CPSIA – CPSC Commission to Vote on Civil Penalty Factors

According to the latest CPSC Calendar, the Commission is due to vote on the Civil Penalty Factors “final rule” at their weekly meeting on Wednesday, March 3 at 9 AM EST. [The webcast can be found at this link.] This long-awaited rule has been the subject of comments on two occasions (once before any rule was produced and one after the first draft was released). The most recent draft was the subject of considerable controversy and created the potential for great unfairness to anyone subject to the awful CPSIA.

It’s worth noting that the CPSC has yet to assess a single penalty under the CPSIA. The whoppers assessed against Mattel, RC2, Target and Schylling, among others, all reflect prior law. I rather doubt they are done knocking on doors and waking up the occupants with news of penalties for long-ago infractions. When they’re finished with that task, the agency can begin assessing penalties under the CPSIA. The new penalty section became effective on August 14, 2009 and increased the maximum penalty per violation from $8,000 to $100,000 and the maximum penalty for a related series of violations from $1.825 million to $15 million (see Section 20 of the CPSA). Gets your attention, right?

There is a considerable risk of abuse of the penalty assessment process without procedural protections. The penalties being assessed today are substantially larger than in the past, and seem (to this observer) to follow no clear pattern or bear any relationship to the infractions. Arbitrary penalties will depress trade as manufacturers reassess risk or find that they cannot bear the increased cost of insurance (self-insurance or commercially-available insurance). The cost will come to rest somewhere and like any tax, will reduce the incentive to innovate or compete.

It is also debatable how negotiable the agency has been or will be on penalties, amplifying the risk of arbitrary penalties. After all, how are you supposed to use leverage against the CPSC – no one has enough money to fight the federal government in court. Nor the time or energy. As someone said, never sue someone who has access to a printing press. This lack of a level playing field raises questions of due process in CPSC penalty assessment. The dilemmas presented by the current version of the civil penalty factors prompted many comment letters, including one from me.

Nothing scares me more than the populist blood lust we continue to see from the agency. The penalty factors need to restrain efforts to please politicians then in power. The urge to “cut [the agency's] conscience to fit this year’s fashions” may be overwhelming at times. It is worth noting that Gib Mullan, head of enforcement at the agency, is signalling more sensitivity to this issue in his recent speeches. This is much appreciated and is a much-needed change. That said, to restore trust and confidence, the agency MUST tie its hands in important ways. The unfettered ability to whack manufacturers however they arbitrarily feel on a given day is too much power for the CPSC and places too much risk on businesses.

The agency received many comments giving this advice. Let’s hope they had an open mind as they read the comments.

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CPSIA – CPSC Commission to Vote on Civil Penalty Factors

CPSIA – ICPHSO Update – Remarks of Gib Mullan, Head of CPSC Enforcement

Gib Mullan’s remarks on enforcement:

