We are often asked when purchasing a television, automobile, or some other product, “Would you like to buy the extended warranty?”
This is one of the most misleading things you will hear in American commerce today. There simply is no such thing as an “extended warranty.”
Warranties are initially regulated at the federal level by the Federal Trade Commission via the Magnuson-Moss Warranty — Federal Trade Commission Improvement Act.
Most people simply refer to it as the Magnuson-Moss Warranty Act. The purpose of the Act is to prevent manufacturers from luring us into buying their products with the sound of great warranty protection, only to find that the manufacturer doesn’t intend to honor the warranty, has many restrictive limitations for the warranty, or uses the warranty to force us to buy other goods and services from it or its affiliates, like franchise dealers.
One of the key components of the Act is that it prohibits manufacturers from conditioning the ongoing viability of the warranty on our purchase of other goods and services.
What this means for all of us is that an auto maker, for example, can’t condition the future existence of a vehicle’s warranty on having all of our oil changes performed by a franchise dealer. If we didn’t have this type of protection, we might have to pay $300 for an oil change to keep our vehicle warranties intact.
Federal warranty law is clear that if a manufacturer desires us to have warranty-related services performed by it or one of its agents, it must offer that service to us for free.
If the manufacturer wants us to pay for the activity, then we have to be free to buy the service from any seller of our choosing. On the other hand, don’t be fooled by suggestions that a manufacturer can’t restrict a warranty or refuse to honor warranty obligations in some circumstances.
Warranties are similar to insurance policies because they tell you what is covered, but they also tell you what is not covered.
Restricting warranties most often occurs in the context of motor vehicle warranties. Pull out your motor vehicle warranty from the glove box and read what your car maker says about what is covered and what isn’t.
Most vehicle warranties expressly refuse to cover any problem with the vehicle that is caused by, or can be traced to, damage, abuse, and/or neglect – some even refuse to cover any portion of the vehicle on which an insurance claim has been paid.
Product manufacturers are permitted to make these
exclusions because the warranty only covers malfunctions in the product that are caused by the manufacturer’s design or manufacturing of it.
Warranties aren’t meant to be guarantees that, no matter how abusive we are or what changes we cause (or that happen to it — like a car accident) that alter the product from its original design and manufacture, it will function perfectly and the manufacturer will fix any problems.
One of the essential traits of a warranty, however, is that it must be part of the “basis for the bargain.” In other words, the warranty is already included in the purchase price of the product and is part of the reason we agree to buy the product at the price for which it’s being sold.
As a result, any time you are asked to separately pay for product protection, by definition, that protection is not and should not be called a warranty.