FTC Clarifies Dealers’ 50/50 Warranty Issue

FTC Clarifies Dealers’ 50/50 Warranty IssueOK To Direct Customers Where to Go For Repairs

In response to an inquiry by the National Independent Automobile Dealers Association, the Federal Trade Commission recently issued an opinion on whether certain limited warranty terms violate the tying provisions of the Magnuson-Moss Warranty Act; specifically, whether the act prohibits dealers who offer 50/50 warranties from requiring that warranty repairs be performed at a repair facility designated by the dealer.

The FTC said that neither the act nor its interpretations prohibit such warranty terms. The opinion also stated that the same reasoning would apply to a warranty with a significant deductible.

Commenting on the concern expressed by plaintiffsê lawyers that dealers inflate the cost of warranted repairs as a method of imposing all or most of the repair costs on the purchaser, the FTC noted that this practice would constitute a deceptive practice under federal and state law.

WANADA Counsel Allen Jones reminds dealer members that 50/50 used car warranties are prohibited in DC and Maryland where implied warranties cannot be limited. The 50/50, therefore, is only available for use by Virginia dealers in the metropolitan area. While FTCês action is a positive development for dealers who can offer the 50/50, attorney Michael Charapp believes itês a good time to review the companyês policy on used car warranties. The federal Magnuson-Moss Warranty Act requires an actual warranty document when a dealer is offering a warranty. Simply filling out the FTC Buyerês Guide window label isnêt sufficient where a warranty is offered. Here again, the warranty document must be given, containing things like what items are covered and whatês not; the period of coverage; how the consumer can obtain warranty repairs; and statements to the effect that state law may provide additional rights, as is the case in DC and Maryland, and that information on the Buyerês Guide window label overrides any contrary provisions in the sales contract. The dealer can offer no warranty with the as-is transaction in Virginia or implied warranties only in DC and Maryland. The Buyerês Guide window labels have these options depending upon the state level jurisdiction. The dealer can similarly note on the Buyerês Guide in the warranty option section that the manufacturerês warranty still applies and the consumer should consult the manufacturerês warranty book; no additional dealer warranty need accompany this.

WANADA has Buyerês Guide used car window labels available to members along with limited warranty forms for used cars (i.e., 30 day, 100% for DC and Maryland and 30 day, 50/50 for Virginia dealers. To order supplies of these forms, contact Joyce Roberts in the WANADA office at (202) 237-7200. The FTC Commissioner ês opinion can be found on their website at http://www.ftc.gov/os/2003/01.htm.