The FTC recently completed its internal review of the Interpretations, Rules and Guides under the Magnusson-Moss Warranty Act, which was started in 2011 as a part of the FTC’s systematic review of all current FTC rules and guides. In response to the public comments received, the FTC has decided to revise Part 700.10 of the Interpretations to clarify that “implied tying” is deceptive. The term “implied tying” refers to warranty language that implies to a consumer that warranty coverage is conditioned on the use of select parts or service. The FTC has also revised Part 700.10 to state that, the extent that the Warranty Act’s service contract provisions apply to the insurance business, they are effective if they do not interfere with state laws regulating the business of insurance.
Earlier this year the FTC alleged that BMW, through its MINI Division, violated a provision in the Warranty Act that prohibits companies from requiring that consumers – in order to maintain their warranties – use specific brands of parts or specified service centers (unless the part or service is provided to the consumer without charge). “It’s against the law for a dealer to refuse to honor a warranty just because someone else did maintenance or repairs on the car,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “As a result of this order, BMW will change its practices and give MINI owners information about their rights.” Going forward, it appears that the FTC intends to further clamp down on such behavior. The stiffer new interpretation holds that such conduct is deceptive, a stronger interpretation than was previously in force.
In addition to revising Part 700.10, the FTC’s Federal Registrar further explains the obligations of online and offline warrantors and the Magnusson-Moss Warranty Act’s application to certain consumer leases, and ensures that consumers are entitled to informal dispute mechanisms under the Act. Specifically, the FTC maintained that any arbitration under the Magnusson-Moss Act is non-binding, and only serves as a potential first step in resolving disputes. The FTC points to § 2310(a)(3)(C) of this law, which deals with informal dispute settlement procedures. The law states, “any decision in such procedure may be admissible in evidence” in “any civil action arising out of a warranty obligation.” To the FTC, this clearly implies that the legislators saw arbitration as a first step that could resolve some disputes, but not the final, binding word on all disputes. The FTC’s interpretation flies in the face of two federal appeals courts, which have ruled that the Magnuson-Moss Warranty Act doesn’t prohibit binding arbitration.
However, not everyone at the FTC agreed with the modifications. Commissioner Maureen Ohlhausen dissented, saying, “I voted against the Commission’s Final Revised Interpretations of the Magnuson-Moss Warranty Act (MMWA) Rule because it retains Rule 703.5(j)’s prohibition on pre-dispute mandatory binding arbitration.” In support of her dissenting statements, Commissioner Ohlhausen cited to two federal court of appeals decisions, Walton v. Rose Mobile Homes, LLC, 298 F.3d 470 (5th Cir. 2002) and Davis v. Southern Energy Homes, Inc., 305 F.3d 1268 (11th Cir. 2002), which both held that the Magnusson-Moss Warranty Act does not prohibit binding arbitration. Commissioner Ohlhausen also noted that the recent U.S. Supreme Court cases, Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013), AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), seemed to favor the arbitration mechanism.
While there doesn’t seem to be any debate regarding the “implied tying” clarification, the question of binding arbitration continues to linger. Should consumers be subject to binding arbitration under the Magnusson-Moss Warranty Act? Many consumers complain that arbitration is heavily unbalanced in favor of the larger companies, and forcing such consumers into binding arbitration only further eviscerates a consumer’s ability for recourse under a warranty claim. While the U.S. Supreme Court and two Court of Appeals have stated their support for binding arbitration, the FTC has roundly rejected those holdings, and has maintained that all arbitration under the Magnusson-Moss Warranty Act is non-binding. Only time will tell whether the FTC’s revisions will hold up to the mounting pressure of arbitration.