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CPSC Gets Aggressive About Failure to Report

Civil Penalties Significantly Increase

The most important responsibility of any manufacturer or product seller under the Consumer Product Safety Act (CPSA) is to report product safety issues to the U.S. Consumer Product Safety Commission (CPSC) that meet the statutory requirements under the Act. 

In the last few years, the compliance staff of the CPSC has reached settlements with a number of companies over allegations that they failed to either report relevant product safety issues or failed to report them in a timely manner. These settlements included significant civil penalties. Before I describe some of the specific allegations in these matters, I want to describe the reporting requirements. 

Reporting Requirements

Section 15(b) of the CPSA requires manufacturers, importers, distributors, and retailers to notify the CPSC immediately if it obtains information that reasonably supports the conclusion that a product distributed in commerce: 1) fails to comply with a voluntary standard upon which the Commission has relied under the CPSA; 2) fails to meet a consumer product safety standard or banning regulation; 3) contains a defect which could create a substantial product hazard to consumers; or 4) creates an unreasonable risk of serious injury or death.

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The most important basis for reporting to the Commission is Section 15(b)(3), which requires reporting when the product has both a defect and the defect creates the possibility of a substantial product hazard. A Recall Handbook published by the CPSC in September 2021 provides a description of the law and regulations and other helpful information on how to analyze the need to report. (The complete title of the handbook is “Product Safety Planning, Reporting, and Recall Handbook.”)

Reporting Law and Regulations 

Defect

The first question is whether there is a defect. To help a company decide whether they have a defect, the Commission’s regulations say:

“At a minimum, defect includes the dictionary or commonly accepted meaning of the word. Thus, a defect is a fault, flaw, or irregularity that causes weakness, failure, or inadequacy in form or function. A defect, for example, may be the result of a manufacturing or production error; that is, the consumer product as manufactured is not in the form intended by, or fails to perform in accordance with, its design. In addition, the design of and the materials used in a consumer product may also result in a defect…A design defect may also be present if the risk of injury occurs as a result of the operation or use of the product or the failure of the product to operate as intended. A defect can also occur in a product’s contents, construction, finish, packaging, warnings, and/or instructions. With respect to instructions, a consumer product may contain a defect if the instructions for assembly or use could allow the product, otherwise safely designed and manufactured, to present a risk of injury.”

16 CFR §1115.4

The CPSC regulations say that the term “defect” used in this section is not necessarily the same as the term “defect” in product liability law. But, in general, CPSC regulations do require product liability law and lawsuits to be considered in connection with a determination of whether a product is defective. 

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In addition, in 16 CFR §1115.4, the CPSC lists the following factors to determine whether the risk of injury associated with the product is the type of risk that would render the product defective.

  1. The utility of the product
  2. The nature of the risk of injury that the product presents
  3. The necessity of the product
  4. The population exposed to the product, and its risk of injury
  5. The obviousness of such risk
  6. The adequacy of warnings and instructions to mitigate the risk
  7. The role of consumer misuse of the product, and the foreseeability of such misuse
  8. The Commission’s experience and expertise
  9. The case law interpreting federal and state public health and safety statutes
  10. The case law in the area of products liability
  11. Other information relevant to the determination

The CPSC distinguishes products that hurt people but aren’t defective by stating: 

“We note, however, that not all products that present a risk of injury are defective. A typical kitchen knife is one example. A knife blade must be sharp for a consumer to cut or slice food. The knife’s sharpness is not always a product defect, even though some consumers may cut themselves while using the knife. On the other hand, if the handle or blade of a particular knife is prone to breaking that may constitute a defect.” 

CPSC Recall Handbook, page 12

Substantial Product Hazard

The next question to be answered is whether this “defect” could create a “substantial product hazard.” The Commission starts this analysis by stating:

“Because a product may be defective even when it is designed, manufactured, and marketed exactly as intended, a company in doubt about whether a defect exists should still report.” 

CPSC Recall Handbook, page 12

Then the regulations provide the following factors a manufacturer must consider in determining if there is a substantial product hazard: 

  1. Pattern of defect; 
  2. Number of defective products in commerce; 
  3. Severity of risk; and
  4. Likelihood of injury. 

Concerning the severity of the risk, the CPSC has said:

“The definition of a serious injury is set forth in 16 CFR 1115.5(c) and includes grievous bodily injuries or injuries requiring hospitalization, medical treatment, or missing work or school for more than one day.” 

