CPSC Approves Interim Final Rule on Factors Used to Determine CPSA/FFA/FHSA Civil Penalties
The Commissioners of the Consumer Product Safety Commission approved (2-11) an interim final rule containing CPSC's interpretation of the statutory factors it considers in determining civil penalty amounts for "knowing" violations2 of the prohibited acts in the CPSA, FFA, and FHSA3, as amended by the Consumer Product Safety Improvement Act of 2008 (CPSIA). The Commissioners also issued statements on their votes.
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The interim final rule will take effect upon its publication in the Federal Register, with comments due 30 days later.
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. CPSC will continue to look at the enumerated statutory factors as well as other factors it determines appropriate in determining the civil penalty amount.
Nature of product defect (CPSA) or substance (FHSA)4. 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)4. 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.
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.5
CPSC Withdraws 2006 Proposed Rule on Civil Penalty Factors
In a related notice approved by the Commissioners, CPSC is withdrawing 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 is superseded by the CPSIA.
1While CPSC had four Commissioners at the time of the vote, Commissioner Northup abstained from voting since she had just been appointed.
2Any 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."
3Consumer Product Safety Act (CPSA), the Flammable Fabrics Act (FFA), and the Federal Hazardous Substances Act (FHSA).
4The FFA does not list such a factor.
5 Commissioner Nord (who voted against the rule) states that the interim final rule does not make clear that the new, higher CPSIA civil penalties apply to violations that occur after August 14, 2009.
(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 interim final rule available at http://www.cpsc.gov/businfo/frnotices/fr09/civilpenaltyfactors-draft.pdf
CPSC withdrawal notice available at http://www.cpsc.gov/businfo/frnotices/fr09/civilpenaltywithdrawal-draft.pdf
Commissioner Statements available at http://www.cpsc.gov/pr/statements.htmlcivilpenaltyfactors