Product Warranties for the Small Business Owner
Product warranties provide a way for manufacturers and sellers to ensure the value and functionality of their products. They ultimately offer a remedy to customers should the value or functionality of a product fail. Warranties generally fall into two categories: implied warranties and express warranties.
Implied warranties are neither spoken nor written but are established by state law to ensure fair market value. For example, under the implied warranty of merchantability, the merchant warrants that there are no product defects and the product will perform as expected. The implied warranty of merchantability is automatically made every time a product is sold. Similarly, the implied warranty of fitness for a particular purpose warrants a product’s condition when the customer relies on the merchant’s expertise regarding product use.
Manufacturers and sellers do not automatically grant express warranties. Instead, these warranties are expressly written into sales contracts and generally provide more detailed warranty provisions regarding the product’s performance. To further protect and inform consumers, Congress enacted the Magnuson-Moss Warranty Act in 1975, the federal law governing consumer product warranty. Specifically, the Act provides obligations for warrantors pursuant to written warranties. In effect, the Act ensures that:
- consumers receive complete information regarding their warranties terms and conditions,
- allows consumers to compare warranty options before purchase,
- promotes sales competition based on the extent of the warranty coverage, and
- incentivizes companies to comply with their warranty obligations timely.
To ensure the Act provides all that it promises to consumers, the Act establishes three basic requirements of warrantors:
- Written warranties must be titled as either “full” or “limited.”
- Written warranties must state the specifics of the coverage in a single, clear, and easy-to-read document.
- Warranties must be readily available where the products are sold, in case the customers would like to read the warranty before purchase.
Regarding the first requirement, the Act requires written warranties are entitled as either “full” or “limited” for consumer products above $10.00 (i.e., “designations”). The title “full” defines the warranty coverage in the most comprehensive sense, such that it meets all of the Act’s standards. A “full” warranty requires:
- the terms and conditions do not limit the duration of the implied warranties,
- the warranty service be provided for every single consumer owning the product,
- warranty remedies are provided free of charge;
- the ability for consumers to choose between a replacement product or a full refund if the product fails, and
- that the consumer has no duty to perform (other than notifying the manufacturer or seller of the defect) to receive warranty service.
If any of the requirements for a “full” warranty are not satisfied, the warranty is “limited.” The title “limited” alerts the consumer that the warranty is less than “full” coverage as provided by the Act.
Regarding the second requirement, the Federal Trade Commission (FTC) requires written warranties for consumer products above $15.00 to be straightforward, easy to read and include certain specified information about its coverage. This second requirement is known as the Disclosure Rule. The Rule contains five aspects that must be described in the warranty and may be approached by answering five questions:
- What does the warranty cover/ not cover?
- What is the period of the coverage?
- What will you do to correct the problem?
- How can the customer get warranty service?
- How will state law affect your customer’s right under the warranty?
Additionally, the document must clearly state any other conditions, limitations, or terms that the warranty intends to enforce.
Finally, the third requirement ensures that warranties for consumer products above $15.00 are readily available to consumers before making a purchase. Since there are several ways to purchase a product, the FTC sets specific requirements for retailers, mail orders, door-to-door sales, and manufacturers.
- Retailers are required to make written warranties available at the point of sale, but either placing them in the proximity of the warranted product or by making them available upon request.
- Mail-order companies must include a copy of the written warranty with the warranted product or include a statement notifying customers how to obtain a copy.
- Door-to-door sales companies must offer customers a copy of the written warrant before the completion of the sale.
- Manufacturers must provide retailers with the warranty materials they will need to sell the products. However, a retailer’s failure to supply warranty materials to customers holds the retailer liable, not the manufacturer.
This article provides a basic overview of the protections for consumers and the requirements for sellers as covered by the Magnuson-Moss Warranty Act. There are additional FTC provisions and rules but are not discussed here.
For more information regarding the Act, please refer to the FTC’s Consumer Response Center. Federal Trade Commission, Businessperson’s Guide to Federal Warranty Law, (Dec. 12, 2006), https://www.ftc.gov/tips-advice/business-center/guidance/businesspersons-guide-federal-warranty-law.