Drafting effective and legally compliant consumer warranties

October 23, 2014

document reviewClients involved in consumer sales transactions need to be mindful of all the federal and state law requirements applicable to consumer warranties and this issue of Business Counselor Update includes the addition of a new chapter to Business Transactions Solution dealing specifically with drafting effective and legally compliance Consumer Warranties (§§92:1 et seq.).  As you know, a warranty may be described as a contractual term concerning some aspect of a sale, such as title to the goods or their quality or quantity. For example, a warranty typically may warrant that a product will be free from defects for a specified period of time.  The most important federal statute covering the law of consumer warranties is the Magnuson-Moss Warranty Federal Trade Commission Improvement Act (15 U.S.C.A. §§ 2301 et seq.), which addresses products liability arising out of the breach of specific warranties that come up in the course of consumer sales.  While not discussed in detail in the new chapter, state law is also an important consideration when drafting consumer warranties and any warranties provided in consumer transactions must be drafted to meet both federal and applicable state requirements.  The materials in the chapter include a master form for a full consumer warranty meeting the minimum standards as set forth in the Magnuson-Moss Warranty Act.  The commentary describes the regulatory framework for warranties provided to consumers, with an emphasis on the required disclosures. The Specialty Forms library includes examples of full and limited warranties for various types of goods. Related issues are covered in the chapters on Sale of Goods (§§ 120:1 et seq.), since the Uniform Commercial Code provides the basic statutory authority for all warranties that arise out of the sale of goods, consumer or otherwise; Product Service and Support Agreements (§§ 88:1 et seq.) and Consumer Sales and Leases (§§ 139:1 et seq.).

Understanding the case law and regulatory regime applicable to consumer product warranties, and drafting effective disclosures of consumer warranties, is an activity that should be carried out as part of the larger process of documents sales of goods transactions and establishing procedures for providing service and other support to customers.  In managing and completing the steps associate with preparing an effective consumer product warranty statement, the following checklist may be helpful:

  • Determine the goods that are to be sold under the agreement;
  • Review relevant laws and tax regulations relating to consumer sales arrangements (§§ 139:1 et seq.);
  • Complete the drafting and review checklist for the relevant form;
  • Prepare the initial draft of the warranty statement;
  • Determine whether other forms or agreements are required to complete the transaction, such as service contracts or credit documents, and draft such agreements;
  • Take all steps required to insure compliance with all federal and state law requirements relating to the form and content of consumer warranties;
  • Circulate drafts of all documents to all parties, collect comments, and prepare the final form of documents for execution or public distribution;

A forms library for providing effective advice for clients with respect to drafting consumer product warranties should begin with a model for a full consumer warranty meeting the minimum standards as set forth in the Magnuson-Moss Warranty Act (see § 140:36) and should be supplemented by a drafting checklist (§ 140:45) and a review checklist (§ 140:46) covering the key provisions that would normally be included in such a warranty.  Attorneys should also take advantage of various checklists and questionnaires to draft consumer product warranties and assist clients with identifying issues that should be covered in their warranty policies and procedures:

  • Checklist of matters to include in written warranty (§ 140:55)
  • Checklist of matters to disclose in written warranty regarding available dispute-resolution procedure under Magnuson-Moss Warranty Act (§ 140:56)
  • Checklist of matters to include in service contract (§ 140:57)
  • Questionnaire: Warranties—General considerations (§ 140:58)
  • Diagnosis Form: Warranties—General considerations (§ 140:59)

Finally, an excellent additional resource to recommend to clients with respect to understanding federal consumer warranty law is the Federal Trade Commission publication titled “A Businessperson’s Guide to Federal Warranty Law that is reproduced at § 140:60.