Understanding Warranties
Generally, a warranty is your promise, as a manufacturer or seller, to stand behind your product. It is a statement about the integrity of your product and about your commitment to correct problems when your product fails.
The law recognizes two basic kinds of warranties—implied warranties and express warranties.
Implied Warranties
Implied warranties are unspoken, unwritten promises, created by state law, that go from you, as a seller or merchant, to your customers. Implied warranties are based upon the common law principle of “fair value for money spent,” There are two types of implied warranties that occur in consumer product transactions. They are the implied warranty of merchantability and the implied warranty of fitness for a particular purpose.
The implied warranty of merchantability is a merchant’s basic promise that the goods sold will do what they are supposed to do and that there is nothing significantly wrong with them. In other words, it is an implied promise that the goods are fit to be sold. The law says that merchants make this promise automatically every time they sell a product they are in business to sell. For example, if you, as an appliance retailer, sell an oven, you are promising that the oven is in proper condition for sale because it will do what ovens are supposed to do—bake food at controlled temperatures selected by the buyer. If the oven does not heat, or if it heats without proper temperature control, then the oven is not fit for sale as an oven, and your implied warranty of merchantability would be breached. In such a case, the law requires you to provide a remedy so that the buyer gets a working oven.
The implied warranty of fitness for a particular purpose is a promise that the law says you, as a seller, make when your customer relies on your advice that a product can be used for some specific purpose. For example, suppose you are an appliance retailer and a customer asks for a clothes washer that can handle 15 pounds of laundry at a time. If you recommend a particular model, and the customer buys that model on the strength of your recommendation, the law says that you have made a warranty of fitness for a particular purpose. If the model you recommended proves unable to handle 15-pound loads, even though it may effectively wash 10-pound loads, your warranty of fitness for a particular purpose is breached.
Implied warranties are promises about the condition of products at the time they are sold, but they do not assure that a product will last for any specific length of time. (The normal durability of a product is, of course, one aspect of a product’s merchantability or its fitness for a particular purpose.) Nor does the law say that everything that can possibly go wrong with a product falls within the scope of implied warranties. For example, implied warranties do not cover problems such as those caused by abuse, misuse, ordinary wear, failure to follow directions, or improper maintenance.
Generally, there is no specified duration for implied warranties under state laws. However, the state statutes of limitations for breach of either an express or an implied warranty are generally four years from date of purchase. This means that buyers have four years in which to discover and seek a remedy for problems that were present in the product at the time it was sold. It does not mean that the product must last for four years. It means only that the product must be of normal durability, considering its nature and price.
A special note is in order regarding implied warranties on used merchandise. An implied warranty of merchantability on a used product is a promise that it can be used as expected, given its type and price range. As with new merchandise, implied warranties on used merchandise apply only when the seller is a merchant who deals in such goods, not when a sale is made by a private individual.
If you do not offer a written warranty, the law in most states allows you to disclaim implied warranties. However, selling without implied warranties may well indicate to potential customers that the product is risky—low quality, damaged, or discontinued—and therefore, should be available at a lower price.
In order to disclaim implied warranties, you must inform consumers in a conspicuous manner, and generally in writing, that you will not be responsible if the product malfunctions or is defective. It must be clear to consumers that the entire product risk falls on them. You must specifically indicate that you do not warrant “merchantability,” or you must use a phrase such as “with all faults,” or “as is.” A few states have special laws on how you must phrase an “as is” disclosure. (For specific information on how your state treats “as is” disclosures, consult your attorney.)
Some states do not allow you to sell consumer products “as is.” At this time, these states are Alabama, Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Hampshire, Vermont, Washington, West Virginia, and the District of Columbia. In those states, sellers have implied warranty obligations that cannot be avoided.
Federal law prohibits you from disclaiming implied warranties on any consumer product if you offer a written warranty for that product (see What the Magnuson-Moss Act Requires) or sell a service contract on it (see Offering Service Contracts).
You should be aware that even if you sell a product “as is” and it proves to be defective or dangerous and causes personal injury to someone, you still may be liable under the principles of product liability. Selling the product “as is” does not eliminate this liability.
