CPSC Civil Penalties on the Rise Again

In a recent Inform Me: News and Recent Recalls newsletter, we reported that the Consumer Product Safety Commission (CPSC) entered civil penalty settlement agreements with 38 corporations for a total of $9.8 million in fiscal year 2009 (October 2008 – September 2009). The number of companies fined was higher than it has been in at least ten years, and total penalties were more than double those settled in 2008.

Fifteen companies each paid $100,000 or more, versus just six companies paying amounts over $100,000 in 2008. Because the Consumer Product Safety Improvement Act of 2008 (CPSIA) allows for higher penalties, the settlement sizes are expected to increase in the future. In addition, because of the tougher regulations, we expect to see more companies in violation and, therefore, more fines. From 2003 to 2007, no more than ten companies faced civil fines in each year. That number rose to 23 in 2008 and, as noted, jumped again in 2009 to 38.

Violations of the federal lead paint ban topped the CPSC penalties charts in both 2008 and 2009. The largest civil penalty in 2008 was Reebok’s $1 million penalty for allegedly importing and distributing charm bracelets that contained toxic levels of lead, which Reebok recalled in 2006.  The largest settlement in FY ’09 was Mattel’s $2.3 million penalty for products recalled in 2007 due to excessive lead, lead paint and small magnets.

Another hot button issue in 2009 was failure to report drawstrings in children’s outerwear. During the fiscal year, 20 firms settled with the CPSC over issues related to drawstrings. In April, the CPSC announced agreements with 14 firms, each firm agreeing to pay between $25,000 and $315,000.

In 2009, besides lead paint and drawstrings violations, several firms were fined for failure to report possible product hazards in a timely manner. In one such example, Mega Brands America Inc., formerly Rose Art Industries Inc., agreed to pay a $1.1 million civil penalty to settle allegations that the firm failed to provide the government with timely information about the Magnetix magnetic building sets. The CPSC Mega Brands press release said, “by the time Rose Art agreed to the recall of Magnetix in March 2006, the firm had received more than 1,500 complaints of magnets falling out of plastic pieces in more than 65 different models of Magnetix.”

Failure to inform the CPSC is not a new violation. According to the CPSC Recall Handbook published in 1999, companies are required to report to the CPSC within 24 hours of receiving or identifying information “that reasonably supports the conclusion that a product fails to meet a consumer product safety rule, standard, or ban, contains a defect which could create a substantial product hazard or creates an unreasonable risk of serious injury or death.”

Looking at some of the other notable penalty years, we find that, in 2005, the largest settlement was for Graco’s $4 million penalty to resolve CPSC charges that it failed to inform the CPSC in a timely manner about more than 12 million products that posed a danger to young children nationwide. And, in 2001, the largest settlement was for Cosco and Safety 1st’s $1.75 million penalty, also for failure to report. Both Cosco and Safety first are subsidiaries of Dorel Industries, Inc. Cosco agreed to pay $1.3 million to settle charges that it failed to report product defects with cribs, strollers, car seat carriers and high chairs. Safety 1st paid $450,000 to settle charges it withheld information about defects with its walkers and wipe warmers.

Civil penalties are negotiated settlements that result from CPSC’s enforcement activities. The CPSC cannot use these civil penalties funds, so enforcement activities do not affect the agency’s budget. Settlements take time, so the fines typically are not determined in the year in which the violation took place. In the magnet example above, the settlement was finalized in April 2009, but the related recalls took place in 2006 and 2007.

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