[Federal Register Volume 74, Number 168 (Tuesday, September 1, 2009)]
[Rules and Regulations]
[Pages 45101-45107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20591]
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CONSUMER PRODUCT SAFETY COMMISSION
16 CFR Part 1119
Civil Penalty Factors
AGENCY: Consumer Product Safety Commission.
ACTION: Interim final interpretative rule.
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SUMMARY: The Consumer Product Safety Improvement Act of 2008
(``CPSIA''), requires the Consumer Product Safety Commission
(``Commission'') to issue a final rule providing its interpretation of
the civil penalty factors found in the Consumer Product Safety Act
(``CPSA''), the Federal Hazardous Substances Act (``FHSA''), and the
Flammable Fabrics Act (``FFA''), as amended by section 217 of the
CPSIA. These statutory provisions require the Commission to consider
certain factors in determining the amount of any civil penalty. The
Commission is issuing its interpretation of the statutory factors.
DATES: This rule is effective September 1, 2009. Comments must be
received October 1, 2009.
ADDRESSES: You may submit comments, identified by Docket No. CPSC-2009-
0068, by any of the following methods:
Electronic Submissions
Submit electronic comments in the following way:
Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments. To ensure timely processing of
comments, the Commission is no longer accepting comments submitted by
electronic mail (e-mail) except through http://www.regulations.gov.
Written Submissions
Submit written comments in the following way:
Mail/Hand delivery/Courier (for paper, disk, or CD-ROM
submissions), preferably in five copies, to: Office of the Secretary,
Consumer Product Safety Commission, Room 502, 4330 East West Highway,
Bethesda, MD 20814; telephone (301) 504-7923.
Instructions: All submissions received must include the agency name
and docket number for this rule. All comments received may be posted
without change, including any personal identifiers, contact
information, or other personal information provided, to http://www.regulations.gov. Do not submit confidential business information,
trade secret information, or other sensitive or protected information
electronically. Such information should be submitted in writing.
Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov.
FOR FURTHER INFORMATION CONTACT: Melissa V. Hampshire, Attorney,
Division of Enforcement and Information, Office of the General Counsel
at 301-504-7631, [email protected].
SUPPLEMENTARY INFORMATION:
A. Background
The CPSIA specifies that the Commission, by August 14, 2009, must
issue a final regulation providing its interpretation of civil penalty
factors in section 20(b) of the CPSA, section 5(c)(3) of the FHSA, and
section 5(e)(2) of the FFA.\1\ This rule interprets the factors in
section 20(b) of the CPSA, section 5(c)(3) of the FHSA and section
5(e)(2) of the FFA, and describes other factors the Commission may
consider in evaluating the amount of a civil penalty to be sought for
knowing violations of the prohibited acts found in section 19 of the
CPSA, section 4 of the FHSA, and section 5 of the FFA. The statutory
factors the Commission is required to consider in determining the
amount of a civil penalty to seek are: The nature, circumstances,
extent and gravity of the violation, including the nature of the
product defect, the severity of the risk
[[Page 45102]]
of injury, the occurrence or absence of injury, the number of defective
products distributed, the appropriateness of the penalty in relation to
the size of the business of the person charged, including how to
mitigate undue adverse economic impacts on small businesses, and such
other factors as appropriate.
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\1\ The Commission voted 3-0-1 to publish this interim final
rule, with changes, in the Federal Register. Chairman Inez M.
Tenenbaum and Commissioners Thomas H. Moore and Robert Adler voted
to publish the notice with changes. Commissioner Anne Northup
abstained from the voting. Commissioner Nancy Nord voted not to
approve the publication. Chairman Tenenbaum and Commissioners Moore,
Northup, and Nord issued statements, and their statements can be
found at http://www.cpsc.gov/about/cpsia/sect217.html.
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The statutory factors the Commission is required to consider in
determining the amount of a civil penalty to seek are the same factors
identified in section 20(c) of the CPSA, section 5(c)(4) of the FHSA,
and section 5(e)(3) of the FFA for determining whether a civil penalty
may be compromised by the Commission. These statutory provisions
instruct the Commission to consider the following factors in
determining the amount of a compromised penalty and whether it should
be remitted or mitigated by the Commission: the nature, circumstances,
extent and gravity of the violation, including the nature of the
product defect,\2\ the severity of the risk of injury, the occurrence
or absence of injury, the number of defective products distributed,\3\
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 and such other factors as
appropriate. The Commission will apply its interpretation to these
statutory terms in determining whether and in what amounts any
penalties may be compromised.
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\2\ This factor applies only to the CPSA. The FHSA factor is
``the nature of the substance.'' The FFA has no comparable separate
factor apart from the nature, circumstances extent and gravity of
the violation.