Express Warranties
Express warranties, unlike implied warranties, are not “read into” your sales contracts by state law; rather, you explicitly offer these warranties to your customers in the course of a sales transaction. They are promises and statements that you voluntarily make about your product or about your commitment to remedy the defects and malfunctions that some customers 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 on consumer products 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
In order to understand how the Act affects you as a businessperson, it is important first to understand what the Act does not require.
First, the Act does not require any business to provide a written warranty. The Act allows businesses to determine whether to warrant their products in writing. However, once a business decides to offer a written warranty on a consumer product, 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 tangible property normally used for personal, family, or household purposes are covered. (This includes property attached to or installed on real property.) Note that applicability of the Act to a particular product does not, however, depend upon how an individual buyer will use it.
The following section of this manual summarizes what the Magnuson-Moss Warranty Act requires warrantors to do, what it prohibits them from doing, and how it affects warranty disputes.
What the Magnuson-Moss Act Requires
In passing the Magnuson-Moss Warranty Act, Congress specified a number of requirements that warrantors must meet. Congress also directed the 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). In addition, the FTC has issued an interpretive rule that clarifies certain terms and explains some of the provisions of the Act. This section summarizes all the requirements under the Act and the Rules.
The Act and the Rules establish three basic requirements that may apply to you, either as a warrantor or a seller.
1. As a warrantor, you must designate, or title, your written warranty as either “full” or “limited.”
2. As a warrantor, you must state certain specified information about the coverage of your warranty in a single, clear, and easy-to-read document.
3. As a warrantor or a seller, you must ensure that warranties are available where your warranted consumer products are sold so that consumers can read them before buying.
The titling requirement, established by the Act, applies to all written warranties on consumer products costing more than $10. However, the disclosure and pre-sale availability requirements, established by FTC Rules, apply to all written warranties on consumer products costing more than $15. Each of these three general requirements is explained in greater detail in the following chapters.
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 your written warranty is, your customers always will receive the basic protection of the implied warranty of merchantability. This is explained in Understanding Warranties.
There is one permissible modification of implied warranties, however. If you offer a “limited” written warranty, the law allows you to include a provision that restricts the duration of implied warranties to the duration of your limited warranty. For example, if you offer a two-year limited warranty, you can limit implied warranties to two years. However, if you offer a “full” written warranty, you cannot limit the duration of implied warranties. This matter is explained in Titling Written Warranties as “Full” or “Limited”.
If you sell a consumer product with a written warranty from the product manufacturer, but you do not warrant the product in writing, you can disclaim your implied warranties. (These are the implied warranties under which the seller, not the manufacturer, would otherwise be responsible.) But, regardless of whether you warrant the products you sell, as a seller, you must give your customers copies of any written warranties from product manufacturers.
“Tie-In Sales” Provisions
Generally, tie-in sales provisions are not allowed. Such a provision would require a purchaser of the warranted product to buy an item or service from a particular company to use with the warranted product 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 new Plenum Brand Vacuum Cleaner warranty in effect, you must use genuine Plenum Brand Filter Bags. Failure to have scheduled maintenance performed, at your expense, by the Great American Maintenance Company, Inc., voids this warranty.
While you cannot use a tie-in sales provision, your warranty need not cover use of replacement parts, repairs, or maintenance that is inappropriate for your product. The following is an example of a permissible provision that excludes coverage of such things.
While necessary maintenance or repairs on your AudioMundo Stereo System can be performed by any company, we recommend that you use only authorized AudioMundo dealers. Improper or incorrectly performed maintenance or repair voids this warranty.
Although tie-in sales provisions generally are not allowed, you can include such a provision in your warranty if you can demonstrate to the satisfaction of the FTC that your product will not work properly without a specified item or service. If you believe that this is the case, you should contact the warranty staff of the FTC’s Bureau of Consumer Protection for information on how to apply for a waiver of the tie-in sales prohibition.
Deceptive Warranty Terms
Obviously, warranties must not contain deceptive or misleading terms. You 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 to warrantors. 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.
Consumer Lawsuits
The Act makes it easier for purchasers to sue for breach of warranty by making breach of warranty a violation of federal law, and by allowing consumers to recover court costs and reasonable attorneys’ fees. This means that if you lose a lawsuit for breach of either a written or an implied warranty, you may have to pay the customer’s 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.
Although the consumer lawsuit provisions may have little effect on your warranty or your business, they are important to remember if you are involved in warranty disputes.
