Published December 23, 2016
Consumer Product Safety , CPSC , Nancy Nord , Penalties , regulatory reform , safety , Zen Magnets
Tags: government, magnets, regulation, safety
This is a time for reflection. Looking back on the past year, it really was not a great
one for the CPSC. And, sadly, many of the agency’s problems were of its own making. While many of the initiatives that are either ongoing or started in 2016 will continue into 2017, others will be consigned to the dustbin of bad ideas. And most importantly, 2017 will bring new leadership and with it fresh ideas and perspectives to address the important and complex issues with which the agency must struggle as it works to fulfill its mission to protect consumers from unreasonable risks.
From my perspective, as a past regulator and now as a practitioner trying to help those in the regulated community who sincerely want to stay on the right side of the compliance line but who find that line often moves or disappears altogether, here are some areas where the agency fell down and one hopes could do better next year.
- A penalty policy that hardly qualifies as any kind of rational “policy” at all. The agency rewrote the regulation dealing with the factors to be considered when applying penalties back in 2009 to give more transparency to the process. Instead, the process has become anything but transparent. Agency enforcement staff has made clear that it has little interest in negotiations over penalty amounts, which is where the application of the penalty factors would come in. Current agency leadership has stated that its penalty policy is “more is better.” In trying to appear as a tough cop, the agency instead comes across as a bully. While that result may be an effective scare tactic, it serves to drive away companies who might otherwise seek out the agency when potential problems arise and does not help to advance collaborative problem solving which the agency needs to advance its mission. Much has been written about the agency’s shortcomings in this area and let’s hope that 2017 brings about needed change here.
- An “ends justifies means” mentality that allows for skirting regulatory fairness and due process. Or put another way, government always knows best. What better illustration of this attitude than the agency’s attempts to regulate small rare earth magnets (SREM’s). Even though the industry leaders proposed a collaborative effort to regulate warnings and packaging of the product back in 2011, the agency rejected that offer and instead, through recalls and regulation, acted to ban the product. The last hold-out, a tiny U.S. company in Colorado—Zen Magnets–has consistently been prevailing in court against the full force of the U.S. Government. In the meantime, Chinese imports of SREM’s are being sold without any effort by the CPSC to crack down. I guess that the CPSC thinks that only magnets sold by U.S. companies are dangerous. Certainly magnets present a hazard if swallowed. However, they can be used safely in many different art, science, educational and recreational applications. Perhaps in 2017, the agency could consider how to step back from a ban to a regulation that allows the product into the market while providing the kind of warnings and child-proof packaging that alerts parents to the hazards the product presents if swallowed by small children.
- Will the agency consider applying modern regulatory concepts to rule writing to assure they are effective? In a recent statement, Commissioner Mohorovic is critical of the agency’s purported effort review its standard dealing with mattress flammability. This review is required by the Regulatory Flexibility Act which mandates review of significant rules every 10 years and the mattress rule falls into that definition. Even though the staff found that the rule was not as effective in protecting the public as the agency had predicted when it was issued 10 years ago, it did not recommend changes. This is just one example of the agency’s reluctance to go back to see if what it is doing is really working to protect consumers. Commissioner Mohorovic’s suggestion that a retrospective review plan be built into rules as they are being developed is a good one and would help assure that the rules the agency writes actually provide the protection the agency says they will. To date, agency leadership has only given lip-service to the suggestion but has done nothing real to effectuate such a plan. Perhaps in 2017, this will change.
- Will 2017 bring some closure to the never-ending dithering on upholstered furniture flammability regulation? For a while in 2016, it looked like Commissioner Buerkle had found a path forward for addressing upholstered furniture smoldering hazard, but that was not to be. Instead, a majority of the commissioners decided that virtually every flammability hazard needed to be regulated so are now looking at how to address the hazard of large open flame fires where upholstered furniture is not necessarily the first ignition source but could possibly be the second or even the third source of ignition. To do this, commercial grade materials, expensive barriers and flame retardants will necessarily be part of the equation. In the meantime, pending before the agency is a petition to ban flame retardants. Boy, what a mess! A consumer rebellion may be on the way!
- We started the year with flaming hover boards and ended it with flaming cell phones—both caused by lithium ion batteries. Rather than looking at the application first, would it not be better to start by looking at the batteries? The agency seems to be going about this from the wrong direction.
- A continual point of concern for agency stakeholders is a communications and press office that makes policy rather than communicates it. In the meantime, complaints are common about press releases that contain inaccuracies or are held up for trivial reasons, thereby delaying recalls. This result directly impacts consumer safety, cannot be defended, and yet is occurring. Again, room for improvement in 2017.
I could go on and on but 2017 is just around the corner. Change will not happen immediately but is inevitable. Working together and in a spirit of support for the agency, 2017 can be a great year for the CPSC. What a happy thought to take us all through the holidays and into next year!
