A new era of dramatically increased activity is underway within the U.S. Consumer Product Safety Commission ("CPSC" or the "Commission"), the federal agency tasked with enforcing the Consumer Product Safety Act ("CPSA") and related federal statutes.
The Consumer Product Safety Improvement Act, signed into law by the President on August 14, 2008, expands the CPSC's regulatory and enforcement powers, imposes new obligations on manufacturers and others dealing with consumer products, and significantly increases the agency's budget. These changes represent the most sweeping enhancement of the CPSC's authority in the history of the agency. The reforms affect everyone in the chain of distribution of consumer products in the United States, from manufacturers, importers and private labelers to retailers and distributors.
The new legislation may owe its genesis to the notorious recalls of Chinese-manufactured children's toys contaminated with lead paint in 2007. Congress, however, did not confine its response simply to children's products or to lead paint. Instead, the new legislation ushers in such significant changes as:
Equally important, the new legislation leaves significant authority in the hands of state regulators, some of whom (e.g., those in California, New York and Illinois) have become increasingly active on issues of consumer product safety.
These are simply the "headlines." The critical next step is sorting out how the changes wrought by the new legislation affect your business, now and in the future. Congress has tasked the CPSC with developing new regulations to implement the new legislation, and we are tracking the development of those rules.
This much is already clear: the potential costs of failing to report required information to the CPSC have risen dramatically. In this new era, it is more important than ever for companies that make or sell consumer products to (1) institute internal information-gathering and compliance procedures to ensure the timely submission of any required reports, and (2) engage in prudent planning that takes into account not only the federal legislation and the CPSC's regulations, but also the potential litigation that can arise with or without a recall, the impact of these decisions on the framing of litigation strategy, the more widely available information (and misinformation) on the Internet, and the anticipated increase in activity by the states' attorneys general.
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Increases in CPSC Budget and Staffing |
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The CPSC's current annual budget is $80 million. Last fall, Congress added $17 million to the agency's then-$63 million budget, representing the largest single year cash-infusion the agency had seen in over 20 years. Beginning in October 2009 (Fiscal Year 2010), the CPSC budget increases to $118.20 million, and its budget reaches $136.41 million by 2014, more than doubling recent CPSC annual budgets. |
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Over recent months, the CPSC's Office of Compliance and Field Operations has already expanded by about 20 people in anticipation of the new legislation. The ranks of the CPSC staff are anticipated to grow by nearly 100 people, to a total of 500 people by the year 2013. |
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The CPSC will take on a direct role (alongside U.S. Customs and Border Protection) in import surveillance, beginning with the United States' 10 largest seaports. |
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Civil Penalties |
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Civil penalties for failure to timely report information required by Sections 15(b) and 37 increase from $5,000 to a maximum of $100,000 per violation and from $1.825 million to a maximum of $15 million for a related series of violations. |
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Reporting under Section 15(b) of the CPSA is still required whenever a product (1) contains a "defect" that could create a "substantial product hazard," (2) creates an "unreasonable risk of serious injury or death," or (3) fails to comply with an applicable rule or standard adopted or relied upon by the CPSC. |
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Separately, Section 37 of the CPSA continues to require a manufacturer to report to the Commission whenever a particular model of a consumer product is the subject of at least three lawsuits for "death or grievous bodily injury," which within a prescribed 24-month period result in either a settlement involving the manufacturer or a court judgment in favor of the plaintiff.
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Congress has listed factors for the CPSC to consider when deciding whether and how much to fine a company. The new law requires the CPSC to issue regulations that interpret these factors within one year (by August 2009). |
| Criminal Penalties |
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"Prohibited acts" are now punishable by fine, imprisonment up to five years for knowing and willful violations, and forfeiture of assets associated with the violation. |
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Previously, criminal liability under the CPSA required that a violation be committed after the CPSC had given the company "notice of noncompliance." In other words, the CPSC first had to notify the company that it was violating the law and then find a subsequent violation before the CPSC could seek criminal penalties. "Notice of noncompliance" as a prerequisite for criminal liability has been eliminated. No warning shot is required. |
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As in the past, it is a prohibited act to "fail or refuse to make reports or provide information" to the CPSC. It remains to be seen — now that "notice of noncompliance" has been eliminated as a pre-condition to criminal charges — whether and how the CPSC may seek to impose criminal liability for simple failure to file a Section 15(b) report. Under the new law, imprisonment is reserved for "knowing and willful" violations, while determining whether a Section 15(b) report must be filed requires company management to make difficult judgments such as whether a product "defect" is present, whether a "defect" could create a "substantial product hazard," and whether a product "creates an unreasonable risk of serious injury or death." |
| New Prohibited Acts |
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It is now a "prohibited act" to sell, offer to sell, manufacture for sale, distribute, or import a recalled product (including products voluntarily recalled by the manufacturer if the CPSC has notified the public of the recall or if the seller, distributor, or manufacturer knew or should have known of the recall). This newly added "prohibited act" imposes substantial risks on distributors and retailers. They must be vigilant to ensure removal of all recalled products from their stocks and store shelves to prevent the products from being sold or offered for sale. The CPSC has yet to decide whether this obligation will be applied retroactively to products recalled before the new law became effective. |
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Other new prohibited acts include: |
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unauthorized use of a registered safety certification mark, where the unauthorized use was known or should have been known; |
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misrepresenting to CPSC Staff the scope of consumer products subject to mandatory recall, or making any material misrepresentation to CPSC Staff during an investigation; |
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selling certain products without required certifications, or providing false certifications with those products (see "Children's Products" section below); |
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influencing or attempting to influence certain third party testing and certification labs; and |
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exporting for sale any recalled product unless such export is expressly permitted. |
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Enforcement by State Attorneys General |
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State attorneys general are permitted to bring lawsuits to enjoin violations of the federal laws enforced by the CPSC. State attorneys general will be able to sue on behalf of the residents of their states to: |
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stop the sale of products that violate CPSC-issued safety standards; |
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stop the sale of certain recalled products as announced by the Commission; |
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stop the sale of banned hazardous substances; |
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stop the sale of children's products that have not been certified as tested by third-party laboratories once those certification requirements go into effect; |
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stop the sale of children's products that lack tracking labels once that requirement goes into effect; |
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enforce the prohibition against "stockpiling" products in inventory in advance of regulatory changes; and |
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stop the sale of products with safety marks if the use of those marks is unauthorized. |
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The state attorneys general must provide a 30-day notice to the CPSC before suing a company in federal court for an alleged violation, unless the state attorney general notifies the CPSC that immediate action is necessary to protect against a substantial product hazard, in which case a complaint may be filed immediately. The CPSC may intervene in such actions. |
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Congress included these provisions over the strong objections of manufacturers and the CPSC staff. Given the interest recently demonstrated by some state attorneys general in becoming more active in consumer product safety enforcement, these provisions may open the door to substantial activity at the state level. |
| Public Consumer Product Safety Database |
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The CPSC must create and maintain a searchable database containing reports of injury or death relating to use of consumer products, and make the database available to consumers. |
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The database will include manufacturer and product names, and will be based on information from CPSC recall notices as well as reports from: |
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-- consumers;
-- local, state, and federal agencies;
-- health care professionals;
-- child service providers; and
-- public safety entities.
