Alternatives To Consumer Lawsuits

Although the Act makes consumer lawsuits for breach of warranty easier to bring, its goal is not to promote more warranty litigation. On the contrary, the Act encourages companies to use informal dispute resolution mechanisms to settle warranty disputes with their customers. Basically, an informal dispute resolution mechanism is a system that works to resolve warranty problems that are at a stalemate. Such a mechanism may be run by an impartial third party, such as the Better Business Bureau, or by company employees whose only job is to administer the informal dispute resolution system. The impartial third party uses conciliation, mediation, or arbitration to settle warranty disputes.

The Act allows warranties to include a provision that requires customers to try to resolve warranty disputes by means of the informal dispute resolution mechanism before going to court. (This provision applies only to cases based upon the Magnuson­Moss Act.) If a business owner includes such a requirement in your warranty, the dispute resolution mechanism must meet the requirements stated in the FTC`s Rule on Informal Dispute Settlement Procedures (the Dispute Resolution Rule). Briefly, the Rule requires that a mechanism must:

  • Be adequately funded and staffed to resolve all disputes quickly;
  • Be available free of charge to consumers;
  • Be able to settle disputes independently, without influence from the parties involved;
  • Follow written procedures;
  • Inform both parties when it receives notice of a dispute;
  • Gather, investigate, and organize all information necessary to decide each dispute fairly and quickly;
  • Provide each party an opportunity to present its side, to submit supporting materials, and to rebut points made by the other party; (the mechanism may allow oral presentations, but only if both parties agree);
  • Inform both parties of the decision and the reasons supporting it within 40 days of receiving notice of a dispute;
  • Issue decisions that are not binding; either party must be free to take the dispute to court if dissatisfied with the decision (however, companies may, and often do, agree to be bound by the decision);
  • Keep complete records on all disputes; and
  • Be audited annually for compliance with the Rule.

It is clear from these standards that informal dispute resolution mechanisms under the Dispute Resolution Rule are not informal in the sense of being unstructured. Rather, they are informal because they do not involve the technical rules of evidence, procedure, and precedents that a court of law must use.

As stated previously, a business owner does not have to comply with the Dispute Resolution Rule if the owner does not require consumers to use a mechanism before bringing suit under the Magnuson­Moss Act.

The information on this page is meant to provide a general overview of the law. The laws in your state and/or city may deviate significantly from those described here. If you have specific questions related to your situation you should speak with a local attorney.

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