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2015 GNYADA Membership Directory
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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