Warranties Keeping You Up at Night? Ask BMW

by Kevin Else on Apr 10, 2015 3:00:00 AM FTC, DRTV

Warranties_Can_Be_Guaranteed_to_Keep_DRTV_Marketers_Up_at_Night-354436-editedOn March 19th, the Federal Trade Commission (FTC) announced a settlement with BMW of North America LLC over charges “that its MINI Division violated the Magnuson-Moss Warranty Act by telling consumers that BMW would void their warranty unless they used MINI parts and MINI dealers to perform maintenance and repair work.

What BMW did violated the restriction on “Tie-In Sales” provisions of the Act. The Act does not permit a warrantor to condition “a warranty on the consumer’s using, in connection with the warranted product, an article or a service (other than an article or a service provided without charge under the terms of the warranty) identified by brand, trade, or corporate name.

What BMW did wrong

According to the FTC complaint, BMW’s warranty required owners to have their routine maintenance performed by BMW MINI dealers and that any use of non-genuine MINI parts could seriously affect the owner's warranty rights. In the analysis of the Proposed Consent Order, the FTC explained the crux of the issue:

First, in order to have a warranty claim approved, owners must demonstrate that they obtained regular maintenance of their vehicles by having a MINI dealer place a stamp in the warranty booklet. See Complaint at ¶ 12. Second, the Warranty Statement states that it “is not obligated to pay for repairs that include non-genuine MINI parts . . . .” (emphasis added). Although respondent provides, with the purchase of its vehicles, a free scheduled maintenance program, many of the models have a three-year maintenance program, but a four-year new vehicle warranty. Thus, according to the complaint, there is one year during the warranty period in which consumers must pay for their maintenance and repair work while being required to use MINI dealers and MINI parts to retain warranty coverage.

[Note: In certain situations, the Act allows the FTC to waive the tying requirement if the company proves that the product will work properly only if only a specific branded part is used and the FTC decides that a waiver is in the public interest.]

Having been an in-house attorney for a major retailer, I wouldn’t be surprised if what happened is that the legal department approved the warranty language, assuming the length of the warranty would always match the length of the free maintenance program. Someone in marketing probably thought it would be a great idea to lengthen the term of the warranty or someone in finance thought it would be a great idea to shorten the length of the maintenance program after everything was signed off by Legal (of course, it’s also possible the Legal Department made a mistake but, in my opinion, that’s probably the least likely scenario). It really doesn’t matter how it happened, what matters is the lesson we take away from what happened.

Periodically review your warranties against your marketing materials

It’s important for any organization—especially DRTV companies—to periodically review its warranties and compare the terms and conditions against all marketing materials and other programs. The FTC provides extensive information regarding how to.

Here are just a few important things to think about:

  • If you're selling products with written warranties, the Act requires the warranties be available to the consumer PRIOR TO SALE (Pre-Sale Availability Rule). If you sell directly to consumers who come to your place of business to purchase, you need to be able to provide them with a copy of the warranty. Home appliance retailers usually have a notebook with all the warranties behind one of their desks somewhere in the store.
  • If you’re selling on the Internet, you should have the warranty available as a link on the product detail page.

Implied warranties

Remember that implied warranties can bind a company as well. If a spokesperson on television claims a piece of workout equipment is safe for a 300lb. person, it better be designed to handle a 300lb. person. Implied claims are always something to watch for in live televised home shopping. I know from personal experience that incredible things are said on live television when there isn’t even a seven-second delay to protect you.

For more information about the BMW settlement with the FTC, click here.

Photo by aquir

Kevin Else is CEO of kartographe.

 

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