US CODE : Title 15 : Chapter 50
Facing concern from the plague of complaints from consumers about warranties that do not live up to their promises, the Johnson administration established a Task Force on Appliance Warranties and Service, whose assignment was to study the problem and issue a report. The Federal Trade Commission (“FTC”) performed a study for the Task Force, analyzing over 200 warranties from 50 manufacturers of major appliances. When the Task Force and the FTC reported their findings on January 8, 1969, the results were disturbing. The report concluded that “[t]he majority of major appliance warranties currently in use contain exceptions and exclusions which are unfair to the purchaser and which are unnecessary from the standpoint of protecting the manufacturer from unjustified claims or excessive liability.” The report also found that “[t]he consumer does not have a readily available or practical means of compelling the manufacturer or the retailer from whom he purchased the appliance or the servicing agency responsible for its maintenance to perform their respective warranty obligations.”
First, warranties accompanying consumer goods in this era were almost universally no longer bargained-for agreements. Rather, these warranties were adhesion contracts created by one party, the seller, in an effort to protect itself from liability. Second, warranties were also routinely used as marketing tools to solicit consumer purchases. The inconsistency was resolved through the device of using big, bold type to make the promises to consumers that would convince them to buy, while using tiny type to limit or eliminate the promises sure to catch the eye of the unsophisticated consumer. As one commentator described the situation: “In short, the express warranty had become an artfully contrived method of eliminating the kinds of warranty protection that all but the most sophisticated buyers would expect to accompany a product touted to perform properly. Many purchasers began to realize that the document with the filigree border emblazoned with ‘Warranty’ or ‘Guarantee’ was often of no greater value than the paper on which it was printed.”
As Senator Magnuson explained, in first introducing the legislation, manufacturers and retailers “hide behind mountains of fine print which negate the very essence of a ‘guaranty.’” Approximately three months later, on January 20, 1970, the first day of congressional hearings on the subject of the warranty legislation, Senator Frank E. Moss began his opening statement with this observation:
Few, if any, issues plague the consumer more than the one we will discuss today. The artful words in minute print under the bold type declaration of “guarantee” or “warranty” confuse and bewilder even the sophisticated buyer. The so-called guarantee may prove to be a full coverage insurance policy against product failure during the guarantee period, but it is just as likely to be an empty promise and “insure” only the corporation making it – “insure” it, the corporation, of marketing advantages of the word “guarantee” and insure it against having to pay if the product fails to work.
This problem, well described by the adage, “What the bold print giveth, the fine print taketh away,” was compounded by additional circumstances then prevailing in the country. There was not effective government regulation in this field, and this is perhaps best evidenced by Senator Moss’ statement that the FTC had become known in Washington circles as the “sleeping lady of Pennsylvania Avenue.” Granting the FTC enhanced powers to regulate the marketplace became a key feature of the legislation that became known as the Magnuson-Moss Warranty Federal Trade Commission Improvement Act.