Pre-Sale Availability Rule 3084-0112 SS '07 FIN

Supporting Statement
Rule Governing Pre-Sale Availability of
Written Warranty Terms
16 C.F.R. 702
(OMB Control Number 3084-0112)
1.

Necessity for Collecting the Information

Section 102(b)(1)(A) of the Magnuson-Moss Warranty Act (15 U.S.C. § 2301, et seq.)
directed the Commission to prescribe rules requiring that the terms of any written consumer product
warranty be made available to consumers prior to sale. On December 31, 1975, the Commission
issued its Rule on Pre-Sale Availability of Written Warranty Terms and Conditions, 16 C.F.R. 702
(“the Rule” or “Rule 702”). The Rule requires that sellers make warranty texts available to
consumers for those consumer products that cost more than $15. Manufacturers must provide
materials sufficient for retailers to meet their obligations. The Rule also contains requirements for
disclosing the availability of warranty information in catalogs and door-to-door sales situations. The
Rule imposes no recordkeeping or reporting requirements.
The purpose of the Rule is to provide consumers with the opportunity to compare the
warranty terms and conditions of competing products so that they can make informed purchasing
decisions. In the absence of the opportunity to review the warranty terms and conditions, 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 warranty on the product chosen may
provide less coverage, a fact that becomes apparent only upon reading the warranty. The Rule
allows consumers to compare warranty information on different products prior to purchase and can
learn what type of assistance they will receive if the product turns out to be defective. Thus, the
Rule enhances both informed purchasing decisions on the part of consumers and competition among
warrantors.
2.

Use of the Information

Congress mandated that warranty information be made available to consumers before they
purchase a product. The terms of the warranty are part of the consumer’s contract with the seller.
Rule 702 does not require that a manufacturer give a written warranty nor does it mandate any
warranty terms. However, if the manufacturer chooses to give a written warranty, the terms of that
warranty must be made available to consumers before they buy the product. Thus, Rule 702 enables
consumers to understand the warranty rights offered with a product and to compare warranties
offered on similar products before making a purchase decision.
3.

Consideration of the Use of Improved Information Technology to Reduce Burden

Although there have been technological changes since the Rule’s promulgation in the ways
in which information can be made available, in-store purchases, catalog sales, and door-to-door sales
still are particularly adapted to the use of written materials. Some retailers may place the warranties
on computer terminals or on CD-ROMs that are available for consumers to use to review particular
warranties. These methods not only save space, but also free up store personnel to handle sales and

other customer service functions. Retailers are free to decide how to disclose the required
information in the most efficient manner. To assist sellers, the Commission has published a manual
for businesses entitled “A Businessperson’s Guide to Federal Warranty Law” to provide
explanations of the Rule’s requirements and suggestions on how to comply.
Given the rise of the online marketplace, FTC staff conducted an informal survey and found
that some online retailers are posting warranty information on their websites so that prospective
purchasers can view the warranty information before purchasing a given product. As a result of the
growth of this emerging marketplace, the Commission has issued guidance to those warrantors and
sellers who market products over the Internet. Thus, in May 2000, the Commission published a
manual, “Dot Com Disclosures: Information About Online Advertising,” which provides guidance
to businesses on making warranty terms available when selling products online. Moreover, on
January 30, 2001, the Commission held a workshop (“E-Tail Details”) for online retailers to provide
guidance on complying with the requirements of various FTC rules, including Rule 702, when
selling over the Internet.
More recently, a review of 20 top online retailers’ websites for availability of warranty
information suggests that a significant percentage of retailers (40% of the 20 sampled) have begun
to incorporate online methods of complying with the Rule – either by posting warranty information
online or sending that information to consumers electronically.
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.
4.

