In addition to state Lemon Laws, vehicle sales are governed by a federal law called the Magnuson-Moss Warranty Act. A warranty is a promise from a manufacturer or seller that a product is sound, that the manufacturer or seller is committed to correcting problems when the product fails.
Type of Warranties
A warranty is a promise from a manufacturer or seller that a product is sound, that the manufacturer or seller is committed to correcting problems when the product fails. The law recognizes two basic kinds of warranties: implied warranties and express warranties.
Implied warranties are unspoken, unwritten promises from the seller to the customer. Implied warranties are based upon the principle of “fair value for money spent.” There are two types of implied warranties that pertain to consumer products, including vehicles, the “implied warranty of merchantability” and the “implied warranty of fitness for a particular purpose.”
The implied warranty of merchantability is a vehicle manufacturer’s or dealer’s basic promise that the vehicle you buy will do what it’s supposed to do and that there’s nothing significantly wrong with it. In other words, it is an implied promise that the vehicle will run. The law says that vehicle manufacturers and dealers automatically make this promise when they sell a vehicle. For example, a used vehicle should work as well as would reasonably be expected when considering its age, mileage, and price. If a dealer sold you a vehicle with a cracked engine block or a bent frame, the dealer would be in violation of the implied warranty of merchantability. The law requires that the dealer provide you with a remedy, such as repairs or a replacement vehicle, to ensure that you get a vehicle that works.
The implied warranty of fitness for a particular purpose is a vehicle manufacturer’s or dealer’s basic promise that the vehicle you buy can be used for something specific. For example, if you tell the dealer that you want to use a vehicle to tow a camper trailer and he says that a certain light-duty truck will pull your camper trailer, he’s given you an implied warranty of fitness for a particular purpose. If the light-duty truck you buy doesn’t pull your camper trailer, he’s breached this warranty.
Implied warranties are promises about the condition of vehicles at the time they are sold, but they do not guarantee that a vehicle will last for any specific length of time or that everything that can possibly go wrong with a vehicle is covered. In other words, if you never change the oil, don’t take your vehicle in for recommended maintenance, or decide to drive it down a mountain of boulders, any resulting damage isn’t covered.
Under state laws, there is generally no specified length of time for implied warranties, although you usually have four years from the time you buy a vehicle to file a claim that says that something was wrong with it on the day you bought it. When it comes to vehicles, implied warranties only apply to those who regularly sell vehicles. In other words, you can’t seek relief from your neighbor after you’ve bought his old car, but you can seek relief from a car dealership.
Sometimes, dealers can state ahead of time that they’re not providing any implied warranties when selling used vehicles. This is called “disclaiming implied warranties.” If this is the case, a dealer must inform you conspicuously and in writing that he will not be responsible if the vehicle is defective and that he does not warrant merchantability. He must use phrases like, “with all faults” or “as is.” A few states have special laws on how dealers must phrase an “as is” disclosure.
Some states do not allow dealers to sell vehicles “as is.” These states include Alabama, Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Hampshire, Vermont, Washington, West Virginia, and the District of Columbia.
In addition, dealers and manufacturers cannot disclaim implied warranties on vehicles if they offer a service contract, an extended warranty, mechanical breakdown insurance, or similar warranties.
Express warranties, unlike implied warranties, are not “read into” sales contracts by state law; rather, manufacturers and dealers explicitly offer these warranties to you in the course of a sales transaction. They are promises and statements that they voluntarily make about their vehicles or about their commitment to remedy the defects and malfunctions that you may experience.
Express warranties can take a variety of forms, ranging from advertising claims to formal certificates. An express warranty can be made either orally or in writing. While oral warranties are important, only written warranties are covered by the Magnuson-Moss Warranty Act.
Understanding the Magnuson-Moss Warranty Act
The Magnuson-Moss Warranty Act is the federal law that governs consumer product warranties. Passed by Congress in 1975, the Act requires manufacturers and sellers of consumer products to provide consumers with detailed information about warranty coverage. In addition, it affects both the rights of consumers and the obligations of warrantors under written warranties.
