Mr. SUTCLIFFE. Let me stop you there, if I may. You have asked the Federal Trade Commission to police the marketplace in the warranty-guarantee area.

Mr. LAMB. Right.

Mr. SUTCLIFFE. Wouldn't an analysis of whether or not the warranty is being complied with by the Federal Trade Commission require the Commission to make those very same determinations of whether or not repair was within a reasonable time, whether or not there was undue burden, or whether or not the promises of the manufacturer had been fulfilled.

Mr. LAMB. I don't think that has any relevance at all.

Mr. SUTCLIFFE. How would the Federal Trade Commission's action in this area serve to solve the problems that this committee feels are inherent in the warranty situation?

Mr. LAMB. It would do away with deception; so that it would make it clear that the fine print was not deceiving the purchaser. It could eliminate any false or deceptive statements made in advertising. That is the part that can be cleaned up under present jurisdiction of the Commission. I think this will just complicate it.

Mr. SUTCLIFFE. You said that the Commission should go beyond the advertising practice and include the examination of the warranty itself.

Mr. LAMB. That is right.

Mr. SUTCLIFFE. Would you then favor prohibition by the Federal Trade Commission against disclaimer of warranties of merchantability and fitness for a particular purpose.

Mr. LAMB. I am not going to comment on that. I am not a manufacturer, and I think there is a difference of opinion among the manufacturers as to whether or not that disclaimer is necessary.

Most of our companies manufacture their products for the purpose for which they are intended, and if a product, a 10-pound capacity washing machine is overloaded with 16 pounds, if that same 10-pound washing machine is in a family of 12 as distinguished from a family of one, the wear and tear on the machine is entirely different.

Mr. SUTCLIFFE. Why don't the manufacturers then measure their warranty periods by usage measurement rather than by time measurements which are not as precise?

Mr. LAMB. For the very reason I just outlined, because the variables in the home are so great. What happens in a family of two children as against eight or 12, what happens when you run a washing machine 7 days a week against running it 1 day a week

Mr. SUTCLIFFE. So, why isn't the manufacturer creating a measurement of warranty related to the use of the product rather than the time? In other words, why don't they design something to measure the revolutions of the machine or the number of operating hours so that they can be very precise and differentiate between one customer who uses it for an "X" amount of cycling and another for another? We do this in military guaranties, in development of a lot of our sophisticated products. Why doesn't the consumer have the benefit of this type of measurement and product engineering?

Mr. BAUMGART. There has been some effort to study that sort of measurement on the usage. There are practical problems for mass ap

plication, such as the millions we are talking about, that have not been totally overcome.

Also, appliances that remain idle have certain deterioration characteristics so that lack of use is a factor, and the whole is not yet solved to the point where manufacturers have elected to come on to the market with such a guarantee or warranty.

That would be in my judgment also an independent company decision, competitive decision which would give a consumer an additional choice.

But to require it would restrict the choice by the consumer.

Mr. SUTCLIFFE. The bill itself allows you that choice. In fact, there is a provision in the bill specifically saying duration measured by usage or by time. And the purpose of that is to encourage the development of guaranties related to the product reliability of the product that is being guaranteed.

Mr. BAUMGART. I understand.

Senator Moss. Thank you very much, gentlemen, for your response. It may be that we will want to ask some more questions which we may submit to you in writing, if you would respond to them.

We are trying to examine this carefully and in depth, and you have given us a point of view that we are glad to have and we will weigh along with all the other information we can get about the bill. Mr. LAMB. Thank you very much, Senator.

(The statement follows:)

STATEMENT OF GEORGE P. LAMB, GENERAL COUNSEL, ASSOCIATION OF HOME APPLIANCE MANUFACTURERS

I am George P. Lamb, General Counsel of the Association of Home Appliance Manufacturers (AHAM). The association's members manufacture such major home appliances as refrigerators, home laundry equipment, air conditioners, humidifiers, dehumidifiers, and automatic dishwashers; and such portable appliances as toasters, coffeemakers, hair dryers, irons, waffle irons, and so on. A list of the members and of the products with which the association is concerned is attached to this statement as Exhibit A.