Playing games at the CPSC
Commissioner Mohorovic has just issued a thoughtful statement discussing the black hole that the CPSC calls its civil penalty policy. This statement follows another he filed this week discussing the $4.5 million penalty lodged against Sunbeam for a single-brew coffee maker that squirted out hot water when not used properly.
The Commissioner’s most recent statement precedes next week’s agency hearing on priorities for the upcoming year. He outlines a number of ways to address the process for assessing penalties—a process that, at best, can be called veiled and perplexing and, at worst, seems like penalty roulette. Those concerned about public policy and consumer protection should carefully review his suggestions for putting more discipline into an arbitrary process.
The CPSC Chairman has publicly stated his desire to see penalties increased. While disagreeing with that view, I do believe that it could be achieved more effectively if the agency were up-front about how they calculate penalties. It is not sufficient to say that this calculation is determined by applying the various factors set out in the regulation dealing with civil penalties. The settlement agreements over the past several years have been decidedly uninformative about how various factors were applied. As one who was directly involved in crafting that regulation, and as I have written before, I believe that the current practice is at odds with the underlying intent of the regulation—that is, to add more transparency to the process.
Commissioner Mohorovic is to be applauded for his persistence in highlighting the problem. Not only has he accurately described the problem, he has come up with creative suggestions for solving it. While Commissioner Buerkle has repeatedly expressed her dismay for the manner in which penalties are assessed, it will be interesting to see if the other commissioners pay any attention.
Last week it was $3.75 million for glass tumblers that can break. This week it is $4.5 million for coffee makers that can spill out hot water if not used according to instructions. Can’t wait to see what next week brings—but, for sure, it will be a crap shoot.
Today, the CPSC announced a civil penalty settlement agreement for an eye-popping $15.45 million. The settlement involved dehumidifiers sold by Gree Electrical Appliances Inc. The penalty is the statutory maximum that could be imposed and is well beyond any penalty imposed by the agency at any time in its history.
CPSC alleged that Gree:
- knowingly failed to report a defect and unreasonable risk of serious injury to CPSC with dehumidifiers sold under 13 different brand names (the dehumidifiers were recalled in 2013);
- knowingly made misrepresentations to CPSC staff during its investigation; and
- sold dehumidifiers bearing the UL safety certification mark knowing that the dehumidifiers did not meet UL flammability standards.
Given the size of the penalty, one should expect that the alleged misconduct to be off-the-charts in terms of the severity of injury to consumers. Yet, even though the earlier related recall involved well over 2 million items and significant property damage from fires caused by the defective product, there are no reports of injury. In fact, there is little to distinguish this hazard pattern from others involving defective appliances posing serious fire hazards where penalties have been fractions of the amount imposed in this case. Certainly there was potential for serious injury but the fact remains that there were no injuries. While there was substantial property damage, presumably this was covered by insurance and it is not the purpose of the CPSC to protect insurance companies.
There is nothing in the agency’s press release or the settlement agreement itself to tell us why this case was so more egregious than other cases involving violations of the requirement to report hazards to the agency. One has to assume then that it was the alleged misrepresentations to the government and the unauthorized use of the UL mark that bumped the penalty up to the limit. But other than these general statements and based on what has been made public, it is not clear what actual conduct triggered such a huge penalty. For those trying to stay on the right side of the law, the government has an obligation to be more transparent in describing the activity that warrants this type of penalty.
Certainly the allegations in the settlement agreement are very serious and, if true, warrant a significant penalty. But it would be helpful to know whether this penalty is unique to a particular set of circumstances or is just a very large scalp from another “failure-to-report” case. As Commissioner Mohorovic points out in his statement, if the agency wants to change behavior through its penalties, it is important to more fully describe the behavior those regulated should avoid.
While this is a significant case because of the size of the penalty, its importance diminishes because of the agency’s opaqueness in describing the bad acts that occurred. If you are not confused and troubled by all this, then I suggest you are not paying attention.
I believe that it was Albert Einstein who said “What you see depends on where you stand.” The stands taken by senior managers of the CPSC on a number of topics have changed and that leaves those of us who care both about the agency and consumer safety seeing some concerning developments.
A good example is the way in which the agency seeks to impose and assess penalties. At one point (dare I say the “good old days”) civil penalties were assessed after an honest negotiation between lawyers for the agency and the company. Only with the most intransigent company did the negotiation break down so that the agency was forced to refer the case to the Department of Justice for resolution. And in the very rare instances when this happened, it was viewed not as a positive development but as a failure of the process to work well.
Things have changed. Based on comments made by agency lawyers at a meeting in Washington this past week, what was once viewed as a failure now is viewed, if not quite as a positive development, as at least routine SOP. This conclusion is based on several developments. First, look at the Enforcement Guidance recently published by the CPSC Office of General Counsel. It suggests that any penalty negotiation is not a negotiation at all but almost a take it or leave it proposition. When they say that you should anticipate getting only one meeting to make your case and then they will lock down their decision, how can you infer anything else? Add to this statements that the penalty initially demanded by the agency already has been vetted with the DOJ and one has to wonder if arguments supporting a differing view will be listened to and considered.