Efforts to Identify Duplication/Availability of Similar Information

As far as staff is aware, there is no other statute or regulation of nationwide applicability that
requires the pre-sale disclosure of warranty terms for all consumer products. To the extent that
industry would make warranties available absent government regulation, most of the methods they
would use are included as options in the Rule. The information required to be disclosed by the Rule
is already available – namely, the terms of any warranty that is offered. No other information is
required by the Rule. Since the information required by Rule 702 is not available elsewhere, there
are no alternative sources of complete warranty information prior to sale.
5.

Efforts to Minimize the Burden on Small Businesses

The Congressional mandate requiring this Rule does not allow for a distinction between
small or large businesses. Consumers have the right to see the warranty prior to purchase regardless
of the size of the store. The costs and inconvenience caused by the Rule appear to be small for both
large and small retailers, as well as for manufacturers. Nevertheless, the Commission’s 1987
amendment to the Rule reduced the burden of compliance by providing retailers with greater
flexibility in displaying warranties.
2

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 available to each consumer who purchases a
product before they buy, consumers would not have access to important information about their
warranty rights and how to exercise those rights before making purchase decisions.
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
(a) Public comments

As a prelude to this request, the Commission sought public comment. See 72 Fed. Reg.
44,140 (Aug. 7, 2007). No comments were received. Pursuant to the OMB regulations that
implement the PRA (5 C.F.R. Part 1320), the Commission provided a second opportunity for public
comment. See 72 Fed. Reg. 61,648 (Oct. 31, 2007). No comments were received.
(b) Consultation Outside the Agency
As part of its program of periodic rule review, the Commission in 1996 solicited written
public comments on the costs and benefits of Rule 702, as well as its regulatory and economic
impact (61 Fed. Reg. 14,688). Seven organizations submitted comments, including industry, trade
associations, and consumer groups. The two commenters from the retail industry (National Retail
Federation (“NRF”) and North American Retail Dealers Association (“NARDA”)) generally
criticized the Rule’s requirements and recommended that the Rule be rescinded or modified to
further reduce the seller’s compliance burden. The NRF was the only organization to submit any
information on the cost of compliance. NRF provided anecdotal information regarding one retailer.
According to NRF, the division of one retailer spent almost $46,000 starting up its program and
spends an additional $43,000 per year implementing the program; this division purportedly made
an initial investment of $12,500 to post signs and spends an additional $6,500 per year maintaining
the signage.
On the other hand, the comments received from other parties generally reflected strong
support for the view that the Rule is achieving the objective it was fashioned to achieve – i.e., to
facilitate the consumer’s ability to obtain clear, accurate warranty information. The American
Automobile Manufacturer’s Association stated that the current system is working well and is not
unreasonably costly to warrantors. The North American Insulation Manufacturers Association
3

(“NAIMA”) noted that the costs of the warranty regulations are not imposed upon businesses by
government, but rather are voluntarily assumed by companies that choose to offer written
warranties. As such, NAIMA stated that any cost incurred by a firm would be calculated into the
firm’s business decision whether to offer a warranty or guarantee and should not be weighed as a
factor to eliminate or diminish the requirement.
On April 22, 1999, the Commission announced that it would retain Rule 702 unchanged (64
Fed. Reg. 19,700).
9.

Payments or Gifts to Respondents

Not applicable. There have been no payments or gifts to respondents in connection with
Rule 702.
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 seller or warrantor has engaged in any
practices which might have violated Rule 702. 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 61(f).
12.

Hours and Labor Cost Burden

Total annual hours burden: Staff estimates that the burden of including the disclosures
required by the Pre-Sale Availability Rule in consumer product warranties is 2,328,000 hours,
rounded to the nearest thousand.
In 2004, FTC staff estimated that the information collection burden of including the
disclosures required by the Pre-Sale Availability Rule in consumer product warranties was
approximately 2,760,000 hours per year. Although there has been no change in the Rule’s
information collection requirements since 2004, staff has adjusted its previous estimate of the
number of manufacturers subject to the Rule based on recent Census data. Staff now estimates that
there are approximately 134 large manufacturers and 13,235 small manufacturers subject to the
Rule. Census data suggests that the number of retailers subject to the Rule has remained largely
unchanged since 2004. Therefore, staff continues to estimate that there are 6,552 large retailers and
422,100 small retailers impacted by the Rule.
Since 2001, some online retailers have been posting warranty information on their web sites,
reducing their burden of providing the required information. While some online retailers make
warranty information directly available on their web sites, the majority of them instead provide
consumers with instructions on how to obtain that information. Moreover, some online retailers
provide warranty information electronically in response to a consumer’s request for such
information. A review of 20 top online retailers’ websites for availability of warranty information
4