APPLIANCE INDUSTRY'S INTEREST IN GOUND WARRANTIES

I am happy to have the opportunity of appearing before the Consumer Subcommittee to discuss S. 3074 and the important subject of warranties and guarantees. The home appliance industry's interest in the subject is a very real one. Were there a significant degree of dissatisfaction with warranty terms or performance under the warranties it would be reflected in the sales of the industry's products. Yet there are more than one billion major and portable appliances in use in the nation's homes today; and more than 25 million major appliances and 75 million portables are sold annually. We believe these products add immeasurably to the comfort and well being of the American people. We would regret to see any legislation enacted that could, by imposing unacceptable burdens, diminish the service the appliance industry is providing the American public, or increase unnecessarily the cost of our products.

No manufacturer and no industry can claim that its warranties have never been misunderstood or that there has been 100 per cent satisfaction with performance under the warranties. Problems arise, of course. Disclaimers, fine print, and customer misunderstanding have aroused criticism. We think it is significant, however, that no formal complaint has been issued by the Federal Trade Commission against an appliance manufacturer to challenge a warranty or guarantee as misleading or deceptive. Some ten warranties given by appliance manufacturers have been questioned informally by the Commission throughout its history. Changes were voluntarily made by the warrantors to eliminate features to which the Commission objected. Nevertheless the industry has been the subject of criticism-by the press, governmental agencies, and individuals. We

have not been insensitive to the criticism. On the contrary we have vigorously tackled any complaints that have been brought to our attention- whether broad criticism against the industry as a whole or complaints by individuals who feel they have not been dealt with fairly under a warranty given by an appliance manufacturer.

PRESIDENTIAL TASK FORCE'S ANALYSIS OF APPLIANCE WARRANTIES

AHAM endorses the approach initiated by former President Johnson and affirmed by President Nixon to problems that may exist under warranties and guarantees given by appliance manufacturers. Former President Johnson, in January 1968, appointed a Task Force to study the entire area. The Task Force was composed of the Secretaries of Commerce and Labor, the Chairman of the Federal Trade Commission, and the Special Assistant to the President for Consumer Affairs.

AHAM worked closely with the Task Force during 1968, chiefly in providing information and in circulating a questionnaire among appliance manufacturers at the request of the Chairman of the Federal Trade Commission.

The Task Force's Report, made public in January 1969, contain recommendations for action in four areas: the advertising and content of warranties, the availablility of parts, the availability of service facilities, and the education of consumers on warranty terms and on the use of appliances. The report asked for action by both manufacturers and retailers, to be supplemented as necessary by the federal government. The report recognized that manufacturers, through their trade associations, were already taking action along the lines of many of the recommendations. It was suggested that another examination be made at the end of a year-January 1970-to determine whether substantial progress had or had not been made to implement the Task Force's recommendation, and whether or not legislation was necessary.

As soon as the report was available, a committee was appointed by AHAM for each of the three principal areas covered by the report. These were committees on Warranties, Service and Repair (to cover availability of parts and service facilities), and Consumer Information. The committees began their work and progress reports were made to the Task Force on May 14, 1969 and on October 10, 1969. We are now awaiting an appraisal of our work during the past year by the Task Force, as reactivated by President Nixon. Meanwhile we are continuing to work toward the Task Force's objective clear warranties, properly administered for the benefit of consumers.

AHAM'S ACTIVITY IN WARRANTY FIELD

AHAM and its members stand foursquare for warranties and guarantees that are clearly written, make no false promises, and will be honored according to their terms. We are not newcomers to this area. Ten years ago one of the AHAM's predecessor associations, the American Home Laundry Manufacturers Association, included in its "Recommended Advertising Practices for the Home Laundry Appliance Industry" a reprint of the Federal Trade Commission's Guides Against Deceptive Advertising of Guarantees. The Commission's Guides are being reprinted in similar "Recommended Advertising Practices" being developed for the various product lines represented in the present association. (A copy of the Recommended Advertising Practices for the Home Laundry Industry and a copy of those for the Refrigerator-Freezer Industry are attached as Exhibits B and C.)

