CPSC Final Rule on Factors Used to Determine CPSA/FFA/FHSA Civil Penalties

The final rule makes certain clarifications to the interim final rule, which has been in effect since September 1, 2009. (See ITT's Online Archives or 09/01/09 news, 09090130, for BP summary of the interim final rule.)

(Note that the CPSIA introduced a number of new prohibited acts and greatly increased civil penalty amounts under the CPSA, FFA, and FHSA. See below.)

Highlights of Comments, CPSC Responses

CPSC received ten comments on its September 2009 interim final rule. Highlights of CPSC's responses to those comments and other issues are as follows:

No Difference in Actual or Presumed Knowledge for Liability

According to CPSC, actual and presumed knowledge are treated equally under the statutes, and both could have the same consequence for civil penalty liability. However, the presence or absence of actual knowledge could reflect on a person's culpability and affect the size of the penalty.

(Any person who knowingly violates a prohibited act in the CPSA, FFA or FHSA is subject to a civil penalty. The term "knowing" is defined as "the having of actual knowledge or the presumed having of knowledge deemed to be possessed by a reasonable man who acts in the circumstances, including knowledge obtainable upon the exercise of due care to ascertain the truth of representations.")

Totality of Circumstances Considered, All Factors Not Necessarily Equal

CPSC believes that the requirement that it consider the nature, circumstances, extent, and gravity of a violation allows CPSC to consider the totality of the circumstances surrounding a violation, while recognizing that, depending upon the case, the significance and importance of each factor may vary.

CPSC Will Consider Illness Along with Injury in Severity of Risk

CPSC states that the interim final rule has been modified in the final rule to further clarify that it will consider "illness" along with injury and death as a consideration under the factor on the severity of the risk of injury. CPSC adds that both acute and the likelihood for chronic illness will be considered.

Revised Definitions of "Product Defect" and "Violator"

CPSC has revised the definition of the term "product defect" from that in the interim final rule. The term is defined in the final rule to have the same meaning as the term "defect" referenced in the CPSA and the CPSC's definition of "defect" at 16 CFR 1115.4. The term "violator" has been revised to reflect the statutory terminology that any "person" is subject to civil penalties. As noted in the rule, "person" includes any legally responsible party who committed a knowing violation of the CPSA, FHSA or FFA.

Highlights of the Final Rule

The following are highlights of the final rule, which provides CPSC's interpretation of the statutory factors (in bold) it must consider in determining the amount of a civil penalty it will seek for "knowing" violations of CPSA, FFA, and FHSA prohibited acts.

Nature, Circumstances, Extent and Gravity of Violation

CPSC will consider the following statutory factors as it considers the nature, circumstances, extent, and gravity of a violation in determining civil penalty amounts:

Nature of product defect (CPSA) or substance (FHSA)². CPSC will consider the nature of the product hazard/substance for which a penalty is sought. This consideration will include, for example, whether the defect arises from the product's design, composition, contents, construction, manufacture, packaging, warnings, or instructions, and will include consideration of conditions or circumstances in which the defect arises.

Severity of risk of injury. CPSC will consider, among other factors, the potential for serious injury, illness, or death (and whether any injury or illness required medical treatment including hospitalization or surgery); the likelihood of injury; the intended or reasonably foreseeable use or misuse of the product; and the population at risk (including vulnerable populations such as children, the elderly, or those with disabilities).

The occurrence or absence of injury. CPSC will consider whether injuries, illnesses, or deaths have or have not occurred with respect to any product or substance associated with a violation, and, if so, the number and nature of injuries, illnesses, or deaths. Both acute illnesses and the likelihood of chronic illnesses will be considered.

Number of defective products (CPSA), amount of substances distributed (FHSA)³. CPSC will consider the number of defective products or amount of substance distributed in commerce. The statutory language makes no distinction between those defective products distributed in commerce that consumers have received and those they have not received. Therefore both could be considered in appropriate cases. This factor will not be used to penalize a person's decision to conduct a wider-than-necessary recall out of an abundance of caution. However, this would not include situations where such a recall is conducted due to a person's uncertainty concerning how many or which products may need to be recalled.

Size of a business, etc. CPSC is required to consider the size of a business in relation to the amount of the proposed penalty. In considering business size, CPSC may look to several factors including the firm's number of employees, net worth, annual sales, liquidity, solvency, and profitability. The statute requires CPSC to consider how to mitigate the adverse economic impacts on small business violators only if those impacts would be "undue." What CPSC considers in determining what is undue may include, but is not limited to, the business's size and financial factors relating to its ability to pay.

Other factors as appropriate. Both CPSC and the person are free to raise any other factors they believe are relevant in determining an appropriate penalty amount. These additional factors include, but are not limited to:

Adequate testing/safety system - whether a person conducted adequate and relevant pre-market and production testing of the product(s) at issue; whether a person had at the time of the violation, a reasonable and effective program or system for collecting and analyzing information related to safety issues such as incident reports, lawsuits, warranty claims, and safety related issues related to repairs or returns; etc.

History of noncompliance - whether or not the person's history of noncompliance with the CPSA, FHSA, FFA, and CPSC regulations should increase the amount of the penalty.

Benefit for not complying - whether a person benefited economically from a failure to comply, including a delay in complying, with statutory and regulatory requirements; and

Response to CPSC - whether a person's failure to respond in a timely and complete fashion to CPSC requests for information or for remedial action should increase the penalty.

CPSIA Increased Civil Penalty Amounts, Number of Prohibited Acts

CPSC notes that the CPSIA greatly increased the maximum civil penalty amounts under the CPSA, FFA, and FHSA. On August 14, 2009 the penalties increased from $8,000 to $100,000 for each "knowing" violation and from $1,825,00 to $15,000,000 for any related series of violations.

New prohibited acts. In addition, the CPSIA introduced many new prohibited acts and expanded CPSC authority as follows (partial list):

Importing/selling non-conforming products, etc. - prohibited the sale, importation, offer for sale, or distribution in commerce, into the U.S. of any non-conforming CPSC-regulated product or substance.

Importing/selling recalled products, etc. - prohibited the sale, manufacture, distribution, or importation of products subject to a voluntary corrective action (recall) taken by the manufacturer, in consultation with CPSC, and publicly announced by CPSC, or if the seller, distributor, or manufacturer knew or should have known of such voluntary corrective action.

Failure to furnish certificate or comply with tracking label - the failure to furnish a certificate required by any CPSC-enforced act also became a prohibited act. In addition, failure to comply with the CPSIA "tracking label" requirement for children's products is a prohibited act.

Unauthorized third-party mark - the sale, offer for sale, distribution in commerce, or importation into the U.S. of any consumer product containing an unauthorized third-party certification mark is also prohibited.

Enforcement of FHSA, FFA penalties - gave CPSC the ability to enforce violations of the FHSA, FFA, and other acts enforced by CPSC as prohibited acts under the CPSA;

(See final rule for description of all prohibited acts introduced by the CPSIA.)

¹Consumer Product Safety Act (CPSA), the Flammable Fabrics Act (FFA), and the Federal Hazardous Substances Act (FHSA).

²The FFA does not list such a factor.

CPSC contact - Melissa Hampshire (301) 504-7631

CPSC press release, with links to Commissioner statements (dated 03/16/10) available at http://www.cpsc.gov/cpscpub/prerel/prhtml10/10168.html

CPSC final rule (FR Pub 03/31/10) available at http://edocket.access.gpo.gov/2010/pdf/2010-6940.pdf