.
3.

Consideration of the Use of Improved Information Technology to Reduce Burden

Since the Rule’s promulgation, technological changes have transformed the ways
businesses make information available to consumers. While some retailers continue to provide
consumers with hard copies of written materials, others make warranties available prior to
purchase via electronic media. Electronic distribution of warranty materials saves paper and
frees up store personnel to handle other customer service functions. Retailers are free to decide
how to disclose the required information in the most efficient manner.

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To assist warrantors and sellers, the Commission 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 issued “A
Businessperson’s Guide to Federal Warranty Law.” 2
As a result of the growth of e-commerce, the Commission issued guidance in 2000 to
those warrantors and sellers who market products over the Internet. 3 More recently, in 2013, the
Commission revised this manual and its title, “.com Disclosures: How to Make Effective
Disclosures in Digital Advertising”. 4 Internet sellers can easily comply with their warranty
disclosure obligations online by, for example, using a clearly-labeled hyperlink, in close
proximity to the description of the warranted product, such as ‘get warranty information here’ to
lead to the full text of the warranty.
Indeed, on February 17, 2009, Commission staff issued an advisory opinion stating that,
in staff’s opinion, providing consumer product warranties via electronic media, rather than in
paper form, complies with the Act and the Rule. In that opinion, staff noted that if warrantors
wished to provide only electronic warranties to retailers instead of paper copies, the retailers
would need either to print out the warranties in paper form, or have the capability to display the
electronic warranty while also making available personnel to assist consumers in viewing the
warranty information. By doing so, the retailers would be complying with the Rule by
“mak[ing] a text of the warranty readily available for examination by the prospective buyer by:
(1) displaying it in close proximity to the warranted product, or (2) furnishing it upon request
prior to sale . . .” 16 C.F.R. § 702.3(a) (emphasis added). This opinion is consistent with prior
opinions issued by the Commission stating that a retailer may make a warranty available to
consumers using certain non-paper formats, such as microfiche and ultrafiche, as a means of
complying with the Rule. 5

1

This publication is available at http://business.ftc.gov/documents/bus20-writingreadable-warranties.
2

This publication is available at http://business.ftc.gov/documents/bus01businesspersons-guide-federal-warranty-law.
3

The original title for the 2000 publication was “Dot Com Disclosures: Information
About Online Advertising.”
4

This publication is available at http://business.ftc.gov/documents/bus41-dot-comdisclosures-information-about-online-advertising.
5

See 42 Fed. Reg. 39,381 (August 4, 1977) (microfiche); 42 Fed. Reg. 15,679 (March
23, 1977) (ultrafiche); 41 Fed. Reg. 53472 (December 7, 1976) (microfiche).
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4.

Efforts to Identify Duplication/Availability of Similar Information

Staff is not aware of any other statute or regulation of nationwide applicability that
requires the pre-sale disclosure of warranty terms for all consumer products. The information
required to be disclosed by the Rule is already available – namely, the terms of any warranty that
is offered. No other information is required by the Rule. Since the information required by Rule
702 is not available elsewhere, there are no alternative sources of complete warranty information
prior to sale.
5.

Efforts to Minimize the Burden on Small Businesses

The Congressional mandate requiring this Rule does not allow for a distinction between
small and large businesses. Consumers have the right to see the warranty prior to purchase
regardless of the size of the store. The costs and inconvenience caused by the Rule appear to be
small for both large and small retailers, as well as for manufacturers. Nevertheless, the
Commission’s 1987 amendment to the Rule reduced the burden of compliance by providing
retailers with greater flexibility in displaying warranties. In addition, Commission staff’s 2009
advisory opinion (see answer to specification #3 above) regarding the provision of warranties in
electronic formats endorsed an interpretation of the Act and the Rule that gives all warrantors,
including small businesses, more flexibility and cost-savings with respect to warranties.
6.

Consequences of Conducting the Collection Less Frequently

Less disclosure would defeat the Congressional intent and objective of the Rule. If
retailers do not provide to consumers the terms of a warranty before they purchase a product,
consumers lack important information about their warranty rights before making purchase
decisions.
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 that can
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.

February 2014

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68,446 (November 14, 2013). The Commission did not receive any comments. Pursuant to the
OMB regulations that implement the PRA (5 C.F.R. §1320), the Commission is providing a
second opportunity for public comment while seeking OMB approval to extend the existing
paperwork clearance for the Rule.
(b) Consultation Outside of the Agency
As part of its periodic review of all Commission rules and guides, the Commission
solicited public comments on August 23, 2011, about the costs and benefits of all Rules
promulgated under the Magnuson-Moss Act, including Rule 702, as well as the regulatory and
economic impacts. 76 Fed. Reg. 52,596. During the review, 29 organizations submitted
comments, including industry, trade associations, and consumer groups. The Commission’s
review is ongoing.
9.

