Thursday, March 19, 2015

FTC To BMW: Don’t Minimize Mag-Moss Warranty Compliance

If your company offers warranties, a proposed FTC settlement with BMW of North America’s MINI Division suggests that a compliance check-up could be warranted. Section 2302(c) of the Magnuson-Moss Warranty Act makes it illegal for a company to condition a warranty “on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.”

In other words, companies can’t void a consumer’s warranty or deny warranty coverage because the consumer uses a part made by someone else or gets someone other than the dealer to do the work.

But here's what BMW of North America told MINI owners in the warranty booklet they got with their cars:

"Have maintenance and repair work performed by your MINI dealer. Make sure that maintenance work is stamped in this Service and Warranty Information Statement. These entries are the evidence of regular maintenance of your vehicle and are a requirement for warranty claims."

According to the FTC's complaint, in numerous instances, the company violated Mag-Moss – and Section 5 of the FTC Act – "by conditioning car owners' warranties on their use of MINI parts and service".

The proposed order bars BMW from violating the Magnuson-Moss Act or the FTC's accompanying rules. The settlement also prohibits representations that MINI owners must have maintenance performed only by MINI dealers or at MINI centers unless the statement is true and BMW can back it up with reliable scientific evidence.

What’s more, BMW has to contact affected MINI owners with truthful information about their right to use third-party parts and service without voiding their warranties. (That provision won’t apply if the company provides the parts and services for free.) You can file an online comment about the proposed settlement by April 20, 2015

A few FTC warranty compliance tips to note:
  • Section 2302 of Mag-Moss doesn’t apply if you’re not charging consumers for the parts or service. Of course, the FTC’s case centered on work MINI owners had to pay for themselves. That’s why the FTC says it was illegal for BMW of North America to condition owners’ warranties on the use of MINI parts and service.
  • What happens if work done at an independent shop (or by an owner trying a little DIY) results in damage? For example, say a mechanic replaces a belt improperly and the engine gets messed up. The dealer or manufacturer may deny coverage under the warranty for that repair if it can demonstrate that the improper belt replacement – rather than some other problem – caused the damage. Of course, the warranty would still be in effect for any additional problems that pop up as long as those problems weren’t caused by the improper belt replacement.
  • Mag-Moss includes a narrow provision authorizing the FTC to waive the tying prohibition if the company can prove that the product with the warranty will work properly only if a specific branded part is used and the FTC concludes a waiver is in the public interest. But as the complaint makes clear, that exception doesn’t apply in this case.
P.S.  The provisions of Mag-Moss are what matters, of course, but here’s a historical tidbit about the name. Technically speaking, it should be the Magnuson-Moss-Moss Act since the bill was sponsored by Senator Warren Magnuson of Washington, Congressman John Moss of California, and Senator Frank Moss of Utah. Call it what you want. All we ask is that companies comply with it.

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