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 you include such a requirement in your warranty, your 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.
As stated previously, you do not have to comply with the Dispute Resolution Rule if you do not require consumers to use a mechanism before bringing suit under the Magnuson-Moss Act. You may want to consider establishing a mechanism that will make settling warranty disputes easier, even though it may not meet the standards of the Dispute Resolution Rule.
Titling Written Warranties as “Full” or “Limited”
The Magnuson-Moss Warranty Act requires that every written warranty on a consumer product that costs more than $10 have a title that says the warranty is either “full” or “limited” (The Act calls these titles “designations.”) The title is intended to provide consumers, at a glance, with a key to some of the important terms and conditions of a warranty.
The title “full warranty” is a shorthand message to consumers that the coverage meets the Act’s standards for comprehensive warranty coverage. Similarly, the title “limited warranty” alerts consumers that the coverage does not meet at least one of the Act’s standards, and that the coverage is less than “full” under the Act.
What the Terms “Full” and “Limited” Mean Determining whether your warranty is a “full” or a “limited” warranty is not difficult. If each of the following five statements is true about your warranty’s terms and conditions, it is a “full” warranty:
1. You do not limit the duration of implied warranties.
2. You provide warranty service to anyone who owns the product during the warranty period; that is, you do not limit coverage to first purchasers.
3. You provide warranty service free of charge, including such costs as returning the product or removing and reinstalling the product when necessary.
4. You provide, at the consumer’s choice, either a replacement or a full refund if, after a reasonable number of tries, you are unable to repair the product.
5. You do not require consumers to perform any duty as a precondition for receiving service, except notifying you that service is needed, unless you can demonstrate that the duty is reasonable.
If any of these statements is not true, then your warranty is “limited”.
You are not required to make your entire warranty “full” or “limited” If the statements above are true about the coverage on only some parts of your product, or if the statements are true about the coverage during only one part of the warranty period, then your warranty is a multiple warranty that is part full and part limited.
Examples of Full Warranties, Limited Warranties, and Multiple Warranties
| Guidance on Disclosure and Marketing Issues | OCC | 8/14/2006 |
When you decide on your warranty’s terms and conditions, consider eliminating unnecessary restrictions. Rather than adopting warranty terms just because they are common in your industry, let your experience guide you. For example, a limit on the duration of implied warranties may be the only provision that would prevent your written warranty from being “full” If your experience indicates that you do not really need this restriction, you may wish to consult your attorney and eliminate it.
Also, remember that the distinctions between a “full” and a “limited” warranty are specified by law, and that the legal meanings of the words “full” and “limited” in written consumer product warranties are far more narrow and specific than they are in ordinary usage. Avoid confusing the legal and ordinary meanings.
| Magnifisound Corporation Limited Warranty What Does This Warranty Cover? This warranty covers any defects or malfunctions in your new Magnifisound hearing aid. How Long Does The Coverage Last? This warranty lasts as long as you own your Magnifisound aid. Coverage terminates if you sell or otherwise transfer the aid. What Will Magnifisound Do? Magnifisound will replace any defective or malfunctioning part at no charge. You must pay any labor charges. What Does This Warranty Not Cover? Batteries, or any problem that is caused by abuse, misuse, or an act of God (such as a flood) are not covered. Also, consequential and incidental damages are not recoverable under this warranty. Some states do not allow the exclusion or limitation of incidental or consequential damages, so the above limitation or exclusion may not apply to you. How Do You Get Service? In order to be eligible for service under this warranty you MUST return the warranty registration card attached below within 30 days of purchasing the aid. If something goes wrong with your aid, send it postage paid with a brief written description of the problem to: Magnifisound Corp. We will inspect your aid and contact you within 72 hours to give the results of our inspection and an estimate of the labor charges required to fix the aid. If you authorize repairs, we will return the repaired aid to you COD within 72 hours. You must pay any labor charges upon receipt of the repaired aid. If you inform us that you wish us to provide necessary parts to you but you wish to have repairs performed elsewhere, we will return the aid and replacement parts to you within 72 hours. There is no charge for inspection. How Does State Law Apply? This warranty gives you specific legal rights, and you may also have other rights which vary from state to state.