CPSC Recall Handbook, page 13

In addition, some of the important limitations on these factors are statements to the effect that a defective product that has no risk of serious injury or has little chance of causing even a minor injury would not ordinarily constitute a substantial hazard. Also, the CPSC considers injuries that have occurred or could occur in determining severity. Last, determining the likelihood of future injury considers the “intended or reasonably foreseeable use or misuse of the product…” (CPSC Recall Handbook, page 13). 

Non-compliance with Standards

Sections 15(b)(1) and (2) state that a manufacturer has a reporting responsibility if the product does not comply with a mandatory standard or banning regulation or does not comply with a voluntary standard that is relied on or has been adopted by the CPSC. While this non-compliance is reportable, it is possible to argue that there is no significant hazard and therefore no corrective action needs to be undertaken with products in consumers’ hands. 

Unreasonable Risk

There is an additional reporting responsibility that applies even if there is no defect and the product complies with all CPSC standards. Section 15(b)(4) requires a report if there is an unreasonable risk of serious injury or death. The critical term is “unreasonable,” which is defined as follows:

“The use of the term ‘unreasonable risk’ suggests that the risk of injury presented by a product should be evaluated to determine if that risk is a reasonable one. In determining whether a product presents an unreasonable risk, the firm should examine the utility of the product, or the utility of the aspect of the product that causes the risk, the level of exposure of consumers to the risk, the nature and severity of the hazard presented, and the likelihood of resulting serious injury or death. In its analysis, the firm should also evaluate the state of the manufacturing or scientific art, the availability of alternative designs or products, and the feasibility of eliminating the risk. The Commission expects firms to report if a reasonable person could conclude given the information available that a product creates an unreasonable risk of serious injury or death.” 

16 CFR §1115.6(b)

The applicable regulation, 16 CFR §1115.6(a), does not require that a product be defective before a reporting responsibility arises. However, for such reports, the regulation requires firms to consider:

“Reports from experts, test reports, product liability lawsuits or claims, consumer or customer complaints, quality control data, scientific or epidemiological studies, reports of injury, information from other firms or governmental entities…” 

The regulations then go on to say:

“While such information shall not trigger a per se reporting requirement, in its evaluation of whether a subject firm is required to file a report under the provisions of section 15 of the CPSA, the Commission shall attach considerable significance if such firm learns that a court or jury has determined that one of its products has caused a serious injury or death and a reasonable person could conclude based on the lawsuit and other information obtained by the firm that the product creates an unreasonable risk of serious injury or death.” 

Therefore, experiences during product liability litigation must be considered in determining whether a report to the CPSC is advisable. This includes expert reports, deposition testimony, jury verdicts, judge rulings, and settlements. (See https://incompliancemag.com/article/product-liability-litigation-and-its-effect-on-product-safety-regulatory-compliance for an article on this subject.)

Timing of Report

If there is a situation that meets the threshold for reporting or the company does not know if they have a duty to report either under Section 15(b)(3) or (4), the CPSA requires companies to report immediately. The Commission defines this requirement as follows:

“A company must report to the CPSC within 24 hours of obtaining reportable information. The CPSC encourages companies to report potential substantial product hazards, even while their own investigations are continuing. However, if a company is uncertain about whether information is reportable, the company can take a reasonable time to investigate the matter. That investigation should not exceed 10 working days, unless the company can demonstrate that a longer time is reasonable under the circumstances.” 

CPSC Recall Handbook, page 8

In order to encourage manufacturers to report even when they aren’t sure if they are required to do so, the Commission has said:

“Reporting a product to the CPSC under Section 15 does not automatically mean that the agency will conclude that the product creates a substantial product hazard or determine that corrective action is necessary. CPSC staff will evaluate the report and work with the reporting company to determine whether corrective action is necessary. Many of the reports received require no corrective action because staff concludes that the reported product defect does not create a substantial product hazard.” 

CPSC Recall Handbook, page 6 

In any report to the CPSC, the company can clearly state that they do not believe that the product has a defect that could create a substantial hazard, but that they are still voluntarily reporting this matter to the CPSC. Unfortunately, the CPSC has recently gotten very aggressive in requiring recalls even for situations where a recall is arguably not warranted. Despite that, the CPSC states that a significant percentage of filings under section 15(b) does not result in a recall. 

Section 37

Section 37 of the CPSA requires manufacturers of consumer products to report information about settled or adjudicated civil actions. Manufacturers and product sellers should be aware of the details of this section. However, normally a manufacturer or product seller will have already filed under Section 15(b) before the threshold for reporting under Section 37 is met. This is because litigation and the results of the resolution of litigation must be considered by companies and significant settlements or adverse verdicts could result in a report. (See CPSC Recall Handbook, page 9, and 16 CFR §1115.7 for more information on Section 37.) 