In January 1969, AHAM's Board of Directors approved Recommended Guidelines on Warranties Content, a copy of which is attached as Exhibit D. The guidelines recommended that a warranty clearly state the name and address of the warrantor; the person to whom the warranty is extended; the product or parts covered; the time for which the product or parts are covered; exactly what the warrantor will do, and at whose expense; and exactly what the owner must do, and at whose expense. The guidelines also recommend that the warranty be expressed in understandable language, that exceptions be stated in the same degree of prominence as are all other warranty terms, and that care be taken to assure that no heading or title is misleading. The information recommended by these guidelines parallels the information that would have been required by S. 2706, introduced by Senator Magnuson in the 90th Congress. Since the approval of these recommended guides, AHAM's members have reviewed their warranties and guarantees. They have made changes thought nec

essary to implement the recommendations. Language has been simplified, and print enlarged. The word "promise" has often been substituted for "warranty" or "guarantee."

Perhaps the association's most important action in helping to resolve complaints that arise under warranties or guarantees given by appliance manufacturers is the conduct of a Complaint Exchange. This exchange was initiated informally by the American Home Laundry Manufacturers Association. It has been given greater stress by AHAM. It is soon to be given an even greater boost with the establishment of a Major Appliance Complaint Council.

The Complaint Exchange works in this way. Complaints about any aspect of appliance performance, not warranties alone, may be sent to us by consumers, by the Special Assistant to the President for Consumer Affairs, by Congressmen, or by whomever. Each complaint is transmitted to the manufacturer whose product is the subject of the complaint. The manufacturer is asked to let AHAM know how the complaint was resolved. If we do not hear from the manufacturer, we write to the complainant to ask whether satisfaction has been achieved. If the answer is "No," we follow through until the customer is satisfied or we are convinced a complaint is without foundation.

The availability of this service has been publicized in the press, by word of mouth, by governmental agencies, and by any means at hand. The additional boost to be given this exchange is the establishment of a Major Appliance Complaint Council. AHAM and the Gas Appliance Manufacturers Association (GAMA) are cooperating in this venture. The Council is to be composed of nine persons nationally recognized for their interest in consumer affairs. The Council will review the handling of complaints by AHAM and GAMA, and confirm its effectiveness or recommend improvements. I hope an announcement of the establishment of the Council and its membership can be made soon.

THREE WARRANTY PROBLEMS

Three problems may arise in connection with warranties or guarantees. The warranty itself may be false or misleading. The warrantor or guarantor may not fulfill the terms of the warranty. Competent servicemen may not be available at the time and place service is needed under a warranty.

Adequate means are at hand to eradicate either of the first two problems when it exists. The Federal Trade Commission has ample authority to move against deceptive warranties, as do several states that have enacted statutes similar to the Federal Trade Commission Act. Recourse is available to a consumer in state and local courts, such as small claims courts, when a warrantor or guarantor fails or refuses to fulfill the terms of a warranty. Warranty legislation will do nothing to solve the third problem-the lack of competent servicemen-where it exists. Manufacturers, the Department of Labor, and local agencies are tackling this problem through vocational training programs.

AHAM'S REACTION TO S. 3074

AHAM is opposed to S. 3074 because it would deprive a warrantor of the right to determine the terms of the warranties he would give. Indeed it would impose warranty terms on a seller through the oral statements of salesmen. It would subject warrantors to constant dispute over the meaning of such phrases as "within a reasonable time,” and “duties [that] are reasonable." It would require that a warrantor, in determining whether or not duties are "reasonable," continuously weigh "the magnitude" of his "economic burden" against "the magnitude of the trouble and annoyance" caused the consumer.