\3\ The FHSA factor is the ``amount of the substance.''
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As set forth in section 217(a)(4) of the CPSIA, new penalty amounts
specified in section 217(a) of the CPSIA take effect on the date that
is the earlier of the date on which a final rule providing the
Commission's interpretation of penalty factors is issued or on August
14, 2009 (one year after the date of enactment of the CPSIA). Under the
amendments, the maximum penalty amounts increase from $8,000 to
$100,000 for each knowing violation under the CPSA, FHSA, and FFA.
Maximum penalty amounts for any related series of violations increase
from $1,825,000 to $15,000,000.
B. Prior Proposal on Civil Penalty Factors
On July 12, 2006, the Commission published a proposed
interpretative rule (71 FR 39248) that identified additional factors to
be considered in assessing and compromising civil penalties under
sections 20(b) and (c) of the CPSA. The factors identified in the
proposed rule were in addition to those already required to be
considered under section 20(b) and (c) of the CPSA in evaluating the
appropriateness and amount of a civil penalty. The Commission invited
comment on whether the Commission and staff should consider, as
appropriate, one or more of the following factors in determining the
appropriateness and amount of a civil penalty: (1) A firm's previous
record of compliance with CPSA requirements; (2) timeliness of a firm's
response to relevant information; (3) safety and compliance monitoring;
(4) cooperation and good faith; (5) economic gain from any delay or
noncompliance with CPSC safety or reporting requirements; (6) a
product's failure rate; and (7) any other pertinent factors. The
comment period closed August 11, 2006. The Commission received four
comments.
C. CPSIA Requirements
The enactment of the CPSIA superseded the proposed rule by
requiring that the Commission provide its interpretation of the
enumerated statutory factors under section 20(b) of the CPSA, section
5(c)(3) of the FHSA, and section 5(e)(2) of the FFA. The CPSIA also
indicated that under the CPSA, FHSA, and FFA the Commission should
consider the nature, circumstances, extent, and gravity of the
violation in determining the appropriate penalty amount. The statute
provides examples of elements that should go into that consideration.
The CPSIA modified the factor of appropriateness of the penalty in
relation to the size of the business of the person charged by requiring
that this factor include a consideration of how to mitigate undue
adverse economic impacts on small businesses. This small business
analysis element was added to the CPSA and FHSA but not added to the
FFA factor. The Commission will consider the undue adverse economic
impacts on small businesses as another appropriate factor under the
FFA. The CPSIA also added to the CPSA, FHSA, and FFA a new catch-all
statutory factor ``other factors as appropriate'' for consideration.
The effect of the CPSIA amendments was noted in the Fall 2008 Current
Regulatory Plan and the Unified Agenda (RIN: 3041-AC40) by stating that
the proposed rule would be withdrawn. In the Federal Register of August
26, 2009 (74 FR 43084), the Commission withdrew the July 12, 2006,
notice of proposed rulemaking (71 FR 39248).
On November 18, 2008 the Commission staff posted a notice on the
Commission Web site inviting comment on information the Commission
should address in considering the amended statutory factors under the
CPSA, FHSA, and FFA as outlined below:
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CPSA (15 U.S.C. FHSA (15 U.S.C. FFA (15 U.S.C.
2069(b)) 1264(c)(3)) 1194(e)(2))
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The nature, The nature, The nature,
circumstances, extent, circumstances, extent, circumstances,
and gravity of the and gravity of the extent, and gravity
violation, including violation, including of the violations,
the nature of the the nature of the ......................
product defect, substance,
the severity of the the severity of the the severity of the
risk of injury, risk of injury, risk of injury,
the occurrence or the occurrence or the occurrence or
absence of injury, absence of injury, absence of injury,
the number of defective the amount of substance ......................
products distributed, distributed,
the appropriateness of the appropriateness of the appropriateness of
such penalty in such penalty in such penalty in
relation to the size relation to the size relation to the size
of the business of the of the business of the of the business of
person charged, person charged, the person charged,
including how to including how to
mitigate undue adverse mitigate undue adverse
economic impacts on economic impacts on
small businesses, small businesses,
and such other factors and such other factors and such other factors
as appropriate as appropriate as appropriate
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The Commission staff also invited comment on what other factors are
appropriate to consider in penalty determinations including: (1) A
previous record of compliance; (2) timeliness of response; (3) safety
and compliance monitoring; (4) cooperation and good faith; (5) economic
gain from noncompliance; (6) product failure rate;
[[Page 45103]]
and (7) what information the Commission should consider in determining
how to mitigate the adverse economic impact of a particular penalty on
a small business. The Commission staff also invited comment on whether
it should develop a formula or matrix for weighing any or all of the
various factors and what criteria it should use in any weighting
formula or matrix. The Commission received 16 comments in response to
the 2008 Web site notice.