Payments or Gifts to Respondents

Not applicable. There have been no payments or gifts to respondents in connection with
Rule 702.
10-11. Assurances of Confidentiality/Matters of a Sensitive Nature
Rule 702 does not present any issues concerning confidentiality or questions of a
sensitive nature. From time to time, the Commission may require a warrantor to submit
information as part of a law enforcement investigation to determine whether the seller or
warrantor has engaged in any practices which might have violated Rule 702. 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

Total annual hours burden: Staff estimates that the burden of including the disclosures
required by the Pre-Sale Availability Rule in consumer product warranties is 2,446,610 hours.
In its 2010 submission to OMB, FTC staff estimated that the information collection
burden of making the disclosures required by the Pre-Sale Availability Rule was approximately
2,490,000 hours per year. Although there has been no change in the Rule’s information
collection requirements since 2010, staff has adjusted its previous estimate of the number of
manufacturers subject to the Rule based on recent Census data. From that, staff now estimates
that there are approximately 581 large manufacturers and 13,935 small manufacturers subject to
the Rule. In addition, recent Census data suggests that there are an estimated 6,892 large
retailers and 452,553 small retailers impacted by the Rule. In its 2010 submission to OMB, staff
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took note that some online retailers had begun to make warranty information directly available
on their websites, thereby reducing their paperwork burden under the Rule. As e-commerce
continues to grow, it is likely that more retailers are posting warranty information online now
than they were in 2010. Nevertheless, because staff assumes that only a small percentage of
retailers would be significantly less burdened by posting warranty information online – namely,
retailers with a large Internet presence or whose inventory is mainly composed of warranted
products – staff retains its previous estimates of the hour burden for retailers. Therefore, staff
continues to estimate that large retailers spend an average of 20.8 hours per year and small
retailers spend an average 4.8 hours per year to comply with the Rule. Accordingly, the total
annual burden for retailers is approximately 2,315,608 hours ((6,892 large retailers x 20.8 burden
hours) + (452,553 small retailers x 4.8 burden hours)).
Staff also estimates that more manufacturers are providing retailers with warranty
information in electronic form in order to fulfill their obligations under the Rule. Therefore, staff
has adjusted the hour burden for manufacturers, as it did in its previous submission to OMB.
Applying a 20% reduction to its previous estimates, staff now assume that large manufacturers
spend an average of 33.6 hours per year and that small manufacturers spend an average of 8
hours per year to comply with the Rule. Accordingly, the total annual burden incurred by
manufacturers is approximately 131,002 hours ((581 large manufacturers x 33.6 hours) + (13,935
small manufacturers x 8 hours)). Thus, the total annual burden for all covered entities is
approximately 2,446,610 hours (2,315,608 hours for retailers + 131,002 hours for
manufacturers).
Total annual labor cost burden: $51,379,000 (rounded to nearest thousand)
The work required to comply with the Pre-Sale Availability Rule entails a mix of clerical
work and work performed by sales associates. Staff estimates that half of the total burden hours
would likely be performed by sales associates. At the manufacturing level, this work would
entail ensuring that the written warranty accompanies every consumer product or that retailers
otherwise receive the required warranty information. At the retail level, this work would entail
ensuring that retailers make the written warranty available to the consumer prior to sale. The
remaining half of the work required to comply with the Pre-Sale Availability Rule is clerical in
nature, e.g., shipping or otherwise providing copies of manufacturer warranties to retailers and
retailer maintenance of them. Applying a sales associate wage rate of $24/hour to half of the
burden hours and a clerical wage rate of $18/hour to half of the burden hours, the total annual
labor cost burden is approximately $51,378,810 (1,223,305 hours x $24 per hour) + (1,223,305
hours x $18 per hour). 6

6
The wage rates used in this Notice reflects recent data from the Bureau of Labor
Statistics, Occupational Employment and Wages (May 2012).

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13.

Estimated Capital/Other Non-Labor Costs Burden

(a) Total capital and start-up costs. De minimis. The vast majority of retailers and
warrantors have already developed systems to provide the information the Rule requires.
Compliance by retailers typically entails keeping warranties on file, in binders or otherwise,
posting an inexpensive sign indicating warranty availability, and providing the warranty upon
request. 7 Manufacturer compliance entails providing retailers with a copy of the warranties
included with their products.
(b) Total operation/maintenance/purchase of services costs. De minimis. The only
ongoing costs retailers incur with compliance are those costs associated with keeping warranty
information current. If retailers utilize a binder system, maintenance simply involves filing new
warranties in the binders, resulting in minimal costs.
Where manufacturers print warranties on the product’s package, the retailer incurs no
maintenance costs because the only maintenance involves restocking the inventory of products
on the shelf. Those retailers who choose to post signs would have no maintenance or ongoing
costs other than replacement of worn signs.
The warrantor likely incurs no extra cost to comply with Rule 702 because manufacturers
include the warranty information with the products they ship.
14.

Estimated Cost to the Federal Government

The estimated 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 slightly
decreased from 2,490,000 estimated hours in 2010 down to 2,446,610 estimated hours in 2013.
This slight decrease is largely attributable to our estimate that more manufacturers make
warranty information available in electronic form than in paper format to fulfill their obligations
under the Rule. This results in less compliance time for each manufacturer. The associated labor
burden figure increased from $47,312,356 in 2010 to $51,378,810 in 2013. This labor cost
increase is attributable to a slight increase in the hourly rates since 2010.

7

Although some retailers may choose to display a more elaborate or expensive
sign, that is not required by the Rule.
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16.

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

February 2014