It has been almost a year since Elliot Kaye was sworn in as Chairman of the Consumer Product Safety Commission, and there already is ample evidence that, under his tenure, the Commission’s trend of increased enforcement activity that began with the 2008 amendments to the Consumer Product Safety Act not only will continue, but also is likely to grow.
Under the Consumer Product Safety Improvement Act of 2008, the Commission was given significant new regulatory and enforcement powers. Among them is the authority to levy civil penalties for failure to report noncompliant or defective consumer products from the prior $8,000 per violation limit to up to $100,000 per violation, and a maximum of $15 million for a series of violations, up from a previous $1.8 million cap.
The CPSC under Chairman Kaye has harnessed its power to issue steeper penalties and is already on track to impose a record total amount of penalties in 2015. The current record was set just last year, when $12.2 million in fines were imposed, which was more than double the $6 million penalties total reported for 2013. With 2015 only halfway through, it already has been reported that CPSC penalties have hit $11 million. Further, Chairman Kaye has promised to raise individual civil penalty amounts for a series of violations closer to the $15 million statutory maximum, citing the hope that higher penalties will be a greater deterrent against future product safety violations. In a May press statement regarding the Commission’s vote to approve a settlement agreement under which a Company agreed to pay a multi-million dollar penalty for failure to report an allegedly defective product – among the Commission’s highest settlements to date – Kaye stated, “I have put violators on notice that we will seek much higher penalties, as appropriate.”
In addition to monetary penalties, under Chairman Kaye the Commission has continued the practice of imposing a compliance program in company settlements. In 2013, the CPSC began regularly requiring companies fined for failure to report defective products also to establish specific internal procedures for promptly detecting and reporting such products. Later that year, the CPSC also proposed an Interpretive Rule that would have codified imposition of compliance programs as part of its existing Voluntary Recall Rule. Although the proposed rule has faced substantial industry opposition and a final interpretive rule has not been issued, the CPSC has continued to impose certain proposed provisions in an ad hoc fashion. In its two most recent cases involving allegedly defective products, the settlement agreements have contained compliance programs in addition to the high monetary penalties.
Additional large penalty actions this year also appear inevitable. Just this month, the U.S. Department of Justice, on behalf of the CPSC, sued manufacturer Spectrum Brands, Inc., in federal court, alleging that the company failed to alert the CPSC about a potential burn hazard caused by a Black & Decker brand coffeemaker detected three years earlier. The Justice Department also filed a lawsuit this year on the CPSC’s behalf against Michaels Stores, Inc., and a subsidiary for allegedly known violation of CPSA requirements for not reporting glass vases that shattered in consumers’ hands. Such cases, if successful – or settled – may result in a potentially high fine against the target companies, along with other remedies.
The CPSC’s tough enforcement substantially raises the cost of failing to monitor product safety, timely inform the CPSC of unsafe or defective consumer products, and arrange an approved recall. As enforcement continues ramping up and Chairman Kaye vows higher penalties for failure to report potential product safety violations, the risk to companies without an effective program for product monitoring and ongoing compliance with consumer product safety requirements will only increase.