D. Discussion
1. What Are the Requirements for Imposition of Civil Penalties?
The determination of the amount of any civil penalty to seek and/or
compromise should allow for maximum flexibility within an identified
framework. The CPSIA requirement for the Commission to interpret the
civil penalty factors gives transparency to the regulated community
about the framework the Commission will use to guide its penalty
calculations in the enforcement process and may provide incentives for
greater compliance. The changes made by various CPSIA provisions to the
CPSA, FHSA, and FFA, including those to the CPSA prohibited acts and
the addition of new prohibited acts, present the regulated community
with many new compliance challenges.
Any proposed civil penalty determination is based first on a
violation of a prohibited act under the CPSA, FHSA, or FFA. Civil
penalties may then be sought against any person who ``knowingly
violates'' section 19 of the CPSA, section 4 of the FHSA or a
regulation or standard under section 4 of the FFA. The term
``knowingly'' is defined in section 20(d) of the CPSA, 15 U.S.C.
2069(d), section 5(c)(5) of the FHSA, 15 U.S.C. 1264(c)(5), and section
5(e)(1) of the FFA, 15 U.S.C. 1194(e)(1) to mean the having of actual
knowledge or the presumed having of knowledge deemed to be possessed by
a reasonable man who acts in the circumstances, including knowledge
obtainable upon the exercise of due care to ascertain the truth of
representations. Since its enactment in 1973, the CPSA always contained
a civil penalty provision; however, until 1990, the FHSA and FFA did
not contain comparable provisions for civil penalties. Under the FFA,
the Commission had to seek civil penalties under the Federal Trade
Commission Act, using the authorities under that provision. The FHSA
had no civil penalty provision. The Consumer Product Safety Improvement
Act of 1990, Public Law 101-608, 104 Stat. 3110, November 16, 1990,
amended section 5 of the FHSA and section 5 of the FFA giving the
Commission authority to seek civil penalties for knowing violations of
the prohibited acts under those Acts. If a penalty cannot be
compromised by the Commission, the Commission will seek to commence an
action in Federal Court to obtain a penalty. See, Advance Machine Co.
v. Consumer Product Safety Commission, 666 F.2d 1166 (8th Cir. 1981);
Athlone Industries, Inc. v. Consumer Product Safety Commission (DC Cir.
1983).
2. How do the CPSIA Amendments to the CPSA's Prohibited Acts Affect
Civil Penalties?
In the past, the majority of civil penalties for prohibited acts
were imposed either for a knowing failure to furnish information
required by section 15(b) of the CPSA, or for regulatory violations
under the CPSA, FHSA, or FFA. The CPSIA amended these three statutes to
strengthen the Commission's enforcement ability and allow for more
uniform enforcement under the CPSA, where applicable.
The new amendments expand the acts prohibited under the CPSA and
give the Commission the ability to enforce violations of the FHSA and
FFA as prohibited acts under the CPSA. Thus, the amended CPSA now
prohibits the sale, offer for sale, distribution in commerce, or
importation into the United States of any consumer product, or other
product or substance that is regulated under the CPSA or any other Act
enforced by the Commission, that is not in conformity with an
applicable consumer product safety rule under the CPSA, or any similar
rule, regulation, standard, or ban under any other Act enforced by the
Commission. 15 U.S.C. 2068(a)(1).
The CPSA, as amended, adds a new prohibited act for the sale,
manufacture, distribution, or importation of products subject to a
voluntary corrective action taken by the manufacturer, in consultation
with the Commission, and publicly announced by the Commission or if the
seller, distributor, or manufacturer knew or should have known of such
voluntary corrective action. 15 U.S.C. 2068(a)(2)(B).
The CPSA, as amended, broadens the prohibited act for the sale,
offer for sale, manufacture for sale, or distribution or importation of
any consumer product or other product or substance subject to a section
15 mandatory recall order to include products subject to a section 12
order. A section 15 order is imposed in an adjudicative proceeding to
declare a product a ``substantial product hazard'' under section 15 of
the CPSA, 15 U.S.C. 2064. A section 12 order, which may include a
mandatory order requiring notification to purchasers and repair,
replacement or refund is one imposed by a District Court after an
``imminent hazard'' proceeding under section 12 of the CPSA, 15 U.S.C.
2061.
The amended prohibited acts section of the statute is also
broadened to include the sale, offer for sale manufacture for sale,
distribution in commerce or importation into the United States of a
banned hazardous substance under the FHSA as an act prohibited under
the CPSA. 15 U.S.C. 2068(a)(2)(D).
