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It is unclear whether a dealer has entered into a service contract when another party owns the contract. The dealer is instrumental in selling the contract and retains a significant portion of the service contract charge.

In arguing that a dealer has “entered into” a service contract, discovery is essential. Does the service contract specify an “issuing dealer?” Is the dealer listed as the place where the service is to be performed? Has the dealer signed any document related to the service contract? What are the terms of the agreement between the dealer and the company that offers the service contract? Did the consumer sign an application for the service contract? Did the dealer? What are the terms of the application?

The Act’s intent calls for a broad definition of “entered into.” By prohibiting “as is” sales when the seller provides a written warranty or enters into a service contract, the Act is meeting consumer expectations that a merchant will stand behind the product.

The sale of a service contract triggers the Act’s limitations on implied warranty disclaimers even if the state regulates the service contract as insurance.

The Magnuson-Moss Warranty Act prohibits disclaimer of implied warranties when a supplier gives a written warranty or enters into a service contract, but it allows the supplier to limit the duration of implied warranties in some circumstances. If a supplier provides a limited written warranty, it may limit the duration of any implied warranty to not less than the duration of the written warranty.³⁶⁵

Any limit on the duration of implied warranties must be “reasonable,” “conscionable,” and set forth in “clear and unmistakable language and prominently displayed on the face of the warranty.”³⁷¹ The FTC also requires the durational limit to state that some states do not allow such limitations.³⁷²

The Act does not prohibit limitations on the remedies available for breach of an express or implied warranty.³⁸¹ A buyer may have success in arguing that a limitation of remedies which is so severe that it has the practical effect of nullifying the implied or written warranty is void because it is against the policy of the Act.³⁸² UCC provisions making remedy limitations unenforceable in some circumstances³⁸³ apply in Magnuson-Moss litigation as we

The Act provides a remedy for a consumer who is damaged by the failure of a supplier, warrantor, or service contractor to comply with any obligation under a written warranty,³⁸⁷ whether the written warranty is full or limited.³⁸⁸ This provision provides a federal cause of action for actual damages and attorney fees whenever any aspect of a written warranty is breached.³⁸⁹

Courts disagree whether the Act eliminates vertical privity requirements for implied warranty claims. If state law restricts a consumer from suing a manufacturer or other indirect seller for breach of an implied warranty, it is unclear whether the consumer can still maintain such an action under the Act. This issue arises in less than half the states, as a majority of states abolish vertical privity as a requirement for implied warranty claims.⁴¹¹

A precondition to UCC warranty claims is providing the seller with notice of the breach of warranty.⁴¹⁹ The Magnuson-Moss Act does not require notice of breach, but establishes similar requirements: (1) a written warranty can require that a consumer resort to an informal dispute resolution mechanism before suing; and (2) otherwise, the consumer must afford the seller a reasonable opportunity to cure before the consumer can sue for failure to comply with a written or implied warranty or service contract.

The Act provides a remedy, including damages and attorney fees, for breach of a service contract.⁴³¹ It may distinguish between those offering service contracts and those administering service contracts for another party. One court has ruled that the Act does not apply to a service contract administrator, only the party offering the service contract.⁴³²

The Magnuson-Moss Warranty Act prohibits a warrantor tying the performance of warranty obligations to the buyer’s use of a particular product or service.⁴³⁷ Violation of the tie-in prohibition may be fairly widespread. In 2018, the Federal Trade Commission sent warning letters to six major companies that market automobiles, cellular devices, and video game systems, warning them that their warranties appeared to violate the prohibition against tie-ins.⁴³⁸

There are two exceptions to the tie-in prohibition: when the article or service is provided without charge under the terms of the warranty (presumably for the warranty’s duration)⁴⁴⁹ or when the FTC grants a waiver.⁴⁵⁰ To obtain a waiver, the warrantor shows in an administrative proceeding that the tied-in product or service is necessary to proper functioning of the warranted product and that the waiver is in the public interest.

A “50-50” warranty, common in low-end used car sales, provides that the dealer will make any necessary repairs for a period such as thirty days, with the consumer paying half the cost of parts and labor and the dealer performing the work and paying itself for the other half.⁴⁵⁶ The Act applies to this warranty because it meets the definition of a written warranty.⁴⁵⁷

The Act broadly authorizes consumers to recover damages due to a violation of any of the Act’s provisions.⁴⁶³ Damages would include higher costs a consumer had to pay to use particular parts or services, when they could be found for less elsewhere.

The Magnuson-Moss Warranty Act prohibits the warrantor granting itself (1) the sole authority to determine whether a defect or nonconformity within the scope of the written warranty exists, or (2) the final or binding decision in a dispute.⁴⁶⁷ A warrantor cannot state that it alone shall determine what is and what is not a defect. Nor can a warranty state that, in the event of a dispute, the decision of a third party designated by the warrantor is final or binding.⁴⁶⁸

When a warrantor gives a full warranty,⁴⁶⁹ it may not condition performance obligations on return of a registration card, this being considered an unreasonable duty.⁴⁷⁰ The warrantor may suggest that the buyer fill out and return the card to place on file proof of the date of purchase.⁴⁷¹ The suggestion must include notice that failure to return the card does not affect warranty rights if the consumer can show the purchase date in a reasonabl

While the FTC has not done so, the Act gives the FTC authority to enact rules extending the time period of a warranty to correspond with any unreasonable time the consumer is deprived of the use of the product.⁴⁷⁹ The FTC could issue a rule dealing with how to extend the period of a written warranty when the product is out of service for repairs for a portion of the warranty period.

The warrantor may designate a representative to perform its warranty obligations.⁴⁸⁰ Car manufacturers often designate franchised dealers as their representatives. The Act specifies that the warrantor retains direct responsibility for its obligations. A breach of warranty cause of action runs against the warrantor.⁴⁸¹

The Act prohibits deceptive written warranties, defined as:

(A) a written warranty which

The Magnuson-Moss Warranty Act requires that every written warranty be labeled as full or limited.⁴⁸⁴ If a written warranty meets the Act’s minimum standards for full warranties,⁴⁸⁵ it must be disclosed as a “full” warranty; otherwise, it must be disclosed as “limited.”⁴⁸⁶

To be labeled a full warranty, the written warranty, at a minimum, must comply with the following:

The duties of a warrantor under a full written warranty extend to “each person who is a consumer.”⁴⁹¹ “Consumer” includes not only the original purchaser, but any person to whom the product is transferred during the duration of an implied warranty, written warranty, or service contract.⁴⁹² The term includes a secondhand purchaser or one who receives the product as a gift, but does not include a person who buys the product for resale.⁴⁹³ A ful

If a product fails to conform to the full written warranty, a full warrantor must remedy the nonconformity within a reasonable time and without charge.⁴⁹⁹ The full warrantor can remedy the defect by repairing, replacing, or refunding, whichever the warrantor elects, “except that the warrantor may not elect refund unless (i) the warrantor is unable to provide replacement and repair is not commercially practicable or cannot be timely made, or (ii) the consumer is willing to accept such refund.”⁵⁰⁰

A full warrantor must provide a refund, replacement, or repair, without charge.⁵⁰⁷ “Without charge” means:

A full warrantor can require as a condition of a refund or replacement that the consumer product be made available free and clear of liens and encumbrances.⁵¹⁶ This requirement does not apply when the consumer seeks damages.⁵¹⁷

That the goods be free of liens protects the warrantor from paying twice. The warrantor should not have to return the purchase price to the consumer and then pay the lienholder to clear title on the product.