Anti-Lemon Aid

The story is all too familiar. A shopper buys a refrigerator, handsaw or any of hundreds of thousands of other products covered by a warranty only to have the product quickly break down. When the consumer reads the warranty's fine print, he discovers that the document is so filled with exceptions and qualifications as to make the manufacturer's promise to fix or replace the item almost useless. That situation is likely to become far less common in the years ahead because of the first of a series of strict new warranty regulations issued recently by the Federal Trade Commission under the Warranty Act of 1975.

What Is "Full"? The act, a kind of anti-lemon aid sponsored by Democratic Senators Warren G. Magnuson of Washington and Frank E. Moss of Utah, took effect last July. It is aimed at clearing up misunderstandings about manufacturers' guarantees. These misunderstandings arise from such common practices as exempting certain parts of the product from the warranty or requiring the buyer to pay for shipping a defective item to and from the factory for servicing. The act requires that any manufacturer offering a "full" warranty must agree to correct or replace a defective product free within a "reasonable" time whether or not the owner is the original buyer. Anything less than such unconditional assurance must be labeled a "limited" warranty. The FTC was authorized to fill in many details of the vaguely worded law with specific regulations.

Now, the FTC has issued one proposal and the first three regulations that manufacturers or retailers must abide by if they offer full warranties for products costing $15 or more. The proposal that is still subject to change is aimed at the used-car business. Among other things, the FTC would require dealers to affix a sticker on each car that they sell. The sticker would have to reveal the car's prior use, private or commercial, and a description of any major work that the dealer had done on the car.

These regulations would require manufacturers to:

1) Reveal warranty information to consumers before they buy the product. This can be done by attaching warranties to floor samples, printing them on packages or displaying them on a sign near the product. At present many consumers take the product home, open the box and find the warranty inside.

2) Fully disclose warranty terms in "simple and readily understood language." Among the facts that must be listed: precisely when, how and by whom a product will be repaired or replaced, and who will make a refund. Currently warranties are often clotted with legalese and offer implied instead of explicit promises.

3) Establish a procedure to handle consumer complaints. Under this rule, which takes effect July 4 (the first two become effective next Jan. 1), a manufacturer may choose to allow adjudication of disputes before the consumer business arbitration tribunals that have been created by many Better Business Bureaus or set up its own panel. But a company panel must be composed mainly of nonindustry representatives.

Yet some manufacturers believe that the law and the FTC regulations are still too vague. They contend that many companies will simply stop offering warranties to avoid getting entangled in the new rules. Fisher-Price, a major toymaker, already has dropped written warranties on music boxes rather than use the word limited.

On the other hand, many companies, including General Electric and Whirlpool, will continue to offer full warranties. Reason: a manufacturer's promise to repair defects is a potent inducement to consumers to buy the product--and it is likely to become even more of an aid to sales if the new law and the FTC rules convince consumers that the promise can be believed.

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