The CPSA prohibited act in section 19(a)(6) of the CPSA relating to
certification under section 14 of the CPSA is newly expanded to make
the failure to furnish a certificate required by any other Act enforced
by the Commission, a prohibited act under the CPSA. This prohibited act
now also references a new tracking label requirement of section 103 of
the CPSIA by specifying that the failure to comply with any requirement
of section 14 includes the failure to comply with the requirement for
tracking labels or any rule or regulation promulgated under section 14.
The CPSA statutory language has also been expanded to include a new
prohibited act for the sale, offer for sale, distribution in commerce
or importation into the United States of any consumer product
containing an unauthorized third party certification mark. 15 U.S.C.
2068(a)(12).
Misrepresentations to Commission officers or employees about the
scope of consumer products subject to recall or material
misrepresentations in the course of an investigation under any act
enforced by the Commission also is a new prohibited act under the CPSA.
15 U.S.C. 2068(a)(13).
In addition, the CPSA adds as a new prohibited act, the exercise or
attempt to exercise undue influence on a third party conformity
assessment body that tests products for compliance under laws
administered by the Commission. 15 U.S.C. 2068(a)(14).
The CPSIA adds to the Commission's export prohibition authority
section 19(a)(15) of the CPSA that makes it illegal to export from the
United States for purposes of sale any consumer product or other
product or substance (other than the export of a product or substance
permitted by the Secretary of the Treasury under section 17(e) of the
CPSA) that is subject to Court- or Commission-ordered recall or that is
banned under the FHSA or subject to voluntary recall announced by the
Commission. 15 U.S.C. 2068(a)(15).
[[Page 45104]]
The CPSIA also adds a new prohibited act that makes it illegal to
violate a Commission order issued under new section 18(c) of the CPSA,
which allows the Commission to prohibit export for sale of any consumer
product not in conformity with an applicable consumer product safety
rule. 15 U.S.C. 2068(a)(16).
3. Should Penalties be Sought for Violations that do not Involve
Evidence of ``Bad Intentions'' or ``Ill Will?''
Some commenters stated that the Commission should reserve seeking
penalties only for the most egregious and dangerous situations and that
most violations do not involve bad intentions or ill will.
The CPSA defines ``knowingly'' as actual knowledge or presumed
knowledge based on knowledge attributed to a reasonable person acting
in the circumstances, including knowledge obtainable upon the exercise
of due care to ascertain the truth of representation. Since the
knowledge requirements in the CPSA, FHSA, and FFA include presumed
knowledge, as well as actual knowledge, the Commission declines to
follow the commenters' suggestion to seek a penalty only where there is
evidence of bad intentions or ill will. To follow the commenters'
position to impose penalties only where there is knowing and willful
conduct would read the ``presumed knowledge'' element out of the
``knowing'' definition in the statute.
4. Should the Commission Implement a Matrix or Formula for Computing
Penalty Amounts?
All but two commenters rejected the concept of a penalty matrix or
formula for use in the assessment of civil penalties. Commenters
opposed to such a matrix or formula highlighted the difficulty of
applying any formula in a particular circumstance as too rigid an
approach that would not take into consideration information that might
be important to consider in one instance of a penalty but not in
another. One commenter suggested that if the Commission reduced its
penalty formulation to a matrix it would encourage regulated parties to
calculate the cost and risk of prohibited conduct and not to follow the
statutory requirements.
The Commission declines to follow a formulaic or matrix approach to
penalty assessment or to otherwise state in the regulation any specific
circumstances that will warrant a certain penalty amount but has
instead provided guidance about what factors may influence the
Commission's determination under the various statutory and other
enumerated factors. Importantly, in an individual case, the Commission
would review the facts and circumstances surrounding the violations and
the proposed assessment of penalties in light of the factors and
framework described in the rule. Therefore, the rule does not contain a
matrix or formula for assigning specified amounts to the various
factors in this notice. Specific considerations under each factor are
discussed below.
5. How Does the New Rule Interpret the Civil Penalty Factors?
A. Section 1119.1--Purpose
Section 1119.1 describes the purpose of new Part 1119 ``Civil
Penalty Factors,'' explaining that it is the Commission's
interpretation of the statutory civil penalty factors set forth in the
Consumer Product Safety Act (15 U.S.C. 2051-2089), Federal Hazardous
Substances Act (15 U.S.C. 1261-1278), and the Flammable Fabrics Act (15
U.S.C. 1191-1204).
B. Section 1119.2--Applicability
Section 1119.2 explains that the part applies to all civil penalty
determinations that the Commission proposes to seek or compromise for
knowing violations of the prohibited acts under the CPSA, the FHSA, or
the FFA.
