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The CPSIA's Expanded Reporting Obligations and Revised Recall

November 28, 2008

Since the Consumer Product Safety Improvement Act of 2008 (CPSIA) was signed into law on
August 14, 2008, companies have rightly focused on compliance efforts as they face aggressive
deadlines for the act's numerous new standards, bans, and testing requirements. But there are two
other important, postdistribution elements to the act that also demand attention. First, the CPSIA
expands the reporting obligations and penalties for a failure to report. Second, the CPSIA
functionally changes corrective action plans by granting additional authority to the Consumer
Product Safety Commission (Commission) to direct and enforce the remedy. These amendments to
the Consumer Product Safety Act (CPSA), [1] plus the dramatic increase in funding for the
Commission, make it more important than ever that companies and their attorneys know the
requirements of the CPSA and have in place a framework to ensure compliance.

The CPSIA Expands the Duty to Report

The Commission has always encouraged companies to report suspected substantial product
hazards, [2] even when doubtful. [3] The CPSIA encourages, indeed requires, more widespread
reporting of substantial product hazards by expanding the set of federal standards, rules,
regulations, and bans for which reports must be filed, and by imposing harsh new penalties for not
reporting.

Companies must now report noncompliance with any rule, regulation, standard, or ban under any
of the acts enforced by the Commission. [4] Previously, a company had to report when it
reasonably suspected that a product: did not comply with a consumer product safety standard or
banning regulation under the CPSA, did not comply with a voluntary consumer product safety
standard, had defects that could create a substantial risk of injury to the public, or could create an
unreasonable risk of serious injury or death. [5] Now, companies must also report any
noncompliance with the Federal Hazardous Substances Act (FHSA), the Flammable Fabrics Act,
the Poison Prevention Packaging Act, the Refrigerator Safety Act, and the regulations under these
acts. [6] In particular, the FHSA and its attendant regulations greatly expand reporting obligations.
These reports must be made within 24 hours of when a company "has obtained information which
reasonably supports the conclusion" that a report is necessary. [7]

Should a company fail to meet its reporting obligations, the CPSIA imposes harsh new penalties.
The failure to report is a prohibited act. [8] The CPSIA increases the potential penalty for a failure
to report to maximum civil penalties of $100,000 for each violation (up from $8,000), $15 million
for each related series of violations (up from $1.825 million), and criminal penalties that include
fines, asset forfeitures, and up to five years imprisonment for willful violations. [9] These enhanced
penalties are meant to eliminate the view that the risks associated with non-reporting are an
acceptable cost of doing business. [10]

The CPSIA Grants the Commission Greater Authority over Recalls

Through the CPSIA, Congress intended the Commission to take "aggressive action" to "robustly"
protect American consumers and children. [11] Consistent with that broad declaration of purpose,
the CPSIA grants the Commission "more power to negotiate and order appropriate remedies after
unsafe or defective products have been recalled and then to notify the public effectively about the
scope of a recall and the available remedies." [12] In practice, this means the Commission has
greater authority to: direct the details of public recall notices; actually order repair, replacement, or
refund as the necessary corrective action; and supervise and enforce compliance with corrective
action plans. [13]

When a company must recall a product, it is in that company's interest to develop quickly its own
voluntary corrective action plan. By doing so, companies may avoid burdensome investigations,
more onerous mandatory recall terms imposed by the Commission, and any adverse ramifications
of a finding by the Commission that a product poses a "substantial product hazard." [14] The effect
of the CPSIA is to further encourage responsive, voluntarily proposed corrective action plans. But
while the Commission retains the authority to negotiate the terms of voluntary recalls, the CPSIA
gives the Commission additional authority to direct the terms of a corrective action plan.

Even before a corrective action plan becomes necessary, the Commission now has greater authority
and flexibility to require a company to: cease distribution of a product, notify other companies in
the distribution network to cease distribution, notify state and local health officials, and provide
Internet notices and notices in multiple languages regarding a product's risk of injury to the public.
[15] In addition to these enhancements to the Commission's substantive authority, the CPSIA
notably amends the procedural framework to allow the Commission to require these actions
without first granting a company a hearing when the Commission determines that a product is an
"imminently hazardous consumer product.&rdquo [16]

Once the Commission determines, after an administrative hearing, that a product presents a
substantial product hazard, the CPSIA allows the Commission to order a company to repair,
replace, or refund the purchase price of such a product. [17] Previously, the Commission could
only direct a company to elect which of these three corrective actions to take. Although this
expanded authority will not likely change the end result of a recall, it likely quickens the recall
process and encourages companies to concede more in negotiating corrective action plans to avoid
more costly corrective actions imposed by the Commission.

