Consumer Product Warranty Rule - SS - 2016 - 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. § 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 Fed.
Reg. 60,168). 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.
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.
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. 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 Thereafter, in compliance with the
mandates of the E-Warranty Act, Pub. L. No. 114-51, 129 Stat. 494-95, the Commission slightly modified
Rule 701 in connection with allowing manufacturers to post warranty terms online and certain sellers to
provide warranty terms pre-sale in an electronic format, 81 Fed. Reg. 63,664 (September 15, 2016).
Finally, consistent with the Government Paperwork Elimination Act, Pub. L. No. 105- 277, 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.
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.

1

This publication is available at https://www.ftc.gov/tips-advice/business-center/guidance/writingreadable-warranties.
2

This publication is available at https://www.ftc.gov/tips-advice/businesscenter/guidance/businesspersons-guide-federal-warranty-law.
3

This publication is available at https://www.ftc.gov/tips-advice/business-center/guidance/comdisclosures-how-make-effective-disclosures-digital.
4

This staff advisory opinion is available at
https://www.ftc.gov/sites/default/files/documents/advisory_opinions/opinion-09-1/opinion0901_0.pdf.

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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

As a prelude to this request, the Commission sought public comment. See 81 Fed. Reg. 57,910
(August 24, 2016). 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.
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 57b-2(f) .
12.

Hours and Labor Cost Burden
Total annual hours burden: 140,280 hours.

In its 2013 submission to OMB, the FTC estimated that the information collection burden of
including the disclosures required by the Warranty Rule was 116,128 hours per year. Although the Rule’s
information collection requirements have not changed, this estimate slightly increases the number of
manufacturers subject to the Rule based on recent Census data. Further, because most warrantors would
continue to disclose this information even if there were no statute or rule requiring them to do so, staff’s
estimates likely overstate the PRA-related burden attributable to the Rule. Moreover, the Warranty Rule
has been in effect since 1976, and warrantors have long since modified their warranties to include the
information the Rule requires.

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Based on conversations with various warrantors’ representatives over the years, staff has
concluded that eight hours per year is a reasonable estimate of warrantors’ PRA-related burden
attributable to the Warranty Rule. 5 This estimate takes into account ensuring that new warranties and
changes to existing warranties comply with the Rule. Based on recent Census data, staff now estimates
that there are 17,535 manufacturers covered by the Rule. 6 This results in an annual burden estimate of
approximately 140,280 hours (17,535 manufacturers x 8 hours of burden per year).
Total annual labor costs: $19,011,798.
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 (70,140
hours) requires legal analysis at an average hourly wage of $250 for legal professionals, 7 resulting in a
labor cost of $17,535,000. Assuming that 25% of the total burden hours requires legal support at the
average hourly wage of $25.19, and that the remaining 25% requires clerical work at an average hourly
wage of $16.92; the resulting labor cost is approximately $1,154,893 ($883,413 + $593,384). Thus, the
total annual labor cost is approximately $19,011,797 ($17,535,000 for legal professionals + $883,413 for
legal support + $593,384 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 startup 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 computer 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,
5

FTC staff has previously contacted two manufacturing associations – the Association of Home
Appliance Manufacturers and the National Association of Manufacturers – and we have not located
additional data that further clarifies this figure.

6

Because some manufacturers likely make products that are not priced above $15 or not intended for
household use—and thus would not be subject to the Rule—this figure is likely an overstatement.

7

Staff has derived an hourly wage rate for legal professionals based upon industry knowledge. The wage
rates for legal support workers and for clerical support used in this Notice are based on recent data from
the Bureau of Labor Statistics, Occupational Employment and Wages—May 2015, table 1 (“National
employment and wage data from the Occupational Employment Statistics survey by occupation”),
released Mar. 30, 2016, available at http://www.bls.gov/news.release/pdf/ocwage.pdf.

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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 $15,000, 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
upward from 116,128 hours in 2013 to 140,280 hours in 2016 due to an increase in the number of
manufacturers estimated to be subject to the Rule based on recent Census data (14,516 in 2013 and
17,535 in 2016).
The increase in annual hours of burden also increases the estimated total annual labor costs,
which have been adjusted upward from $15,710,000 in 2013 to $19,011,798 in 2016. This is also a slight
increase in the hourly wage rates for clerks (from $16.54/hour in 2013 to $16.92/hour in 2016) and legal
support (from $24.57/hour in 2013 to $25.19/hour in 2016).
16.

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

17.

Requested Permission Not to Display the Expiration Date for OMB Approval
Not applicable.

18.

Exceptions to the “Certification for Paperwork Reduction Act Submissions”
Not applicable.

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