C. Section 1119.3--Definitions
Section 1119.3 defines certain terms used in the rule. For example,
the term ``product defect'' is broadly defined to cover a product or
substance associated with a prohibited act under the CPSA, FHSA or FFA
as well as to include the meaning of defect as referenced in the CPSA
and the Commission definition of defect at 16 CFR 1115.4. The term
``violator'' would define any legally responsible party who committed a
knowing violation of a prohibited act under the CPSA, FHSA or FFA. The
rule explains that the definitions apply for purposes of this rule.
D. Section 1119.4(a)(2)--Nature, Circumstances, Extent, and Gravity of
the Violation
One commenter observed that Congress amended the CPSIA adding this
general factor in addition to the enumerated statutory factors to
clarify its intention that the Commission adopt a holistic assessment
of all relevant information for penalty determinations rather than
place undue emphasis on one or more specific factors.
The Commission agrees that this language allows the Commission to
consider the totality of the circumstances surrounding a violation
while recognizing that depending upon the case, the significance and
importance of each factor may vary. The Commission also believes that
this particular factor allows for the consideration of the seriousness
and extent of a particular violation that may not otherwise be
considered with respect to the other enumerated statutory factors.
Therefore, in each case, the Commission will continue to look at the
enumerated statutory factors, as well as other factors (described in
paragraph J below) that the Commission may determine are appropriate,
and consider all of the factors in determining the civil penalty
amount.
E. Section 1119.4(a)(3)--Nature of the Product Defect
The Commission will consider, under this provision, where
appropriate and applicable in each particular case, the nature of the
hazard presented by the product for which a penalty is sought. The
Commission considers this factor broadly as applying to products or
substances that may in fact contain a defect which could create a
substantial product hazard (as defined and explained in 16 CFR 1115.4),
to products which present a hazard because of a violation of a rule,
regulation, standard or ban under the CPSA, FHSA, and FFA, as well as
any other violation of a prohibited act and how the nature of those
violations relate to the underlying products or substances. Therefore,
with respect to this factor, a proposed penalty could involve a
prohibited act violation, such as a reporting failure under section
15(b) of the CPSA or a failure to comply with any consumer product
safety rule under the CPSA, or any similar rule, regulation, standard
or ban under any other act enforced by the Commission. A penalty also
could involve any other prohibited act, and the Commission may examine
its relation to the underlying product or substance and the prohibited
act. Under this factor, the Commission could consider, as appropriate
and where the business has reported in a timely fashion under section
15, information about the complexity of identifying a particular
product hazard.
Two commenters suggested that the Commission should evaluate
violations of regulatory standards by distinguishing those that do not
involve actual risk of harm, but rather the potential risk of harm,
differently than those that do involve real potential for significant
injury.
The Commission declines to accept the suggestion that it
distinguish any violations of regulatory standards, rule,
[[Page 45105]]
or bans in this manner. The promulgation of a mandatory regulation by
the Commission, or by Congress when they enact statutory bans and
standards, carries with it a corresponding determination that the
standard is necessary to address an unreasonable risk of injury
presented by the product included within its scope. Violation of such a
statutory provision or Commission regulation presents a risk to
consumers that has previously been determined to be addressed by
compliance with the statute or regulation. If the commenters'
suggestion were followed, the Commission would be classifying certain
mandatory standards as more important than others. In addition, the
comment does not account for the fact that the Commission can seek
penalties for other prohibited act violations (in addition to knowing
violations of mandatory rules, standards or bans).
F. Section 1119.4(a)(4)--Severity of the Risk of Injury
The Commission is to be guided by its discussion of the severity of
the risk at 16 CFR 1115.12, as appropriate, in evaluating a particular
penalty.
One commenter noted that penalties should not be assessed for risks
of minor or moderate injury.
The Commission declines to follow this suggestion. However, the
rule indicates that the Commission may, in addition to considering
information about injury potential and the seriousness of the potential
injuries, consider the likelihood of injury occurring. In assessing the
severity of the risk, the Commission may also consider the intended or
reasonably foreseeable use or misuse of the product, and the population
group exposed to the risk (e.g. children, elderly, handicapped.)
G. Section 1119.4(a)(5)--The Occurrence or Absence of Injury
The Commission received several comments suggesting that it should
not seek a penalty where the information the Commission evaluates
reveals that the violation involved no injury or only minor injuries
have occurred.
The Commission declines to follow this suggestion because a product
may present a serious risk to consumers due to a failure to comply with
a mandatory standard or other prohibited act even though no actual
injuries have occurred. Therefore, the Commission states in the rule
that it would consider under this factor whether injuries have or have
not occurred.