To understand the Act, it is useful to be aware of Congress’ intentions in passing it. First, Congress wanted to ensure that consumers could get complete information about warranty terms and conditions. By providing consumers with a way of learning what warranty coverage is offered on a product before they buy, the Act gives consumers a way to know what to expect if something goes wrong, and thus helps to increase customer satisfaction.
Second, Congress wanted to ensure that consumers could compare warranty coverage before buying. By comparing, consumers can choose a product with the best combination of price, features, and warranty coverage to meet their individual needs.
Third, Congress intended to promote competition on the basis of warranty coverage. By assuring that consumers can get warranty information, the Act encourages sales promotion on the basis of warranty coverage and competition among companies to meet consumer preferences through various levels of warranty coverage.
Finally, Congress wanted to strengthen existing incentives for companies to perform their warranty obligations in a timely and thorough manner and to resolve any disputes with a minimum of delay and expense to consumers. Thus, the Act makes it easier for consumers to pursue a remedy for breach of warranty in the courts, but it also creates a framework for companies to set up procedures for resolving disputes inexpensively and informally, without litigation.
What the Magnuson-Moss Act Does Not Require
The Magnuson-Moss Act does not require any dealer or manufacturer to provide a written warranty. The Act allows businesses to determine whether to warrant their products in writing. However, once a dealer or manufacturer decides to offer a written warranty on a vehicle, it must comply with the Act.
Second, the Act does not apply to oral warranties. Only written warranties are covered.
Third, the Act does not apply to warranties on services. Only warranties on goods are covered. However, if your warranty covers both the parts provided for a repair and the workmanship in making that repair, the Act does apply to you.
Finally, the Act does not apply to warranties on products sold for resale or for commercial purposes. The Act covers only warranties on consumer products. This means that only warranties on vehicles normally used for personal, family, or household purposes are covered. Note that applicability of the Act to a particular vehicle does not, however, depend upon how you will use it.
What the Magnuson-Moss Act Requires
In passing the Magnuson-Moss Warranty Act, Congress specified a number of requirements that dealers must meet. Congress also directed the Federal Trade Commission (FTC) to adopt rules to cover other requirements. The FTC adopted three Rules under the Act, the Rule on Disclosure of Written Consumer Product Warranty Terms and Conditions (the Disclosure Rule), the Rule on Pre-Sale Availability of Written Warranty Terms (the Pre-Sale Availability Rule), and the Rule on Informal Dispute Settlement Procedures (the Dispute Resolution Rule).
The Act and the Rules establish three basic requirements that may apply to manufacturers and dealers.
- A written warranty must be titled as either “full” or “limited.”
- A warranty must state certain specified information about coverage in a single, clear, and easy-to-read document.
- Warranties must be available where vehicles are sold so that you can read them before buying.
What the Magnuson-Moss Act Does Not Allow
There are three prohibitions under the Magnuson-Moss Act. They involve implied warranties, so-called “tie-in sales” provisions, and deceptive or misleading warranty terms.
Disclaimer or Modification of Implied Warranties
The Act prohibits anyone who offers a written warranty from disclaiming or modifying implied warranties. This means that no matter how broad or narrow a manufacturer’s or dealer’s written warranty is, you always will receive the basic protection of the implied warranty of merchantability.
There is one permissible modification of implied warranties, however. If the dealer or manufacturer offers a “limited” written warranty, the law allows them to include a provision that restricts the duration of implied warranties to the duration of your limited warranty. For example, if you get a two-year limited warranty, the implied warranties can be limited to two years. However, if you get a “full” written warranty, the duration of implied warranties is not limited.
If you get a written warranty from the manufacturer, but the dealer does not warrant the product in writing, the dealer can disclaim his implied warranties. (These are the implied warranties under which the dealer, not the manufacturer, would otherwise be responsible.) But, regardless of whether the dealer warrants the vehicle, he must give you copies of any written warranties from the manufacturer.
“Tie-In Sales” Provisions
Generally, tie-in sales provisions are not allowed. Such a provision would require you to buy an item or service from a particular company to use with your vehicle in order to be eligible to receive a remedy under the warranty. The following are examples of prohibited tie-in sales provisions.
