The Consumer Product Safety Commission (CPSC) has taken more aggressive efforts to require importers, manufacturers, distributors and retailers of consumer products to implement procedures for detecting and reporting potentially defective consumer products. These actions raise once again the specter of the CPSC seeking to establish industry standards by ad hoc enforcement actions instead of the more arduous, but fairer, rulemaking process.
Under Section 15(b) of the Consumer Product Safety Act (CPSA), manufacturers (including importers), distributors and retailers must immediately report to the CPSC upon discovering that a consumer product contains a defect that could create a substantial risk of injury or death to the public, or violates a CPSC standard or rule.
For many years, the CPSC has sought often substantial monetary penalties against companies failing to report potentially defective products to the CPSC in a timely fashion. Recently, the Commission has obtained consent orders, which indicate it has decided that issuing major fines in not sufficient relief. In 2008, the Consumer Product Safety Improvement Act increased the maximum penalty the CPSC can impose from a cap of $5,000 per violation or $1,825,000 for a series of violations to $100,000 per violation and $15 million for a series of violations. Now, without bothering to go through the demanding rulemaking process its statute requires, the CPSC has begun requiring companies against which it imposes penalties for failure to report defective products also to establish specific internal procedures for promptly detecting and reporting such products. At least one CPSC Commissioner believes this case-by-case evolution of remedies sought against companies is an unhealthy effort to engage in “de facto rulemaking…smell[ing] of regulatory opportunism and enforcement.”
In the more recent of two civil penalty settlements in which the CPSC mandated compliance programs, a company allegedly delayed reporting a defect in wooden hammock stands that caused the stands to deteriorate and break when used outdoors. According to the CPSC, the company did not report the defect until it knew of 45 incidents, including reports of lacerations and fractured ribs. To settle the allegations, the company was required to pay a civil penalty of almost $1 million. The company also was required to agree to implement a compliance program, the details of which must be agreed to by the CPSC. The standards for such a program, set out in the consent order, appear to be purposely vague:
- That information required to be disclosed by the firm to the CPSC is recorded, processed, and reported, in accordance with applicable law;
- All reporting made to the CPSC is timely, truthful, complete, and accurate;
- Prompt disclosure is made to company management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to adversely affect, in any material respect, the company's ability to report to the CPSC.
To avoid facing similar relief before the CPSC, companies subject to CPSC regulation should establish a competent and responsive program to determine, and timely report, potential product defects or noncompliance with consumer product safety laws. Otherwise, if the CPSC determines a company has failed to report a consumer product defect properly and in a timely fashion, the Agency may end up dictating the terms of a program the company establishes.