This concern is exacerbated by statements made by senior officials at the same meeting that the agency is exploring ways to publicize referrals to the DOJ, likening them to “grand jury indictments.” And what to think when another agency official states that penalties are justified because they always are imposed on the “bad guys” and not in “instances where good guys made honest mistakes. . . “. Add to this a call by the agency chairman for civil penalties in the eight figures during the next year, and what you see is an agency that appears to be punitive rather than collaborative.
It is unfortunate that those regulated by the agency are being lumped into “good guy” and “bad guy” categories. From my experience in the private sector, in different capacities in government and now in private law practice, the vast majority of companies do care about making sure the products they sell are safe and they want clear rules so that they can stay on the right side of the legal line. They also want a government that will work with them to solve problems when they come up, not just question their judgment and consider them “bad guys” when they protest. But from my recent conversations, from where many are standing, that is what they are seeing. For those of us concerned about product safety, that is not a positive development.
Published June 5, 2015
Compliance , Congress , Consumer Product Safety , CPSC , Office Depot , Penalties
Tags: accidents, CPSC, Nancy Nord, Office Depot, penalies
For some time the product safety bar has been concerned about the apparently arbitrary manner in which penalties are assessed at the CPSC. In 2010 the Commission adopted a rule that set forth the factors that must be considered in determining how penalties are assessed. Unfortunately, since then, the agency has given only the slightest head-nod to these factors and has not applied them in any kind of rigorous, disciplined, or transparent manner. Yet such transparency is important in helping the regulated community better understand how the agency defines the concept of “substantial product hazard” which is at the center of most penalty matters.
The problem with the Commission’s approach is well-illustrated by the $3.4 million settlement recently negotiated with Office Depot. This case involved 1.4 million office chairs sold by the retailer over a ten year period. Over those ten years, the company received 153 incident reports with 25 reported injuries only some of which required medical attention. Commissioner Mohorovic has written a thoughtful statement in which he does apply the Commission’s penalty factors to this case. His conclusion is that had the penalty factors actually been properly applied, the resulting penalty should have been much lower. His statement is well worth reading.
The current chairman and former acting chairman have made public statements that penalties should, as a matter of course, increase across the board to reflect their view of Congressional intent in increasing the agency’s penalty authorities. If it is going to be agency policy to push for increased penalties, then the agency owes it to the public to have a more transparent process for imposing penalties. As Commission Mohorovic notes, currently there is little coherence in the agency’s approach to penalties. As a consequence, parties before the agency are left to struggle with an opaque process where the rules are written after the fact. Such a result is bad public policy.
Yesterday, I met with representatives of the National Association of Manufacturers Product Safety Coalition. Participants at the meeting represented a broad spectrum of businesses that make and sell consumer products, and so are under the jurisdiction of the CPSC, and they shared their concerns over the direction the agency is headed. Here is a summary of some concerns expressed at the meeting:
- A perceived breakdown in communications between the agency and business stakeholders is causing great frustration among those trying to comply with CPSC requirements.
- The proposed rule setting out voluntary recall procedures was labeled as “a solution in search of a problem.” Great concern was expressed that this rule could make the process more time-consuming and resource intensive, both for the companies and the agency.
- The move to mandate corporate compliance programs as a part of a penalty settlement or as part of a voluntary recall is viewed as excessively intrusive. If the agency insists on these programs as part of recall corrective action plans (as allowed by the proposed voluntary recall rule), this insistence will slow down the recall process greatly.
- There seems to be no logic or systematic rationale about how penalties are being assessed so that past penalties are not predictive of future penalty demands. The process for referring cases to the Department of Justice is opaque.
- While agency participation in the voluntary standards process is welcome and helpful, there is concern that technical discussions need to be held in an environment that fosters and encourages full participation from corporate technical experts. There is also concern that voluntary standards are becoming de facto mandatory standards.
- Questions were raised about why the agency is moving forward with a wholesale change to the certification requirements (as proposed in the rule changes to 16 CFR 1110). Companies have already set up systems to implement existing certification requirements and changing those systems will be resource intensive and is not justified.
- There is ongoing concern that the agency is not moving forward with addressing the burdens that are associated with its testing and certification regime. There is a great deal of unnecessary testing being done, especially with respect to phthalates. A plea was made for aligning our standards with other international standards.
While a number of other issues were raised, the participants also reaffirmed their underlying support for the agency and its important safety mission. The message I took away is that we need to interact with our business stakeholders in a more collaborative and cooperative manner. Obviously, the range of issues we deal with is so broad that without this collaboration, we will not succeed in carrying out our mission to protect consumers.