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2015 GNYADA Membership Directory

105

An “extended warranty” is somewhat of a misnomer. Any product that provides for repair or servicing of the

vehicle after the original manufacturer’s (or seller’s) warranty expires and for which the customer pays an

additional charge is a“service contract,”not an extended warranty. Service contracts can be sold directly by the

dealer or by a third party. They do not extend the manufacturer’s warranty obligation but give the consumer a

contractual right against the seller of the service contract in the event of a breakdown or service need. Under

MMWA and state law, a consumer’s legal rights and remedies will be different for warranties and service

contracts.

FTC Warranty Rules – Two additional FTC rules, the Consumer Product Warranty Rule

(“Warranty Rule”) and the Rule Governing Pre-Sale Availability ofWrittenWarrantyTerms (“Pre-Sale Availability

Rule”), specify language for warranties, require that warranties be displayed in close proximity to the vehicle

and the full warranty terms be made available to consumers upon request before they buy. State laws, such as

the California and Minnesota Car Buyer’s Bill of Rights, provide minimum requirements for dealers to be able to

use the term“certified”(or any similar term) in connection with a used car sale, and require other warranty and

used car disclosures as well.

FTC Endorsement and Testimonial Guidelines

The FTC has issued revised guidelines on the use of endorsers and

testimonial ads. In summary, the endorser must disclose

if they are being compensated by the advertiser and a

consumer endorsement is an implied representation that

the endorser’s experience is representative of what other

consumers will generally experience. Actual consumers

must be distinguished from actors, who must be prominently

and conspicuously disclosed as such. The FTC requires that all

statements by endorsers must be true and substantiated. The FTC

has stated, “Consumer endorsements themselves are not competent

and reliable scientific evidence.”

Other Advertising Guidelines

The FTC and many state Attorneys General and Motor Vehicle Departments have published additional

advertising guidelines as well. One example concerns the use of the word“free”in advertising. The FTC prohibits

use of the word “free” in reference to any item in connection with the sale of any other product or service that

is usually sold at a price arrived through bargaining as distinguished from a fixed or set price. A classic example

is the sale of an automobile. According to the FTC, nothing is “free” when the sale price is derived through

bargaining. Also, the FTC will not permit use of the word “free” for a product or service if consumers have to

spend money to get the item or scroll through numerous pages of “optional” offers or make applications for

credit or other services. The FTC cautions: “all such [free] offers must be made with extreme care so as to avoid

any possibility that consumers will be misled or deceived.”

With respect to online advertising and social media, the FTC has adopted a “clear and conspicuous” standard

to online advertising disclosures, and provided four key requirements to determine whether the advertising