• Import surveillance staff is now up to 18 people.
• Using Commercial Targeting Analysis Center (CTAC) to stop things at the port. Can see what’s coming in before it arrives.
• Is working with the International Trade Commission, the folks responsible for HTS Codes (Harmonized Tariff Schedule). The CPSC is trying to “piggyback” on HTS code to identify the products of interest to the agency. Making “significant headway”.
• Imports samples rising at a rapid rate. Only about half of the samples fail.
• Use of XRF is one of the agency’s “secrets for success”. Will use for cadmium, too. Only one-tenth of items scanned are being sampled. This implies that less than 5% of items scanned fail. Most items are not inspected, which is just a numbers game.
• Field Investigation Division is back to a “growth mode”, in 55 locations with 89 investigators. Expanding to Internet surveillance. They have seen a surge in eBay sales of recalled items after recalls are announced. Interesting!
• Created email address for the public to report sales of recalled products. Now everyone can be on a cop on the beat, how wonderful. Hope I can still trust my kids. . . .
• Retailer reports are rising. Participants in this program include WalMart, Sears, Amazon and others. 20,000 reports a year. Also reports by email and on the hot line 800 number are jumping. The total number of reports is cresting at 50,000 per year. All of this is BEFORE the public database. [Soon a system will be fully constructed that will make doing business in the U.S. children's product industry impossible, something to look forward to (this is my thought, not Gib's remarks).]
• Field “blitzes” are increasing. Examples are pool and spas, drywall, drawstrings, cribs. This is a new activity although blitzes at the port are old hat, in my experience.
• Defect Investigations Division has 19 compliance officers.
• Recalls in 2009 DECLINED from 563 to 466. Number of units went up to an all-time high, 229 million units. Lots of big recalls in 2009. Should we feel safer now? I wonder . . . . Gib himself questions whether this is “good or bad”.
• Fast Track recalls are pretty steady. “Fast tracks” are recalls initiated by companies and brought to the CPSC’s attention by the company itself. CPSC-initiated recalls are steady in the 50-60 range. Cases stemming from regulatory violations declined from 167 to 47.
• Early warning system relating to cribs, bassinets and play yards is resulting in faster recalls. [No info on the availability of cribs and so on was provided, or the cost of those goods now.]
• Joint recalls with Canada was done first on February 19, 2009 (that fills in a hole!). Total of 13 joint recalls in 2009 and 16 in 2010 to date. Expects more joint recalls in the future, broadening to other countries. Gib thinks this makes it simpler for companies going through recalls. Again, not sure how I feel about this but am not opposed in principle.
• Regulatory Enforcement Division has 18 Compliance Officers now. This includes Chemical, Children’s, Flammability and Mechanical hazards. Letters of Advice (“LOAs”) fell a bit in 2009 by perhaps 12%. Only a small percentage result in recalls. In 2009, found 338 lead content violations and 118 lead in paint violations, mainly at the port. Recalls have come down considerably, almost to zero. Stops at the port are higher than that, but don’t result in recalls necessarily. Those are declining, too.
• Compliance Division now has 14 of its own attorneys
• Civil penalties rose a lot in 2009. Gib specifically noted that he was not being “gleeful” about penalties but simply noting that penalties are a more serious risk now. I am okay with this tone, it is common sense. Penalties totalled nearly $9 million. I just hope that penalties moderate and become more purposeful, rather than political.
• Made a STRONG point about fraudulent testing. The CPSC caught fraud in lighter testing and it led to criminal charges. They are working on another case now. This is great news as far as I am concerned. Cheating is a REAL problem (an actual problem, not an imaginary problem). The CPSC should find the bad guys and punish them. The resources of the agency are well-served if focused on removing these unscrupulous people from the market.
• The agency is forging new alliances with the State AGs. They have a monthly conference call with this group. This is the CPSC’s proactive effort to reign in the State AGs by making them part of the process. If this works, great. Again, we need to watch out for the lowest common denominator risk.
• Working with China on implementing “best practices”. Getting better, faster. China recalls went DOWN in 2009 and he anticipates improved safety in Chinese products. This, too, is a good use of agency resources. If we really are getting better, faster, Gib and his team should take a bow. Safety benefits everyone. Next up, consideration of the relationship between these initiatives and cost. Safety is an inherently economic subject. We need recognition of this basic fact.

I have omitted all reference to drywall here. This is a one-of-a-kind problem that seems unrelated to the CPSIA as far as I can tell. Likewise, I have not attempted to summarize the issues relating to ATVs and other tangential product/safety issues brought up by Gib. [He did say that repairs to the Rhino seem to be working well, btw.]

To Gib’s credit, I found his presentation quite balanced with no particular effort to frighten. I appreciate the choice of tone for what could be a quite intimidating topic.

Gib’s presentation was one of the few I can recall in the last two years on the topic of enforcement that did not materially raise my blood pressure or make me think dark thoughts about the future. Let’s hope that the CPSC can build on this base to restore trust among the business community. Safety and fear mongering is an unholy alliance. The CPSC needs the cooperation and trust of the manufacturing base.

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CPSIA – ICPHSO Update – Remarks of Gib Mullan, Head of CPSC Enforcement