Section 15 Reporting Rules Under the CPSC
Are major manufacturers fulfilling their responsibilities to report defects and unreasonable risks of injury to the Consumer Product Safety Commission (CPSC)? Not according to the Clinton Administration. On May 12, 2000, First Lady Hillary Clinton and Ann Brown, Chairman of the CPSC held a news conference at the White House to unveil tough new enforcement penalties for companies who fail to inform the Commission about a product that fails to comply with an applicable safety standard or otherwise could create a substantial product hazard. A review of the rules promulgated under Section 15 of the Consumer Product Safety Act (15 USC 2064) entitled Notification and Repair, Replacement or Refund (16 CFR 1115) can highlight those issues a reasonably prudent manufacturer needs to address in order to determine whether or not they need to report to the Commission.
Section 15(a) of the Act defines a substantial product hazard as either a failure to comply with an applicable consumer product safety rule or a product defect which because of the pattern of defect, the total number of products in commerce, the severity of the risk or otherwise creates a substantial risk of injury to the public.
The heart of the reporting requirement is Section 15(b), which requires manufacturers, distributors and retailers who obtain information which reasonably supports the conclusion that such product either 1) fails to comply with an applicable consumer product safety rule or voluntary standard specifically identified by the Commission, 2) contains a defect which could create a substantial product hazard, or 3) creates an unreasonable risk of injury or death, to immediately notify the Commission unless they have “actual knowledge” that the CPSC has been “adequately informed” as defined by the information required by a full report under 16 CFR 1115.13(d).
What is a defect that “could create” a substantial product hazard? The Commission considers manufacturing defects, design defects and failures in packaging and warnings to constitute a defect that can trigger a report. The regulation at 16 CFR 1115.4 indicates that a defect is a flaw or weakness in a product, an inadequacy in form or function. The energized case of an electrical product is clearly defective. Running shoes that can cause an injury to the foot are defective, as is a power tool that fails to include adequate instructions and safety warnings. Yet a knife is not defective even though it presents a risk of injury. Nor is a bicycle defective because it can fall over or hit a tree. Yet a bicycle with a derailleur that loses contact with the chain or fails to meet the requirements of 16 CFR 1502, the Federal Bicycle Standard, written under the Federal Hazardous Substances Act (15 USC 1261), can contain a defect. Likewise a lawn mower that fails to stop the blade in 3 seconds as required by the Federal Safety Standard for Walk Behind Power Mowers when the operator releases the handle clearly contains a defect that creates a substantial hazard. The substantial hazard regulations further point manufacturers, distributors and retailers to review engineering data, safety related changes, product liability suits, complaints, warranty claims, test reports and other data in evaluating whether a product contains a defect or unreasonable risk and presents a substantial product hazard.
For many years there was a significant debate over the definition of the word “defect” and under what circumstances a company was required to initiate a report. In the early 1990’s, Congress added “presents an unreasonable risk of serious injury or death” as an additional basis for reporting under Section 15(b), specifically to eliminate the “I don’t know if it’s a ‘defect’ therefore I don’t have to report” syndrome. The regulations implore firms not to wait for a final determination of a defect or a risk before reporting, and not to wait for a serious injury or death to occur before disclosing information to the Commission. Firms should determine whether there is some reason to include the risk in product performance, the severity of the risk and the likelihood of injuries. Companies must evaluate whether technically feasible and economically practical safety measures can substantially reduce or eliminate the risk. If they can, then the risk of serious injury or death is unreasonable and must be reported to CPSC and corrective action taken to adequately protect consumers.
The Commission regulations are aimed at getting companies to report and to share information with the Commission. Many reports do not result in a recall or other corrective actions. Civil penalties for failure to report can reach $1,250,000 if the defect or unreasonable risk is not reported in a timely manner.
Section 15 requires subject firms to report immediately, or within 24 hours of obtaining the relevant data. The Commission rules, however, allow an additional 10 days for obtaining and evaluating the information. The rule provides for 5 days to get the information to a person responsible for making a decision to report and an additional 5 days for a decision as to whether the information is reportable. The agency stresses, however, that companies should not wait and should report potential hazards even when the investigation is ongoing.
Once a company reports they can elect either a fast track approach or a traditional review by the Commission. Under the traditional process the corrective action staff, under the capable leadership of Marc J. Schoem, will make a preliminary determination as to whether the product presents a substantial hazard. Using the factors listed in the Act, including pattern of the defect, total number of products in commerce, severity of the risk and the likelihood of injuries, particularly injuries to vulnerable population groups such as children, the elderly and the disabled, the staff will classify the hazard by the level of the risk, which will ultimately govern the scope of the recall and communications effort. If no substantial hazard exists, the matter will be closed.
If the company elects the fast track approach to corrective action, no determination of a substantial product hazard will be made and the company must agree to initiate a recall within 20 days, which will normally include a press release, a point of purchase display, website notice, a toll-free number and sometimes a video news release.
All communication between CPSC and the reporting parties is confidential until such time as a corrective action plan has been accepted by the Commission or an Administrative Complaint has been issued due to a failure to reach agreement on corrective action. At that point anyone can acquire copies of the corrective action file. The company has the right to request certain portions of the file be kept confidential, usually to protect trade secrets, and the CPSC General Counsel’s office will ultimately decide what will be released. Such requests for confidentiality are best made at the time of submission of the information.
Too often, in the view of many at the Commission, the CPSC has to open a case file without a report from the subject firm. This has occurred in many of the major Section 15 cases over the past years. When this happens, a fast track cannot be requested and a determination by the staff as to whether a substantial product hazard exists will be made. When a recall is initiated in a case where the Commission opens the file, it is often broad and comprehensive. Civil penalties can follow. The new White House proposals on corrective action are aimed to reduce such failures to report. There have been over 5000 recalls since 1973.