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| Full Two Year Warranty on The Black Star 2001 Clothes Washer What is covered: Any defect in your 2001 Clothes Washer. For How Long: Two years after the date you bought your 2001 Clothes Washer. What Black Star Will Do: Repair, or if repair is not possible, either replace your 2001 Clothes Washer, or refund the purchase price, whichever you prefer. Limited Warranty on Parts for the What is covered: Any defect in your 2001 Clothes Washer. For How Long: From the start of the third year after you bought your 2001 Clothes Washer until the end of the fifth year. What Black Star Will Do: Provide free new or rebuilt replacement parts, but not labor to install the parts. Any servicer you choose can do service during this period. How to Get Service: Contact any Black Star Dealer or any Authorized Black Star Service Center. See the Yellow Pages under “Appliance Repair” for the name of a Black Star Servicer near you, or call 800-111-1111. Your Rights Under State Law: This warranty gives you specific legal rights, and you may also have other rights which vary from state to state. |
| Treadwell Tire Full Warranty During First 20% of Usable Tread Life If a defect in materials or workmanship appears in your Treadwell Tire before 20% of the tread is worn away, Treadwell Corporation will provide, at your choice, either free replacement of the same model number Treadwell Tire or a complete refund of the original purchase price. Limited Warranty During Remaining If a defect in, materials or workmanship appears in your Treadwell Tire after 20% of the tread is worn away and before the remainder of the tread is worn away, Treadwell Corporation will provide you with a credit good for the purchase of any Treadwell Tire of the same model number. The credit will drop by 10% of the original purchase price for each additional 10% of the tread that is worn away when the defect appears. How to Get Service How State Law Relates to this Warranty |
Making Warranties Available Prior to Sale
The FTC’s Rule on Pre-Sale Availability of Written Warranty Terms requires that written warranties on consumer products costing more than $15 be available to consumers before they buy. The Rule has provisions that specify what retailers, including mail order, catalog, and door-to-door sellers, must do to accomplish this. The Rule also specifies what manufacturers must do so that sellers can meet their obligations under the Rule. These provisions are explained in this section.
What Retailers Must Do
If you sell directly to consumers who come to your place of business to buy, you must make written warranties available at the point of sale. You must do this with all written warranties on the products you sell warranties from manufacturers, as well as any written warranties you extend.
The Pre-Sale Availability Rule requires that sellers make warranties readily available to prospective buyers either by displaying them in close proximity to the warranted products, or by furnishing them upon request prior to sale and posting prominent signs to let customers know that warranties can be examined upon request. The Rule does not specify any particular method for fulfilling its requirements. For example, an appliance retailer might post a refrigerator warranty on the front of the appliance, or in the freezer compartment. Or, a retailer of small products, such as watches or electric razors, might keep the warranties readily available behind the counter, or keep them indexed in a binder near the warranted products, and post signs stating their availability. Any of these methods is acceptable.
What Mail Order Companies Must Do
If you accept orders for warranted consumer products through the mail or by telephone, your catalog or other advertising must include either the warranty or a statement telling consumers how to get a copy. This information should be near the product description or clearly noted on a separate page. If you choose the latter, you must provide a page reference to the warranty statement near the product description.
What Door-to Door Sales Companies Must Do
If you sell warranted products to consumers in their homes, or in some place other than your place of business, you must offer the customer copies of the written warranties before the sale is completed.
What Manufacturers Must Do
If you are a manufacturer and offer written warranties, you must provide retailers of your product with the warranty materials they will need to meet their requirements as described above. There are any number of ways to do this, including: providing copies of the warranty to be placed in a binder; providing warranty stickers, tags, signs, or posters; or printing the warranty on your product’s packaging. As long as you have provided retailers with the warranty materials they need to comply with the rule, you are not legally responsible if they fail to make your warranties available.
Advertising Warranties
The Magnuson-Moss Warranty Act does not cover the advertising of warranties. However, warranty advertising falls within the scope of the FTC Act, which generally prohibits “unfair or deceptive acts or practices in or affecting commerce.” Therefore, it is a violation of the FTC Act to advertise a warranty deceptively.
To help companies understand what the law requires, the FTC has issued guidelines called the Guides for Advertising Warranties and Guarantees. To obtain a copy, see Additional Sources of Information. However, the Guides do not cover every aspect of warranty advertising, and cannot substitute for consultation with your lawyer on warranty advertising matters.
