CPSC Issues Interim Final Rule on Factors Used to Determine CPSA/FFA/FHSA Civil Penalties
The Consumer Product Safety Commission has issued an interim final rule, effective September 1, 2009, containing CPSC's interpretation of the statutory factors it considers in determining civil penalty amounts for "knowing" violations1 of the prohibited acts in the CPSA, FFA, and FHSA2, as amended by the Consumer Product Safety Improvement Act of 2008 (CPSIA).
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Comments are due October 1, 2009.
(See ITT's Online Archives or 08/24/09 news, 09082410, for BP summary of the CPSC Commissioners approving the interim final rule.)
Interim Final Rule Interprets Statutory Factors in Civil Penalty Determinations
The interim final rule interprets the following statutory factors (in bold) that CPSC considers 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. Under this factor, CPSC will consider the totality of the circumstances surrounding a violation, including how many provisions of law were violated.
Nature of product defect (CPSA) or substance (FHSA)3. CPSC will consider the nature of the product hazard/substance for which a penalty is sought. A product defect under this factor includes violations for products that contain defects which could create substantial product hazards as referenced in the CPSA and defined and explained in 16 CFR 1115.4; regulatory violations of a rule, regulation, standard or ban; or product hazards presented by any other violation of the prohibited acts of section 19 of the CPSA.
Severity of the risk of injury. Consistent with its discussion of severity of the risk at 16 CFR 1115.12, CPSC will consider, among other factors, the potential for serious injury or death (and whether any injury required actual 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 have or have not occurred with respect to any product associated with the violation.
Number of defective products (CPSA), amount of substances distributed (FHSA)3. CPSC will consider the actual number of products or amount of substances imported or placed in the stream of commerce to distributors, retailers, and consumers.
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, and annual sales. CPSC may be guided, where appropriate, by any relevant financial factors to help determine a violator's ability to pay a proposed penalty including: liquidity factors; solvency factors; and profitability factors.
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 to be "undue" will vary based upon the violator's business size and financial condition as well as the nature, circumstances, extent and gravity of the violation(s).
Other factors as appropriate. Both CPSC and the violator are free to raise any other factors they believe are relevant in determining an appropriate penalty amount. Additional factors which may be considered in an individual case include, but are not limited to:
whether a violator had at the time of the violation, a reasonable program/or system for collecting and analyzing information related to safety issues, including incident reports, lawsuits, warranty claims, and safety-related issues related to repairs or returns; and whether a violator conducted adequate and relevant pre-market and production testing of the product(s) at issue;
if the violator has a history of noncompliance with the CPSC and whether a higher penalty should be assessed for repeated noncompliance;
whether a firm benefited economically from a delay in complying with statutory and regulatory requirements; and
whether a violator's failure to respond in a timely and complete fashion to requests from CPSC for information or for remedial action should increase the amount of the penalty.
The interim final rule adds that the additional factors CPSC may consider in determining an appropriate civil penalty amount will be unique to each case, may not be limited to those listed above, and will be made known to and discussed with the violator.
Higher Maximum Civil Penalty Amounts in Effect Since Aug 14, 2009
Pursuant to the CPSIA, the maximum civil penalty amounts under the CPSA, the FFA, and the FHSA greatly increased on August 14, 2009 to $100,000 (from $8,000) for each "knowing" violation and to $15,000,000 (from $1,825,00) for any related series of violations.
(Commissioner Nord (who voted against the interim final rule) previously stated that the rule's effective date of September 1, 2009 may not make clear that the higher CPSIA civil penalties apply to violations that occur after August 14, 2009.)
CPSC Withdrew 2006 Proposed Rule on Civil Penalty Factors
In a recent related notice, CPSC withdrew its 2006 proposed rule on related factors, other than those specified by statute, which the CPSC may consider in evaluating civil penalty amounts, as the proposed rule was superseded by the CPSIA. (See ITT's Online Archives or 08/27/09 news, 09082799 2, for BP summary.)
1Any person who knowingly violates a prohibited act in the CPSA, FFA or FHSA is subject to a civil penalty. The term "knowing" is defined in the CPSA, FFA, and FHSA 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."
2Consumer Product Safety Act (CPSA), the Flammable Fabrics Act (FFA), and the Federal Hazardous Substances Act (FHSA).
3The FFA does not list such a factor.
(See ITT's Online Archives or 08/10/09 news, 09081010, for BP summary of CPSC's scheduled vote on this interim final rule.
See ITT's Online Archives or 11/20/08 news, 08112010, for BP summary of CPSC request for comments on CPSIA civil penalty criteria.)
CPSC contact - Melissa Hampshire (301) 504-7631
CPSC interim final rule (FR Pub 09/01/09) available at http://edocket.access.gpo.gov/2009/pdf/E9-20591.pdf
CPSC withdrawal notice (FR Pub 08/26/09) available at http://edocket.access.gpo.gov/2009/pdf/E9-20590.pdf
CPSC correction to its withdrawal notice (FR Pub 09/01/09) available at http://edocket.access.gpo.gov/2009/pdf/Z9-20590.pdf