Rule 703

As part of an ongoing review of all Federal Trade Commission rules and guides, the FTC is seeking public comment about whether its Rule 703, which sets out its requirements governing informal dispute settlement mechanisms ("IDSMs") designed to resolve disputes between warrantors and consumers, should be amended or retained unchanged. IDSMs allow consumers to attempt to resolve complaints through informal mediation or arbitration programs before going to court. The agency also has asked for public comment about how to increase the benefits of the rule to consumers and reduce the cost burden on companies subject to the Rule.

Rule 703 outlines the minimum standards for those IDSMs that are included as part of a consumer warranty -- i.e., those IDSMs that the warranty requires the consumer to use before going to court. In enacting the Magnuson-Moss Warranty Act, Congress allowed that warrantors could require, as part of their written warranty, that consumers try to resolve disputes through an IDSM before going to court. However, if warrantors were to include this requirement in their written consumer warrantees, the Act required that the IDSM must meet certain minimum standards and directed the FTC to establish those standards. Rule 703 fulfilled this Congressional mandate. The Rule sets forth the minimum requirements for IDSMs in such areas as funding, staffing, qualifications, notification, time limits for decisions, record keeping, and annual audits. The Rule applies only to those firms that choose to be bound by it by including a provision in their written warranties that requires the consumer to use an IDSM before filing a lawsuit.

Since the Magnuson-Moss Warranty Act was enacted in 1975, most states have enacted "lemon laws" which require consumers to use IDSMs for automobile warranty problems before filing suit under a lemon law. Some states have created state-sponsored IDSMs, whereas other state "lemon laws" require auto manufacturers to set up IDSMs which comply with Rule 703. The Commission has conducted two previous reviews of Rule 703: a regulatory negotiation process in 1986 and publication of an Advance Notice of Proposed Rulemaking in 1989. Both reviews were terminated without further action.

In a Federal Register Notice published today, the FTC is seeking comment on:

• Whether there is a continuing need for the Rule;
• What costs or benefits it has provided to consumers;
• What changes, if any, should be made in the Rule to enhance consumer benefits;
• What changes, if any, should be made to the Rule to reduce the cost of compliance;
• Whether new technology, such as the Internet, could be used to further the purposes of the Rule;
• The aggregate costs and benefits of the Rule;
• What changes, if any could be made to the Rule that might minimize burdens and maximize benefits to litigants in state lemon law disputes.

Review of this Rule is part of the FTC’s ongoing Rule and Guide Review. As the result of the review, since 1995 the Commission has repealed more than 28% of its industry guides and more than 38% of its trade regulation rules.

The Commission vote to publish the request for a 60 day public comment period until June 2 was. 5-0. It appears in the Federal Register today (16 CFR Part 703).

Copies of the Rule 703 and the Federal Register Notice requesting comment are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 202- 326-2502. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

(FTC Matter No. P974 408)