A Wake-Up Call

First In A Two-Part Series

Please. Do yourself the favor of getting beyond thinking that the U.S. Consumer Product Safety Commission (CPSC) is only overseeing someone else’s products, and that it is not relevant to your business. It must be understood—except for certain products that the FDA regulates, every promotional product imported into or sold in the United States falls under the CPSC’s jurisdiction. Yes, this means your products. It is your responsibility to ensure that your products are not what the CPSC calls a “substantial product hazard” to consumers, and it is the CPSC’s job to make sure you do this satisfactorily.

The CPSC Is Not Solely Concerned About Children’s Products

It is understandable if you believe that the CPSC only regulates children’s products because of the Consumer Product Safety Improvement Act’s (CPSIA) 2008 groundbreaking changes in both substantive (lead and phthalate limits) and procedural (initial and ongoing third-party testing and certification) requirements for children’s products.

Your company may have evaluated whether any of its products might be considered children’s products. But if you focus solely on whether your company’s products are children’s products, you risk missing the bigger picture of how the commission is enforcing its product safety statutes and regulations. Over a period of time and through a series of acts, the CPSC has demonstrated its unwavering belief that having a product safety compliance program should be a preeminent part of how a company ensures its products are safe for consumer use. The CPSC’s evolution in thinking over time reveals an important pattern that you can ignore only at your company’s peril.

Wake Up And Hear The Message

In late February, a top official from the CPSC’s Office of Compliance and Field Operations spoke on this issue at the International Consumer Product Health and Safety Organization (ICPHSO) conference. CPSC Compliance Deputy Director Marc Schoem gave a presentation titled “Safety Management Tools: Is Your Compliance Program Adequate?” His point was that companies not only must have a product safety compliance program, but the program must be effective.

Congress did not expressly authorize the CPSC to require companies to develop product safety compliance programs. If Congress had done so, the CPSC would have issued regulations mandating companies develop and implement such a program. But because the CPSC does not have this express authority, it is working to bring about this requirement in a different way. To this end, the CPSC has begun to put more punch into defining and enforcing its version of acceptable product safety compliance efforts. It has become increasingly aggressive in requiring companies to be more proactive in preventing, addressing and monitoring product safety problems, and acting with punitive measures against companies that don’t. The CPSC is effectively forcing consumer product companies subject to its jurisdiction to develop and implement consumer product safety compliance programs. The CPSC is sending a loud message that it is tired of repeated recalls after a product creates a safety hazard, and that it expects companies to take a more systematic and comprehensive approach to assuring product safety.

The CPSC won’t know whether your company has a product safety compliance program in place unless and until you run into a product safety problem. But once the CPSC becomes aware of your company’s problem, it will determine whether you have a compliance program in place and whether that program is effective. With a top CPSC enforcement official recently painting a bright line to show his current thinking, how did the CPSC get to this point? Some of the most significant indicators of the CPSC’s willingness to go to the mat to make sure companies develop compliance programs are discussed below.

The Duty To Report To The CPSC And The Consequences Of Failing To Report On Time

Most companies understand they have a legal duty to report to the CPSC when they obtain information that reasonably supports the conclusion that one of their products fails to meet a consumer product safety rule, contains a defect which could create a substantial product hazard or creates an unreasonable risk of serious injury or death. However, many companies do not understand that the CPSC’s involvement in their business may not end with the product recall or resolution of the immediate problem.

After the recall, the CPSC staff often investigates whether a company’s report, called a Section 15(b) report, was filed in a timely manner. And if the CPSC staff concludes that the company’s notice was untimely or that the company failed to cooperate in providing information, it will advise the company that the CPSC is conducting an investigation into whether the company is subject to a civil penalty.

Although a relatively small number of companies actually find themselves facing civil penalties for product safety violations, a far greater number of companies that have had product problems or recalls may be subject to a CPSC civil penalty investigation. The CPSC has said it will be four times more likely to initiate such an investigation if you fail to report a product problem and the CPSC has to contact your company about the product. Don’t set yourself up for a possible civil penalty review—even if your instinct and/or corporate culture is to ignore or deny a product problem; this is not what you should do.

Civil Penalty Factors

Most companies don’t anticipate encountering problems severe enough to contemplate the imposition of a civil penalty by the CPSC. But the stakes for all companies, should they run into serious trouble, are now high and growing higher. With the passage of the CPSIA, the amount of civil penalties that the CPSC can seek has dramatically increased. Now the CPSC has the authority to seek $100,000 per violation, and $15.15 million for each related series of violations. A violation can involve the sale of one product, and since no company sells just one product, a company is potentially liable for up to $15.15 million. Penalties that once were relatively modest have now morphed into onerous, company-crushing punishments.

