Warranty Laws By State: Everything You Need to Know
A warranty is a seller's acknowledgement of liability for the condition and performance of a product.4 min read
2. Express and Implied Warranties
3. The Magnuson-Moss Warranty Act
4. Lemon Laws
5. Extended Warranties
6. Accounting Law
Updated October 28, 2020:
Warranty Laws by State
This article discusses warranty laws by state. A warranty is a seller's acknowledgement of liability for the condition and performance of a product. If a defective product is sold, a seller or manufacturer may legally be required to replace, repair, and/or buy back the product. However, each seller may limit their liability in a warranty. For instance, a seller may choose not to warranty a product beyond a certain period of time (e.g., 5 years after sale).
One important type of warranty is a statutory warranty—a warranty mandated by state or federal law. Statutory warranties are often designed to reduce seller fraud. For example, in some states, a seller is legally required to extend warranties for passenger cars. These warranties ensure that consumers are not charged when car repairs are needed to reduce vehicular emissions below regulatory limits.
Express and Implied Warranties
An express warranty is a spoken or written commitment by a seller or manufacturer that a product is functional and in good condition. Typically, if a product fails a certain number of times during a warranty period, a buyer is entitled to a full refund or a replacement product. An implied warranty of merchantability is a guarantee by a seller that any product being sold is free of defects and is functional. An implied warranty of fitness is a guarantee by a seller that a product is designed to be used as advertised. Implied warranties are automatically mandated by state law and are usually limited to 4 years.
In some states, a seller can disclaim an implied warranty by explicitly disclosing that an item is sold "as-is". However, in the following states, items cannot be sold "as-is":
- New Hampshire
- West Virginia and
- The District of Columbia.
The Magnuson-Moss Warranty Act
An important federal regulation relating to warranties is the Magnuson-Moss Warranty Act. This Act requires sellers and manufacturers of consumer goods to clearly delineate the bounds of express warranties and to expressly state the requirements for maintaining warranty coverage. In addition, sellers must also disclose whether warranties are "full" or "limited". Offering limited warranties allows sellers to limit an implied warranty to the duration of the express warranty.
The act also facilitates buyers in suing sellers and manufacturers of consumer goods in breach of warranty cases. For example, the act allows buyers to sue in a federal court (in addition to a state court) by claiming damages to the excess of $50,000—a much lower limit than applied to other types of claims. In addition, buyers can recover attorney's fees and any other types of court-related fees when successful. Furthermore, the act also enables more class action cases to be litigated under federal law.
Lemon laws are designed to prevent the sale of defective consumer products by sellers and manufacturers. In particular, in several states, if a problem with a consumer product persists after a minimum number of repair attempts or a minimum period of time, a buyer is entitled to at least a partial refund. In addition, in some states, a buyer can appeal to an arbitration panel about a defective consumer product. Furthermore, in some states, "as is" or "buyer beware" sales of certain consumer products, such as passenger cars, are illegal. However, these laws typically only apply to dealerships—individuals are often not bound by such regulations.
In addition, some sellers allow buyers to pay a premium fee for an extended warranty—seller protection for product malfunctions during a period of time beyond the express warranty. Extended warranty regulations are typically state-specific and product-specific. For example, some states require sellers to maintain a certain level of reserves in order to avoid being regulated as an insurance provider.
When considering extended warranty policies, always review the entire contract carefully. Some policies only offer protection for limited types of claims, rendering them useless to most buyers. Alternatively, some warranty providers require regular product maintenance for the warranty to remain valid. Sometimes, self-insuring yourself by saving the money that you would have spent on the extended warranty maybe your best option.
In addition to statutory warranty laws, there also exists a Financial Accounting Standards Board (FASB) that regulates business finances. For example, the FASB requires warranty issuers to provide financial reports to customers. In particular, warranty issuers must disclose:
- their method for establishing liability for product failures
- their financial accounting for each reporting period including their:
- starting balance
- subtractions for warranty payouts
- increases from newly issued and pre-existing warranties and
- ending balance
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