suggests that a significant percentage of retailers (40% of the 20 sampled) have begun to
incorporate online methods of complying with the Rule – either by posting warranty information
online or sending that information to consumers electronically. Based on this information, staff
estimates that retailers’ annual hourly burden has decreased by twenty percent.
Applying a 20% reduction to the FTC’s previous estimates, staff assumes that large retailers
spend an average of 20.8 hours per year and small retailers spend an average 4.8 hours per year to
comply with the Rule. Accordingly, the total annual burden for retailers is approximately 2,162,362
hours ((6,552 large retailers x 20.8 burden hours) + (422,100 small retailers x 4.8 burden hours)).
Staff retains its previous estimate that large manufacturers spend an average of 52 hours per
year and small manufacturers spend an average of 12 hours per year to comply with the Rule.
Accordingly, the total annual burden incurred by manufacturers is approximately 165,788 hours
((134 large manufacturers x 52 hours) + (13,235 small manufacturers x 12 hours)).
Thus, the total annual burden for all covered entities is approximately 2,328,150 hours
(2,162,362 hours for retailers + 165,788 hours for manufacturers).
Total annual labor cost burden. Staff estimates that the total annual labor cost burden is
$32,594,000, rounded to the nearest thousand. The work required to comply with the Pre-Sale
Availability Rule is predominantly clerical, e.g., providing copies of manufacturer warranties to
retailers and retailer maintenance of them. Applying a clerical wage rate of $14/hour, the total
annual labor cost burden is approximately $32,594,100 (2,328,150 hours x $14 per hour).
13.

Estimated Capital/Other Non-Labor Costs Burden

(a) Total capital and start-up costs. De minimis. The vast majority of retailers and
warrantors already have developed systems to provide the information the Rule requires.
Compliance by retailers typically entails keeping warranties on file, in binders or otherwise, posting
an inexpensive sign indicating warranty availability, and providing the warranty upon request.1
Manufacturer compliance entails providing retailers with a copy of the warranties included with
their products.
(b) Total operation/maintenance/purchase of services costs. De minimis. The only
ongoing costs retailers incur with compliance are those costs associated with keeping warranty
information current. If a binder system is used, maintenance simply involves filing new warranties
in the binders; in such a case, little cost would be involved.
Where warranties are printed on the product’s package, the retailer incurs no maintenance
costs since the only maintenance involves restocking the inventory of products on the shelf. Those

1

Although some retailers may choose to display a more elaborate or expensive sign, that
is not required by the Rule.
5

retailers who choose to post signs would have no maintenance or ongoing costs other than
replacement of worn signs.
The warrantor likely incurs no extra cost to comply with Rule 702 because the warranty
information is already included with the products that are shipped and thus are already built into the
packaging and distribution of the product itself.
14.

Estimated Cost to the Federal Government

The estimated yearly cost to the Federal Government resulting from administration of the
Rule’s warranty disclosure requirements is $9,375, 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 burden has decreased to
2,328,000 hours from the 2,760,000 hours estimated in 2004. This decrease is due to the 20%
decrease in burden hours attributable to warrantors’ increased use of making warranty information
available to consumers through online mechanisms. Accordingly, because the total annual hours
burden has decreased since 2004, the associated labor burden figure has also decreased from
$38,594,000 in 2004 to $32,594,000.
16.

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

6