FTC Warns About Warranty Claims

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The Federal Trade Commission (“FTC”) recent sent warning letters to six companies that market and sell automobiles, cellular devices and video gaming systems. In doing so, the Commission indicated that it is concerned about the companies’ statements that consumers must use specified providers to keep their warranties intact.

Unless warrantors provide the parts or services for free or receive a regulatory waiver, such statements are prohibited by the Magnuson-Moss Warranty Act. They may also be deceptive under the FTC Act.

Each company used different language, but here are examples of questionable provisions:

• The use of [company name] parts is required to keep your . . . manufacturer’s warranties and any extended warranties intact.
• This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].
• This warranty does not apply if this product . . . has had the warranty seal on the [product] altered, defaced, or removed.

“Provisions that tie warranty coverage to the use of particular products or services harm both consumers who pay more for them as well as the small businesses who offer competing products and services,” said Thomas B. Pahl, Acting Director of the FTC’s Bureau of Consumer Protection.

Companies cannot void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.

There are only two exceptions: 1) if the company provides the article or service to consumers for free; or 2) if the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.

The FTC has requested that each company review promotional and warranty materials to ensure that warranty coverage is not expressly or impliedly conditioned upon the use of specific providers.

According to the Commission, the Federal Trade Commission will review the companies’ websites after thirty days. Failure to correct any potential violations may result in enforcement action.

What can other business glean from the warning letters?

Take a fresh look at your own warranties. Unless you meet one of Mag-Moss’ narrow exceptions, do not condition warranty coverage on consumers’ use of parts or service from you or someone you authorize.

Read your warranty through consumers’ eyes. Consider the literal wording of your warranties, of course. But like any other advertising representation, companies can communicate claims to consumers expressly and by implication. Subject to those two Mag-Moss exceptions, if the language you choose conveys to reasonable consumers that their warranty coverage requires them to use an article or service identified by brand, trade, or corporate name, revise your practices to avoid a warranty whoops.

Section 5’s prohibition on deception applies to misleading warranty claims. A violation of the Magnuson-Moss Warranty Act is a violation of Section 5 of the FTC Act. But separate and apart from Mag-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act. When evaluating what they say and do with regard to warranties, savvy companies approach the task by posing the same questions they ask themselves when looking at their ad claims: 1) What will consumers understand us to mean? and 2) Are we telling the truth?

The law’s reach can be global. Foreign companies are not exempt. The laws apply when business practices of non-U.S. companies constitute unfair or deceptive acts or practices that either involve material conduct in the United States or are likely to cause reasonably foreseeable injury within the U.S.

Contact an experienced Federal Trade Commission investigation and defense lawyer to review and update product warranties. The recent warning letters may very well signal additional enforcement by the FTC.

Richard B. Newman is an FTC compliance and defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the FTC and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result. Hinch Newman LLP | 40 Wall St., 35thFloor, New York, NY 10005.

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