[Code of Federal Regulations]
[Title 16, Volume 1]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 16CFR700.11]

[Page 531]
 
                     TITLE 16--COMMERCIAL PRACTICES
 
                   CHAPTER I--FEDERAL TRADE COMMISSION
 
PART 700--INTERPRETATIONS OF MAGNUSON-MOSS WARRANTY ACT--Table of Contents
 
Sec. 700.11  Written warranty, service contract, and insurance distinguished for purposes of compliance under the Act.

    (a) The Act recognizes two types of agreements which may provide 
similar coverage of consumer products, the written warranty, and the 
service contract. In addition, other agreements may meet the statutory 
definitions of either ``written warranty'' or ``service contract,'' but 
are sold and regulated under state law as contracts of insurance. One 
example is the automobile breakdown insurance policies sold in many 
jurisdictions and regulated by the state as a form of casualty 
insurance. The McCarran-Ferguson Act, 15 U.S.C. 1011 et seq., precludes 
jurisdiction under federal law over ``the business of insurance'' to the 
extent an agreement is regulated by state law as insurance. Thus, such 
agreements are subject to the Magnuson-Moss Warranty Act only to the 
extent they are not regulated in a particular state as the business of 
insurance.
    (b) ``Written warranty'' and ``service contract'' are defined in 
sections 101(6) and 101(8) of the Act, respectively. A written warranty 
must be ``part of the basis of the bargain.'' This means that it must be 
conveyed at the time of sale of the consumer product and the consumer 
must not give any consideration beyond the purchase price of the 
consumer product in order to benefit from the agreement. It is not a 
requirement of the Act that an agreement obligate a supplier of the 
consumer product to a written warranty, but merely that it be part of 
the basis of the bargain between a supplier and a consumer. This 
contemplates written warranties by third-party non-suppliers.
    (c) A service contract under the Act must meet the definitions of 
section 101(8). An agreement which would meet the definition of written 
warranty in section 101(6) (A) or (B) but for its failure to satisfy the 
basis of the bargain test is a service contract. For example, an 
agreement which calls for some consideration in addition to the purchase 
price of the consumer product, or which is entered into at some date 
after the purchase of the consumer product to which it applies, is a 
service contract. An agreement which relates only to the performance of 
maintenance and/or inspection services and which is not an undertaking, 
promise, or affirmation with respect to a specified level of 
performance, or that the product is free of defects in materials or 
workmanship, is a service contract. An agreement to perform periodic 
cleaning and inspection of a product over a specified period of time, 
even when offered at the time of sale and without charge to the 
consumer, is an example of such a service contract.