H. Section 1119.4(a)(6)--The Number of Defective Products Distributed
Under this provision, the Commission is required to consider the
actual number of defective products or amount of substances distributed
in commerce. The Commission recognizes, as some commenters pointed out,
that the actual number of defective products in consumers' hands may be
different than the number of defective products distributed. However,
the statutory language makes no distinction between those defective
products that consumers receive and those defective products
distributed in commerce. Therefore, the Commission chooses not to make
any such distinction in any evaluation of information under this
factor. The rule reflects this consideration.
I. Section 1119.4(a)(7)--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
The Commission is required to consider the size of a business in
relation to the amount of the proposed penalty. This factor reflects
the relationship between the size of the business of the person charged
and the deterrent effect of civil penalties. In considering business
``size,'' the Commission may look to several factors, including the
firm's number of employees, net worth, and annual sales. The Commission
may be guided, where appropriate, by any relevant financial factors to
help determine a violator's ability to pay a proposed penalty
including:
Liquidity factors--factors that help measure a violator's
ability to pay its short-term obligations;
Solvency factors--factors that help measure a violator's
ability to pay its long-term obligations; and
Profitability factors--factors that measure a violator's
level of return on investment
The Commission is aware that penalties may have adverse economic
consequences on violators, including small business violators. The
statute requires the Commission to consider how to mitigate the adverse
economic consequences on small business violators only if those
consequences would be ``undue.'' What the Commission considers to be
``undue'' will vary based upon the violator's business size and
financial condition as well as the nature, circumstances, extent and
gravity of the violation(s). When considering how to mitigate undue
adverse economic consequences, the Commission may also follow its Small
Business Enforcement Policy set forth at 16 CFR 1020.5. In determining
a small business violator's ability to pay a proposed penalty, the
Commission may be guided, where appropriate, by the financial factors
set forth above.
J. Section 1119.4(b)--Other Factors as Appropriate
Congress clarified in the CPSIA that the Commission does have the
ability to consider factors in addition to the ones enumerated in the
Act in individual cases, as appropriate. Both the Commission and the
violator are free to raise any other factors they believe are relevant
in determining an appropriate civil penalty amount. Additional factors
which may be considered in an individual case include, but are not
limited to, the following:
Safety/Compliance Program and/or System: The Commission
may consider, for example, whether a violator had at the time of the
violation, a reasonable program/or system for collecting and analyzing
information related to safety issues, including incident reports,
lawsuits, warranty claims, and safety-related issues related to repairs
or returns; and whether a violator conducted adequate and relevant
premarket and production testing of the product(s) at issue.
History of Noncompliance: The Commission may consider if
the violator has a history of noncompliance with the CPSC and whether a
higher penalty should be assessed for repeated noncompliance.
Economic Gain from Noncompliance: The Commission may
consider whether a firm benefitted economically from a delay in
complying with statutory and regulatory requirements.
Failure of the violator to respond in a timely and
complete fashion to the Commission's requests for information or
remedial action: The Commission may consider whether a violator's
failure to respond in a timely and complete fashion to requests for
information or for remedial action should increase the amount of the
penalty.
Which, if any, additional factors the Commission considers in
determining an appropriate penalty amount, including but not limited to
those listed above, will be unique to each case. In all civil penalty
matters, any additional factors beyond those enumerated in the statute
that the Commission takes into consideration for purposes of
determining an appropriate civil penalty amount will be made known to
and discussed with the violator.
[[Page 45106]]
M. Section 1119.5--Enforcement Notification
Section 1119.5 of the rule sets forth a notification provision that
has been informally followed by the Commission in determining the
amount of a civil penalty to seek or compromise for knowing violations
of the prohibited acts.
E. Immediate Effective Date
The Commission must issue a final rule, in accordance with the
procedures set forth at 5 U.S.C. 553 of the Administrative Procedure
Act, by August 14, 2009, providing its interpretation of the penalty
factors in section 20(b) of the CPSA, section 5(c)(3) of the FHSA, and
section 5(e)(2) of the FFA. Maximum civil penalty amounts are
increasing on August 14, 2009. Therefore, the Commission proposes that
any final rule resulting from this rulemaking become effective upon
publication. The rule is interpretative and does not impose obligations
on regulated parties beyond those imposed by the CPSA, FHSA, and FFA.
Therefore, there is no need to provide a delayed effective date in
order to allow for regulated parties to prepare for the rule.