In order to keep your vehicle warranty in effect, you must use genuine OEM parts. Failure to have scheduled maintenance performed, at your expense, by the dealer voids this warranty.
While a dealer or manufacturer cannot use a tie-in sales provision, your warranty need not cover the use of replacement parts, repairs, or maintenance that is inappropriate for your vehicle. The following is an example of a permissible provision that excludes coverage of such things.
While necessary maintenance or repairs on your vehicle can be performed by any company, we recommend that you use only authorized dealers. Improper or incorrectly performed maintenance or repair voids this warranty.
Although tie-in sales provisions generally are not allowed, a manufacturer or dealer can include such a provision in your warranty if it can demonstrate to the satisfaction of the FTC that your vehicle will not work properly without a specified item or service.
Deceptive Warranty Terms
Obviously, warranties must not contain deceptive or misleading terms. A manufacturer or dealer cannot offer a warranty that appears to provide coverage but, in fact, provides none. For example, a warranty covering only “moving parts” on an electronic product that has no moving parts would be deceptive and unlawful. Similarly, a warranty that promised service that the warrantor had no intention of providing or could not provide would be deceptive and unlawful.
How the Magnuson Moss Act May Affect Warranty Disputes
Two other features of the Magnuson-Moss Warranty Act are also important. First, the Act makes it easier for consumers to take an unresolved warranty problem to court. Second, it encourages companies to use a less formal, and therefore less costly, alternative to legal proceedings. Such alternatives, known as dispute resolution mechanisms, often can be used to settle warranty complaints before they reach litigation.
The Act makes it easier for purchasers to sue for breach of warranty by making a breach of warranty a violation of federal law, and by allowing consumers to recover court costs and reasonable attorneys’ fees. This means that if a dealer or manufacturer loses a lawsuit for breach of either a written or an implied warranty, they may have to pay your costs for bringing the suit, including lawyer’s fees.
Because of the stringent federal jurisdictional requirements under the Act, most Magnuson-Moss lawsuits are brought in state court. However, major cases involving many consumers can be brought in federal court as class action suits under the Act.
Alternatives to Consumer Lawsuits
Although the Act makes consumer lawsuits for breach of warranty easier to bring, its goal is not to promote more warranty litigation. On the contrary, the Act encourages companies to use informal dispute resolution mechanisms to settle warranty disputes with their customers. Basically, an informal dispute resolution mechanism is a system that works to resolve warranty problems that are at a stalemate. Such a mechanism may be run by an impartial third party, such as the Better Business Bureau, or by company employees whose only job is to administer the informal dispute resolution system. The impartial third party uses conciliation, mediation, or arbitration to settle warranty disputes.
The Act allows warranties to include a provision that requires customers to try to resolve warranty disputes by means of the informal dispute resolution mechanism before going to court. (This provision applies only to cases based upon the Magnuson-Moss Act.) If a manufacturer or dealer includes such a requirement in your warranty, his dispute resolution mechanism must meet the requirements stated in the FTC’s Rule on Informal Dispute Settlement Procedures (the Dispute Resolution Rule). Briefly, the Rule requires that a mechanism must:
- Be adequately funded and staffed to resolve all disputes quickly;
- Be available free of charge to consumers;
- Be able to settle disputes independently, without influence from the parties involved;
- Follow written procedures;
- Inform both parties when it receives notice of a dispute;
- Gather, investigate, and organize all information necessary to decide each dispute fairly and quickly;
- Provide each party an opportunity to present its side, to submit supporting materials, and to rebut points made by the other party; (the mechanism may allow oral presentations, but only if both parties agree);
- Inform both parties of the decision and the reasons supporting it within 40 days of receiving notice of a dispute;
- Issue decisions that are not binding; either party must be free to take the dispute to court if dissatisfied with the decision (however, companies may, and often do, agree to be bound by the decision);
Keep complete records on all disputes; and
- Be audited annually for compliance with the Rule.
It is clear from these standards that informal dispute resolution mechanisms under the Dispute Resolution Rule are not “informal” in the sense of being unstructured. Rather, they are informal because they do not involve the technical rules of evidence, procedure, and precedents that a court of law must use.