Civil Penalties

Manufacturers and others in the chain of production and distribution need to make some critical decisions so they can meet their statutory obligations and avoid being charged with violating these requirements. This is particularly important as the CPSC has recently ramped up its efforts to fine those companies that violate these reporting requirements. 

Since early 2021, the CPSC has significantly increased the number of cases where civil penalties are being sought. Given these efforts and statements from the current CPSC commissioners, manufacturers should assume that the CPSC will continue to look for cases where late reporting or failure to report might justify civil penalties. 

The Commission is supposed to consider the following in determining the amount of penalties sought: 

“… the Commission shall consider the nature, circumstances, extent, and gravity of the violation, including the nature of the product defect, the severity of the risk of injury, the occurrence of absence of injury, the number of defective products distributed, the appropriateness of such penalty in relation to the size of the business of the person charged, including how to mitigate undue adverse economic impacts on small businesses… “

15 U.S.C. §2069(b)

Since early 2021, the Commission has settled four civil penalty cases for late reporting with the highest amount being $16,025,000 (there was an additional penalty for selling recalled products) and others being $6 million, $7.5 million, and $7.95 million. 

In the case involving $16 million, the manufacturer reportedly received 150 reports of incidents including one death and 13 injuries before they reported. In another case, the manufacturer received reports of injuries for seven years before filing with the CPSC.

In 2018, there was a $27.75 million civil penalty agreed to but it involved multiple violations of the reporting requirements. Just prior to 2018, most civil penalties were in the range of $2 million to $5 million. However, in 2016, there was a civil penalty of $15,450,000 for a particularly egregious situation that ultimately also resulted in criminal prosecutions. 

I reviewed a number of penalty matters for many years prior to 2021 and came up with some factual scenarios that were different than just a failure to report to the CPSC after learning of accidents. In some of these penalty cases, one of the following things occurred: 

  • The manufacturer made a design or manufacturing change (sometimes several times) because of a safety issue (in the eyes of the Commission, they were fixing a defective product) and didn’t report to the CPSC or notify prior customers about the change.
  • The manufacturer issued a dealer alert (sometimes several) concerning a safety problem but did not report to the Commission or alert its customers. 
  • The manufacturer supplied incomplete or inaccurate information to the CPSC when they investigated a safety issue.
  • The CPSC had to request the manufacturer to provide information.

It is easy to review the publicly available information concerning civil penalties. The CPSC website at https://www.cpsc.gov/Business–Manufacturing/Civil-and-Criminal-Penalties shows civil penalty cases by fiscal year, product, and company. Therefore, anyone can review the facts surrounding each of these cases to better understand the trends and the facts on which these penalties were based. 

Conclusion

Given the significant number of fines being levied and the increase in the potential for fines, it is clear that manufacturers and others in the chain of distribution should, when in doubt, err on the side of reporting. 

As the CPSC has said over the years, a significant percentage of reports to the CPSC do not result in any corrective action. As a result, it makes sense for the company to seriously consider reporting to the CPSC even if there is a possible defect and a small chance of a serious injury. In that case, you can report, deny that it is a substantial product hazard, and argue that no corrective action is necessary. 

Of course, it is possible that the CPSC will disagree and will encourage or try to force (by litigation) a manufacturer to undertake a remedial program. Or, as has happened a number of times recently, the CPSC can issue a unilateral press release on the safety issue involving the specific product involved. 

Therefore, when in doubt, the prudent course of action may be to report early and cut off any chance of a late reporting fine. In that case, you are still able to argue that there is no defect or no substantial product hazard and that a corrective action on products in consumers’ hands is not warranted. If that argument is not successful and the company refuses to do a recall, they could wind up with a unilateral press release which will encourage consumers to not use a product but will not actually institute a recall. Or it might result in no further action by the CPSC. 

Addendum

The U.S. Consumer Product Safety Commission has continued to aggressively assess civil penalties against companies for late reporting.  Since this article was written, during Fiscal Year 2023 (October 2022 to September 2023), there were four new civil penalty agreements involving BJ’s Wholesale Club ($9 million), Generac ($15.8 million), Peloton ($19 million), and Whirlpool ($11.5 million).  In addition, Fiscal Year 2024 started with a $16 million civil penalty against HSN Inc. (Home Shopping Network).  Lastly, on November 16, 2023, two executives from Gree Electric Appliances Inc. were convicted by a jury of conspiracy and failure to report information related to defective residential dehumidifiers.  This is the first-ever criminal prosecution for failure to report under the Consumer Product Safety Act (CPSA).

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