F. Regulatory Flexibility Certification
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601- 612, directs
agencies to consider the potential impact of regulations on small
business and other small entities. However, the RFA does not apply to
rulemaking that is not subject to the notice and comment requirement of
the Administrative Procedure Act, 5 U.S.C. 553. Interpretative rules,
such as the one issued by this notice, are not subject to the notice
and comment requirement. Accordingly, neither an initial nor a final
regulatory flexibility analysis is required for this rule.
G. Paperwork Reduction Act
The rule does not impose any information collection requirements.
Rather it describes the statutory civil penalty factors and how the
Commission interprets those factors. Accordingly, it is not subject to
the Paperwork Reduction Act, 44 U.S.C. 3501-3520.
H. Environmental Considerations
The Commission's regulations at 16 CFR 1021.5(a) provide that there
are no CPSC actions that ordinarily produce significant environmental
effects. The rule does not fall within the categories in 16 CFR
1021.5(b) of CPSC actions that have the potential for producing
environmental effects. The rule does not have any potential for
adversely affecting the quality of the human environment. Council of
Environmental Quality regulations at 40 CFR 1508.18(a) provide that
agency actions subject to environmental review ``do not include
bringing judicial or administrative enforcement actions.'' Therefore,
no environmental assessment or environmental impact state is required.
List of Subjects in 16 CFR Part 1119
Administrative practice and procedure, Business and Industry,
Consumer protection, Reporting and recordkeeping requirements.
0
Accordingly, the Commission amends title 16 of the Code of Federal
Regulations by adding a new Part 1119 to read as follows:
PART 1119--CIVIL PENALTY FACTORS
Sec.
1119.1 Purpose.
1119.2 Applicability.
1119.3 Definitions.
1119.4 Factors considered in determining civil penalties.
1119.5 Enforcement notification.
Authority: 15 U.S.C. 2058, 2063, 2064, 2067(b), 2068, 2069,
2076(e), 2084, 1261, 1263, 1264, 1270, 1273, 1278, 1191, 1192, 1193,
1194, 1195, 1196.
Sec. 1119.1 Purpose.
This part sets forth the Consumer Product Safety Commission's
(Commission) interpretation of the statutory factors considered in
determining the amount of civil penalties the Commission may seek or
compromise.
Sec. 1119.2 Applicability.
Application. This part applies to all civil penalty determinations
the Commission may seek or compromise under the Consumer Product Safety
Act (CPSA) (15 U.S.C. 2051-2089), the Federal Hazardous Substances Act
(FHSA) (15 U.S.C. 1261-1278), and the Flammable Fabrics Act (FFA) (15
U.S.C. 1191-1204). Any person who knowingly violates a prohibited act
set forth in section 19 of the CPSA, section 4 of the FHSA, or section
5(e) of the FFA is subject to a civil penalty.
Sec. 1119.3 Definitions.
For purposes of this rule the following definitions apply:
(a) Product defect means a product or substance that is associated
with a prohibited act under the CPSA, FHSA, or FFA, including the
meaning of defect as referenced in the CPSA and defined in Commission
regulations at 16 CFR 1115.4. Where applicable and where the term
``number of defective products distributed'' is used it shall include
``amount of substance distributed'' for purposes of violations under
the FHSA.
(b) Violation means a knowing violation, as defined in the CPSA,
FHSA, or FFA of any prohibited act found in section 19 of the CPSA,
section 4 of the FHSA, or section 5 of the FFA.
(c) Violator means any manufacturer, importer, distributor or
retailer or any other legally responsible party who committed a knowing
violation of a prohibited act under the CPSA, FHSA, or FFA and is thus
subject to penalties.
Sec. 1119.4 Factors considered in determining civil penalties.
(a) Statutory Factors. (1) Section 20(b) of the CPSA, section
5(c)(3) of the FHSA and section 5(e)(2) of the FFA specify factors
considered by the Commission in determining the amount of a civil
penalty to be sought upon commencing an action for knowing violations
of the prohibited acts section of each act. These factors are:
(i) CPSA (15 U.S.C. 2069(b)). The nature, circumstances, extent,
and gravity of the violation, including:
(A) The nature of the product defect;
(B) The severity of the risk of injury;
(C) The occurrence or absence of injury;
(D) The number of defective products distributed;
(E) 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; and
(F) Such other factors as appropriate.
(ii) FHSA (15 U.S.C. 1264(c)(3)). The nature, circumstances,
extent, and gravity of the violation, including:
(A) The nature of the substance;
(B) Severity of the risk of injury;
(C) The occurrence or absence of injury;
(D) The amount of substance distributed;
(E) 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; and
(F) Such other factors as appropriate.
(iii) FFA (15 U.S.C. 1194(e)(2)). The nature, circumstances,
extent, and gravity of the violations:
(A) The severity of the risk of injury;
(B) The occurrence or absence of injury;
(C) The appropriateness of such penalty in relation to the size of
the business of the person charged; and
(D) Such other factors as appropriate.