After a corrective action plan is in place, the CPSIAalso provides a direct means for the
Commission to enforce the plan terms. Now, if a company fails to execute the plan effectively or if
the plan proves ineffective or inappropriate for any other reason, the Commission may withdraw its
approval of the plan and amend the plan. [18]

Conclusion

The CPSIA presents a host of new regulations and challenges for companies that manufacture,
distribute, and/or sell consumer products. Once a consumer is injured or once the available
information reasonably suggests a substantial risk of injury to the public, companies and their
attorneys must be prepared to act decisively to prevent harm. Naturally, doing so also minimizes
potential liability. The bottom line is simple: companies must be diligent to meet their reporting
obligations -- the only sure way to improve product safety, to rebuild consumer confidence, and to
avoid fines and penalties under the newly revised Consumer Product Safety Act.

FOOTNOTES

1. 15 U.S.C. §§ 2051-2084.

2. "Substantial product hazard" means "(1) a failure to comply with an applicable consumer product safety
rule under this Act or a similar rule, regulation, standard, or ban under any other Act enforced by the
Commission which creates a substantial risk of injury to the public, or (2) a product defect which
(because of the pattern of defect, the number of defective products distributed in commerce, the severity
of the risk, or otherwise) creates a substantial risk of injury to the public." 15 U.S.C. § 2064(a).

3. E.g., 16 C.F.R. § 1115.4(e); see also 16 C.F.R. § 1115.20(a)(2) (making the timeliness of reporting a
factor in whether the Commission approves a company's proposed corrective action plan). Indeed, the
CPSC now permits companies to file Internet reports through a form available at
https://www.cpsc.gov/cgibin/sec15.aspx.

4. 15 U.S.C. § 2064(b)(1) and (2).

5. See 15 U.S.C. § 2064(b); 16 C.F.R. §§ 1115.2(d); 1115.10(b).

6. Federal Hazardous Substances Act, 15 U.S.C. §§ 1261-1278; Flammable Fabrics Act, 15 U.S.C.
§§ 1191-1204; Poison Prevention Packaging Act, 15 U.S.C. §§ 1471-1476; and Refrigerator Safety
Act, 15 U.S.C. §§ 1211-1214.

7. 16 C.F.R. § 1115.14(e). The regulations permit a company 10 days to investigate and evaluate whether
a report must be made if information regarding possible noncompliance with an applicable standard or
product defect is not clearly reportable. 16 C.F.R. § 1115.14(c) and (d).

8. 15 U.S.C. § 2068(4).

9. 15 U.S.C. § 2069(a)(1); 2070(a).

0. H.R. Rep. No. 110-501, at 21 (2007).

1. H.R. Rep. No. 110-501, at 18, 20 (2007).

2. H.R. Rep. No. 110-501, at 21 (2007).

3. 15 U.S.C. § 2064(c), (d), and (i).

4. See Conditions Under Which the Staff [of the Commission] Will Refrain from Making Preliminary
Hazard Determinations, 62 Fed. Reg. 39,827 (July 24, 1997). The Commission's Fast-Track Product
Recall Program "reward[s]" companies that develop and implement a corrective action plan within 20
working days after a report is filed pursuant to 15 U.S.C. § 2064(b) by making no preliminary
determination as to whether a product poses a "substantial product hazard." Id. This program, therefore,
focuses the Commission's efforts on facilitating the recall rather than investigating the product defect.
Id.

5. 15 U.S.C. § 2064(c)(1).

6. 15 U.S.C. § 2064(c)(1). An "imminently hazardous consumer product" is "a consumer product which
presents imminent and unreasonable risk of death, serious injury, or severe personal injury." 15 U.S.C.
§ 2061(a).

7. 15 U.S.C. § 2064(d)(1).

8. 15 U.S.C. § 2064(d)(3).


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