In 2007, news reports that consumer products, particularly those used by children, were unsafe, defective, and not meeting industry voluntary standards sent shock waves throughout the consumer product global marketplace. The intense news coverage on these products galvanized parents, consumer and child advocates, and state and federal officials to examine the regulatory system for consumer product protection in the United States.
Congress held numerous hearings that focused on the effectiveness of the U.S. Consumer Product Safety Commission (CPSC) and the statutes that the CPSC was responsible for enforcing. The Congressional hearings focused on how consumer products, particularly those used by children, could have failed to meet existing voluntary standards. For example, toys manufactured in China that were being sold in the United States did not meet the voluntary industry standards for lead levels in paint. Congress learned that the lack of supply chain management was the most prominent cause assigned to the failure of manufacturers and retailers for bringing products to the market that did not meet the industry’s voluntary standards for children’s and other products.
As a result, Congress passed, almost unanimously, major reform legislation—the Consumer Product Safety Improvement Act of 2008 (CPSIA)1 — giving the CPSC more enforcement powers, resources, and the ability to create mandatory standards for toys and other products used by infants and children. The CSPIA also required all children products to be tested and certified by independent third party laboratories before being released into commerce in the United States.
Congress also added a section to the CPSIA2 regarding inspection and record keeping to require importers, retailers, or distributors of a consumer product or other product or substances regulated by the CPSC to identify the manufacturer upon the request of the CPSC. A manufacturer is also required to identify each retailer or distributor to whom the manufacturer directly supplied a consumer product, and each subcontractor involved in the manufacturer of such product or from whom the manufacture obtained a component of such product if requested by the CPSC.
Congress also gave the CPSC the authority to increase civil penalties in the amount of $100,000 per violation and $15 million per series of violations. These increased penalties have been used most prominently by the CPSC in civil penalties against manufacturers and retailers for failure to report immediately information on product defects, injuries, and deaths associated with a consumer product.
Duty to Report to the CPSC
Under Section 15(b) of the Consumer Product Safety Act (CPSA), every manufacturer, importer, distributor, or retailer of a consumer product distributed into commerce must report to the CPSC immediately, which has been defined by the CPSC as within 24 hours, after obtaining information reasonably supporting the conclusion that the product:
Fails to comply with a consumer product safety rule, regulation, standard, or ban under the CPSA or other statutes enforced by the CPSC;
Contains a defect that could create a substantial product hazard; or
Creates an unreasonable risk of serious injury or death.
A manufacturer, distributor, importer or retailer is not required to report, however, if these parties have actual knowledge that the CPSC has been adequately informed of such defect, failure to comply, or risk of the product.
Products Involved in Law Suits
In addition to these reporting requirements, a manufacturer (including importers of record) of a consumer product must report to the CPSC if the model of the consumer product is subject to at least three civil actions that have been filed in state or federal court alleging that the product caused injury or death in which at least three of the actions resulted in a final settlement involving the manufacturer or a judgment for the plaintiff within a two-year period of time.
Reporting Choking Incidents
Section 102 of the Child Safety Protection Act (CSPA) requires that manufacturers, distributors, retailers, and importers report certain incidents involving a child choking on a marble, small ball, balloon, or small part; and, as a result, the child died, suffered serious injury, ceased breathing, or was treated by a medical professional.
Manufacturers, retailers, importers, and distributors can receive data from a myriad of sources:
● Customer complaints online and in retail customer service departments
● Call centers
● Warranty claims
● Insurance claims
● CPSC data
● Saferproduct.gov (the CPSC consumer product reporting website)
● National Electronic Injury Surveillance System (NEISS) reports
● Consumer Opinion Surveys
● Media reports
● Product liability lawsuits
Collecting and analyzing this data to determine if an injury or death has occurred from the use of the product, if the product has a defect, or if the product fails to meet a consumer product safety rule or applicable voluntary standard is challenging given the number of steams of information. A review of the CPSC’s civil penalties during the last two years is an example of the challenges that companies face in collecting, organizing, and reporting this data to the CPSC. Below are examples of companies fined because of failure to report immediately product defects.