[[Page 45107]]
(2) The nature, circumstances, extent and gravity of the violation.
Under this factor, the Commission will consider the totality of the
circumstances surrounding a violation, including how many provisions of
law were violated. The Commission will continue to look at the
enumerated statutory factors, as well as other factors (as described in
paragraph (b) of this section) that the Commission may determine are
appropriate, and consider all of the factors in determining the civil
penalty amount.
(3) Nature of the product defect. The Commission will consider the
nature of the product hazard/substance for which a penalty is sought. A
product defect under this factor includes violations for products that
contain defects which could create substantial product hazards as
referenced in the CPSA and defined and explained in 16 CFR 1115.4;
regulatory violations of a rule, regulation, standard or ban; or
product hazards presented by any other violation of the prohibited acts
of section 19 of the CPSA.
(4) Severity of the risk of injury. Consistent with its discussion
of severity of the risk at 16 CFR 1115.12, the Commission will
consider, among other factors, the potential for serious injury or
death (and whether any injury required actual medical treatment
including hospitalization or surgery); the likelihood of injury; the
intended or reasonably foreseeable use or misuse of the product; and
the population at risk (including vulnerable populations such as
children, the elderly, or those with disabilities).
(5) The occurrence or absence of injury. The Commission will
consider whether injuries have or have not occurred with respect to any
product associated with the violation.
(6) The number of defective products distributed. The Commission
will consider the actual number of products or amount of substances
imported or placed in the stream of commerce to distributors,
retailers, and consumers.
(7) 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. (i) The Commission is
required to consider the size of a business in relation to the amount
of the proposed penalty. This factor reflects the relationship between
the size of the business of the person charged and the deterrent effect
of civil penalties. In considering business ``size,'' the Commission
may look to several factors including the firm's number of employees,
net worth, and annual sales. The Commission may be guided, where
appropriate, by any relevant financial factors to help determine a
violator's ability to pay a proposed penalty including: liquidity
factors; solvency factors; and profitability factors.
(ii) The statute requires the Commission to consider how to
mitigate the adverse economic impacts on small business violators only
if those impacts would be ``undue.'' What the Commission considers to
be ``undue'' will vary based upon the violator's business size and
financial condition as well as the nature, circumstances, extent and
gravity of the violation(s). When considering how to mitigate undue
adverse economic consequences, the Commission may also follow its Small
Business Enforcement Policy set forth at 16 CFR 1020.5.
(b) Other factors as appropriate. In determining the amount of any
civil penalty to be pursued when a knowing violation of the prohibited
acts section of the CPSA, FHSA, or FFA has occurred, the Commission may
consider, where appropriate, other factors in addition to those listed
in the statutes. Both the Commission and the violator are free to raise
any other factors they believe are relevant in determining an
appropriate penalty amount. Which, if any, additional factors the
Commission considers in determining an appropriate penalty amount,
including but not limited to those listed above, will be unique to each
case. In all civil penalty matters, any additional factors beyond those
enumerated in the statute that the Commission takes into consideration
for purposes of determining an appropriate civil penalty amount will be
made known to and discussed with the violator. Additional factors which
may be considered in an individual case include, but are not limited
to, the following:
(1) Safety/Compliance Program and/or System: The Commission may
consider, for example, whether a violator had at the time of the
violation, a reasonable program/or system for collecting and analyzing
information related to safety issues, including incident reports,
lawsuits, warranty claims, and safety-related issues related to repairs
or returns; and whether a violator conducted adequate and relevant
premarket and production testing of the product(s) at issue.
(2) History of noncompliance: The Commission may consider if the
violator has a history of noncompliance with the CPSC and whether a
higher penalty should be assessed for repeated noncompliance.
(3) Economic Gain from Noncompliance: The Commission may consider
whether a firm benefitted economically from a delay in complying with
statutory and regulatory requirements.
(4) Failure of the violator to respond in a timely and complete
fashion to the Commission's requests for information or remedial
action: The Commission may consider whether a violator's failure to
respond in a timely and complete fashion to requests from the
Commission for information or for remedial action should increase the
amount of the penalty.
Sec. 1119.5 Enforcement notification.
A potential violator will be informed in writing that the
Commission believes it is subject to a possible civil penalty. The
violator will be able to submit evidence and arguments that it is not
subject to such a penalty.
Dated: August 19, 2009.
Alberta E. Mills,
Acting Secretary, Consumer Product Safety Commission.
[FR Doc. E9-20591 Filed 8-31-09; 8:45 am]
BILLING CODE 6355-01-P