We are convinced the bill you are considering would be detrimental to the consumer. It would discourage the giving of warranties, and it would discourage voluntary procedures for settling disputes that may arise under warranties. Furthermore, prices consumers pay for goods would be increased by the substantial additional costs of fulfilling the requirements the bill would impose, and by the costs of litigation the bill would encourage.

Turning to the specific provisions of S. 3074, an immediate question arises as to whether or not it covers oral as well as written warranties. Senator Magnuson, when he introduced the bill indicated clearly that the intention was that the measure cover only written warranties. (Congressional Record, Oct. 27, 1969, p. S. 13228.) The bill itself, however, covers oral representations by sales

men.

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Appliance manufacturers carefully plan their warranty terms and programs. They state the terms in writing. They are increasingly attempting to write their warranties simply and in language that is easily understood. To allow these written terms to be varied by oral statements of sales personnel would put to naught the care that goes into trying to tell a purchaser exactly what a warranty means. It would create an intolerable situation in which understanding between warrantor and purchaser could never be attained.

The duties imposed on a seller by Section 3 of S. 3074 are to repair a product, or to replace it "if repair is not possible or cannot be timely made . . . within a reasonable time . . . and without charge." The seller cannot "impose any duty other than notification" as a condition of repair or replacement unless "such duty is reasonable." The reasonableness of the duty is to be determined by weighing “the magnitude of the economic burden necessarily imposed upon the maker and purchaser. . . against the magnitude of the trouble and annoyance caused owners of malfunctioning guaranteed products."

These terms as used in this section of S. 3074, and elsewhere in the bill, are simply too imprecise to be made a part of any warranty a warrantor must involuntarily assume. Under Section 15 of the bill, the Federal Trade Commission would be authorized to establish trade practice rules to implement other sections of the bill. Presumably, this would include establishing standards or guides for determining reasonableness, timeliness, and necessity. Conditions under which warranties may be fulfilled vary so greatly from product to product, from industry to industry, and from locality to locality, however, that a veritable encyclopedia would be needed to define the terms. In the last analysis a warrantor, moving with all possible speed and in all possible good faith to fulfill his warranty, would risk an adverse determination by a jury on any one of the three terms, two or three years after the event.

We submit that appliance sellers, whether manufacturers or retailers, attempt to see that repair or replacement, whichever is necessary, is made under their guarantees, within a reasonable time. We submit that they do not impose unreasonable duties on the purchaser. When a duty, such as delivery of a product to the manufacturer or to a service center, is required, the requirement is usually made to avoid having to send a serviceman to a home to repair some small item that can be mailed or delivered to a central place inexpensively.

The phrase "without charge" as used in Section 3 can be misleading. Some manufacturers and dealers offer parts and labor “without charge" for specified periods under their warranties. This means that no charge is made at the time service is required. In determining their selling prices, however, warrantors include estimates of the costs of fulfilling the warranties according to their terms. In this sense a charge is made, and will have to continue to be made.

Section 5 of S. 3074 would prescribe the content of written warranties, and require that each such warranty be labelled a "performance guaranty." Describing a warranty as a "performance" warranty is new to the appliance industry; and the industry questions the wisdom of describing warranties as "performance" warranties. The word suggests that a seller is guaranteeing that a product will perform to the personal satisfaction of every user, whatever his or her needs or whatever the circumstances under which the product is used. In essence what an appliance manufacturer warrants is that a product has been manufactured according to specifications, and will provide the general service for which it was designed. If it fails to provide this service because of defects in materials or workmanship, the warranty terms may be invoked by the user.

Section 5 would also require that the following information be included in every written warranty

(1) Its duration, in time or a measure of usage,

(2) Any reasonable maintenance required as a condition of the warranty,

(3) The cost of such maintenance, if required to be performedby a designated representative of the maker,

(4) A recital of the maker's duties,

(5) The procedure the purchaser must follow to obtain repair or replacement, and

(6) A recital of informal and judicial means of settling disputes that may arise under a warranty.

The first, second, fourth, and fifth points are normally included in a warranty. The third, the cost of maintenance, would be impossible to estimate because of the great differences between labor costs in different geographic areas. In addi