In July 2015, LG Electronics agreed to pay a $1.8 million civil penalty for knowingly failing to report to the CPSC a product defect that presented an unreasonable risk of serious with several models of dehumidifiers, resulting in millions of dollars of property damage. Beginning in 2003, LG Electronics began receiving dozens of reports of dehumidifiers catching fire and causing extensive property damage that amounted to millions of dollars. Yet, LG Electronics did not recall the dehumidifier until 2012, even though by that time LG has knowledge of 107 reports of the dehumidifiers overheating, resulting in more than $7 million in property damage and three reports of smoke inhalation.
General Electric Co.
In February 2015, General Electric Co. (GE) agreed to pay a $3.5 million civil penalty for failure to report in a timely manner defects in two models of Profile free-standing dual-fuel ranges and various models of Profile and Monogram dishwashers. CPSC maintained that the connector in dual-fuel ranges could overheat exposing consumers to fire and burn hazards.
GE sold the dual-fuel ranges between 2002-2005, and announced in April 2009, the recall of 28,000 of the ranges. GE did not report the hazards associated with the ranges until February 2009, after receiving 13 reports of harness and wiring overheating in the back of the range, including five fires. GE received notice of the hazards of 2004.
GE sold Profile and Monogram dishwashers between 2003-2010. GE began receiving several reports of fires that occurred from overheating panels, which was due to electrolytic condensate on the control panel. GE first received notice of a possible dishwasher control-related incident in 2007 from a consumer who maintained that his dishwasher caught fire due to an overheating control panel. In 2008 and 2009, GE received more reports of dishwasher control panel fires on which GE paid insurance settlements to several consumers based on these reports. GE, however, did not file a full report to the CPSC until September 14, 2010, and recalled the product on October 26, 2010.
Office Depot, Inc.
In May 2015, Office Depot agreed to a $3.4 million civil penalty to the CSPC to settle a claim that the Office Deport failed to report defects and unreasonable risk of serious injury for two models of office chairs—the Quantum and the Gibson. Office Depot had received dozens of reports of seatback failure and related injuries and failed to report the product defect to the CPSC “immediately” (within 24 hours) as required by federal law. Office Depot had sold 150,000 Quantum chairs and 1.4 million Gibson chairs nationwide between 2003 and 2012.
By the time that Office Depot recalled the office chairs, Office Depot had received 33 reports on seat detachment on the Quantum chair and 153 reports on the Gibson chairs, and 14 and 25 reports of injuries respectively on the chairs. These reports were received for several years before Office Depot decided to report the defect and injuries to the CPSC.
Internal Compliance Program
Beginning in 2012, the CPSC has required companies fined for failure to report to develop internal compliance programs. The CPSC also issued a notice of proposed rulemaking (NPR)3 on voluntary recalls that expanded on these elements. The NPR described the circumstances in which the CPSC could require a company to implement an internal compliance program:
Multiple previous recalls and/or violations of Commission requirements over a relatively short period of time;
A failure to timely report substantial product hazards under Section 15(b) on previous occasions; and
Actual evidence of insufficient or ineffectual procedures and controls for preventing the manufacturing, importation, and/or distribution of dangerously defective or violative products.
The CPSC, in settlement agreement and in the NPR, set forth the elements of an internal compliance program for companies who have been given a civil penalty for failure to timely report, which includes:
Maintaining and enforcing a system of internal controls and procedures to ensure that the company promptly, completely, and accurately reports required information about its products to the CPSC.
Ensuring that the information required to be disclosed by the company is recorded, processed, and reported in accordance with the applicable federal statutes;
Establishing an effective program to ensure that the company remains in compliance with safety statutes and regulations enforced by the CPSC;
Providing training programs for all company employees to ensure that all employees are familiar with the company’s culture for safety and immediate reporting of any defects injuries to the CPSC;
Providing “whistle blowers” protection to employees who report defects or noncompliant products; and
Ensuring that a company’s management, including board members, are informed on a regular basis of any significant deficiencies or material weaknesses in the design or operation of the company’s internal compliance program that would interfere with reporting information to the CPSC.
The CPSC Reporting App
In order for companies to have confidence that they are collecting, analyzing, and reporting the necessary data to the CPSC in a timely manner, they are leveraging the MetricStream CPSC Reporting App, which assures that their brands will be protected and that costly CPSC fines can be avoided in the future.
Inez Tenenbaum served as Chairman of the U.S. Consumer Product Safety Commission from June 2009-November 2013. She is currently a sole practitioner at Inez Moore Tenenbaum, LLC, Attorney at Law, and is a consultant to Metric Stream.