In determining the amount of civil penalties it will seek, the CPSC uses the presence of a company’s product safety compliance program as a mitigating factor. If you have a program in effect you will be significantly less likely to get to the point of facing such civil penalties. If you do end up facing a CPSC demand for civil penalties, the CPSC will take into consideration the fact that your compliance program exists.

Kolcraft Civil Penalty Agreement Reflects A Sea Change In CPSC Policy

In March 2013, Kolcraft Enterprises, a manufacturer of baby furniture, agreed to a civil penalty settlement for failing to report, in a timely manner, a defect involving its portable play yards.  The evolution of this case and its byproducts are significant: Kolcraft agreed to voluntarily recall one of its products. Thereafter, the CPSC charged Kolcraft with failing to report the defect in the previously recalled product in a timely manner. In the past, companies could have resolved this charge by simply agreeing to pay a civil penalty. In this instance, however, Kolcraft not only agreed to pay a $400,000 civil penalty, but it had to “agree” to do much more. For the first time, the CPSC insisted that the settlement agreement would require the company to develop and implement a mandatory company-wide product safety compliance program.

Then-Chairman Inez Tenenbaum and Commissioner Robert Adler announced this change in CPSC policy in their joint statement about the settlement:

We voted to approve the settlement upon the condition that Kolcraft agree to implement robust changes to its internal control and compliance systems.

The failure of a company to have an effective means of detecting and addressing serious or continuous safety issues with its products is contrary to the expectations of consumers and is unacceptable to this Commission…

Thus, going forward, we expect those companies that lack an effective compliance program and internal controls to voluntarily adopt them.  If not, we will insist that they do so.

Kolcraft’s 2013 settlement agreement with the CPSC marks an absolute sea change in the CPSC’s policy; the agreement includes the clearest statement to the public that CPSC policy has changed.

Four civil penalty settlements have followed in the wake of the Kolcraft case, and each of those settlement agreements included product safety compliance program requirements. In other cases, companies have been able to avoid paying a civil penalty on the condition that they develop such a program.

CPSC-Proposed Voluntary Product Recall Regulations

The CPSC-proposed voluntary product recall regulations would give the CPSC the power to require a product safety compliance program. You might not see your company facing steep civil penalties; few companies actually fall into this category. You may also believe that your company is immune to the possibility of receiving a letter initiating a civil penalty investigation. However, many companies will be affected if the CPSC’s proposed voluntary recall regulations come into effect. This could be one important way the CPSC will steer your company toward developing a Kolcraft-type compliance program. You may find yourself in a product recall situation—many companies do.

These proposed regulations say that the CPSC can add a product safety compliance program as a part of a product recall Corrective Action Plan (CAP) if the company has: (1) had “multiple previous recall;” (2) multiple “violations of CPSC requirements over a relatively short period of time;” (3) “failure to timely report substantial product hazards on previous occasions;” or (4) evidence of insufficient procedures and controls for preventing the sale of “dangerously defective or violate products.” And to top it off, the CPSC’s proposed regulations make these new CAPs legally enforceable. Given the breadth of these proposed regulations, you can’t afford to think, “This doesn’t affect me.” It most likely will.

So where does this leave your company? Hopefully these points have given you enough of an understanding of what is to come that you’re convinced now is the time for your company to establish its own comprehensive, company-wide, top-down product safety compliance program. Hopefully you’ll also realize that the CPSC’s lack of express authority to require a program will not stand in the way of it taking aggressive action to push your company and others in this direction.

Read part two of this article in the July issue to learn what elements should be included in your company’s product safety compliance program.

David P. Callet is a shareholder with the law firm Greenberg Traurig. He provides comprehensive client representation on all aspects of consumer product safety compliance and was a featured speaker at the PPAI Product Safety Summit in 2012 and 2013. He can be reached at 202-331-3144 or calletd@gtlaw.com.

 

>>538 Number of recalls in 2013 in the consumer products category.

Source: www.recalls.gov

 

>>In August, spend a day and a half to ensure your company is product-safety compliant at The PPAI Product Safety Summit in Boston, August 13-14. Facilitated by industry thought leaders, reps from product safety labs and product certification groups, this eye-opening event will explore the latest developments, as well as best practices in product safety and compliance. Secure your seat today at www.ppai.org/education/product-safety-summit.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Comments made on this site may be edited or republished in other PPAI publications.