The Guides cover three principal topics: how to advertise a warranty that is covered by the Pre-Sale Availability Rule; how to advertise a satisfaction guarantee; and how to advertise a lifetime guarantee or warranty.
How to Advertise Warranties Covered by the Pre-Sale Availability Rule
In general, the Guides advise that if a print or broadcast ad for a consumer product mentions a warranty, and the advertised product is covered by the Pre Sale Availability Rule (that is, the product is sold in stores for more than $15) the ad should inform consumers that a copy of the warranty is available to read prior to sale at the place where the product is sold. Print or broadcast advertisements that mention a warranty on any consumer product that can be purchased through the mail or by telephone should inform consumers how to get a copy of the warranty.
For advertisements of consumer products costing $15 or less, the Guides do not call for the pre-sale availability disclosure. Instead, the Guides advise that the FTC’s legal decisions and policy statements are the sole sources of guidance on how to avoid unfairness or deception in advertising warranties. Consult your attorney for assistance in researching and applying the FTC’s case decisions and policy statements.
How to Advertise a Satisfaction Guarantee
The Guides advise that, regardless of the price of the product, advertising terms such as “satisfaction guaranteed” or “money back guarantee” should be used only if the advertiser is willing to provide full refunds to customers when, for any reason, they return the merchandise.
The Guides further advise that an ad mentioning a satisfaction guarantee or similar offer should inform consumers of any material conditions or limitations on the offer. For example, a restriction on the offer to a specific time period, such as 30 days, is a material condition that should be disclosed.
How to Advertise a Lifetime Warranty or Guarantee
“Lifetime” warranties or guarantees can be a source of confusion for consumers. This is because it is often difficult to tell just whose life measures the period of coverage. “Lifetime” can be used in at least three ways. For example, a warrantor of an auto muffler may intend his “lifetime” warranty’s duration to be for the life of the car on which the muffler is installed. In this case, the muffler warranty would be transferable to subsequent owners of the car and would remain in effect throughout the car’s useful life.
Or the warrantor of the muffler might intend a “lifetime” warranty to last as long as the original purchaser of the muffler owns the car on which the muffler is installed. Although commonly used, this is an inaccurate application of the term “lifetime.”
Finally, “lifetime” can be used to describe a warranty that lasts as long as the original purchaser of the product lives. This is probably the least common usage of the term.
The Guides advise that to avoid confusing consumers about the duration of a “lifetime” warranty or guarantee, ads should tell consumers which “life” measures the warranty’s duration In that way, consumers will know which meaning of the term “lifetime” you intend.
Offering Service Contracts
A service contract is an optional agreement for product service that customers sometimes buy. It provides additional protection beyond what the warranty offers on the product. Service contracts are similar to warranties in that both concern service for a product. However, there are differences between warranties and service contracts.
Warranties come with a product and are included in the purchase price. In the language of the Act, warranties are “part of the basis of the bargain” Service contracts, on the other hand, are agreements that are separate from the contract or sale of the product. They are separate either because they are made some time after the sale of the product, or because they cost the customer a fee beyond the purchase price of the product.
The Act includes very broad provisions governing service contracts that are explained in the following sections.
Statement of Terms and Conditions
If you offer a service contract, the Act requires you to list conspicuously all terms and conditions in simple and readily understood language. However, unlike warranties, service contracts are not required to be titled “full” or “limited,’ or to contain the special standard disclosures. In fact, using warranty disclosures in service contracts could confuse customers about whether the agreement is a warranty or a service contract.
The company that makes the service contract is responsible for ensuring that the terms and conditions are disclosed as required by law. This is not the responsibility of the seller of the service contract, unless the seller and the maker are the same company.
Disclaimer or Limitation of Implied Warranties
Sellers of consumer products who make service contracts on their products are prohibited under the Act from disclaiming or limiting implied warranties. (Remember also that sellers who extend written warranties on consumer products cannot disclaim implied warranties, regardless of whether they make service contracts on their products.) However, sellers of consumer products that merely sell service contracts as agents of service contract companies and do not themselves extend written warranties can disclaim implied warranties on the products they sell.
Source: Federal Trade Commission