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The database will not include information that manufacturers, retailers or private labelers submit to the Commission in Section 15 reports. |
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The database could result in tarnished brand reputations, as well as increases in product liability and class action litigation. |
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While the CPSC has the power to remove or correct inaccurate information in the database, the burden of demonstrating the inaccuracy falls on the manufacturer. |
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The new law merely requires CPSC to provide "clear and conspicuous notice" to database users that the Commission "does not guarantee the accuracy, completeness, or adequacy" of the information. |
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Before posting information on the database, the CPSC must give manufacturers an opportunity to object to the disclosure of any confidential or trade secret information, as well as an opportunity to post its own comments in response to the information in the database. Within 10 days of asking the manufacturer for objections and comments, however, the Commission will post the information. |
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The CPSC must submit a plan to Congress on development of the database by February 2009, and the database must be available on the CPSC's Web site by October 2010. |
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Public Disclosure of Information |
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When the public requests information relating to a certain product from the Commission, the law continues to provide confidentiality protections to manufacturers that require the CPSC to withhold the release of certain types of information. |
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The new law shortens the timeframes previously available to manufacturers to review and object to any proposed release of information. |
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The new law expands the circumstances in which the CPSC is not required to give any prior notice to a manufacturer of disclosures to the public about the manufacturer's product. |
| Whistleblower Protection |
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There are now protections against termination or discrimination for an employee who (1) provides information to the CPSC, state attorney general or employer regarding acts or omissions reasonably believed to violate the statutes or regulations enforced by the CPSC; (2) testifies or assists in testifying about such violations; or (3) objects to participating in a task reasonably believed to violate the statutes or regulations enforced by the CPSC. |
| Enhanced Authority Over Recalls |
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Previously, if the CPSC determined that a product presented a substantial hazard, it could order a recall, but the CPSA gave the recalling party its choice of remedies: replace or repair the product, or refund the product's purchase price. The new law eliminates this choice and requires CPSC approval of the remedy offered in the recall. |
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The CPSC now has the power to issue a stop sale order without a hearing if it has filed an action in federal court seeking a declaration that a product is imminently hazardous under Section 12 of the CPSA. While the court later may rescind the Commission's order, it may do so only if it determines that the product is not imminently hazardous. |
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The CPSC now has increased authority to revoke a corrective action plan that the Commission previously approved, or to require that the plan be modified. |
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The new law spells out information that must be included in a recall notice. |
| Children's Products |
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A "children's product" is a consumer product designed or intended primarily for children 12 years of age or younger. In addition to any guidelines published by CPSC staff, relevant factors include: |
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a reasonable statement by a manufacturer, including one made on a product label, about the intended use of such product; |
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whether the product's packaging, display, promotion or advertising indicates the product is appropriate for use by children 12 years of age or younger; and |
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whether the product is commonly recognized by consumers as being intended for use by children 12 years of age or younger. |
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Third-party testing and certification of all children's products will be required over the coming months before such products may be imported or distributed, according to the following schedule: |
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CPSC Accreditation
Procedure Published |
Third-Party Testing
Required |
Lead Paint |
September 2008 |
December 2008 |
Cribs and Pacifiers |
October 2008 |
January 2009 |
Small Parts |
November 2008 |
February 2009 |
Metal Jewelry |
December 2008 |
March 2009 |
Baby Bouncers,
Walkers
and Jumpers |
March 2009 |
June 2009 |
Lead Content |
May 2009 |
August 2009 |
CPSC Children's
Product Safety Rules |
June 2009 |
September 2009 |
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Tracking labels (permanent markings that can be used to identify a product's source, production date and batch in the event of a recall) are required on children's products and must be in place by August 2009. The CPSC plans to issue rules that specify the requirements for such tracking labels. |
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The scope of this provision includes clothing and shoes in addition to toys and other regulated products. |
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Congress modified the requirement for tracking labels with the phrase "to the extent practicable," recognizing that it may not be possible for permanent distinguishing marks to be printed on small products. |
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Registration cards for durable infant and toddler products will be required by August 2009. Records of returned cards must be maintained for at least six years and used to notify consumers in any recall. |
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Children's toys sold through the Internet or catalogs are subject to new warning rules. In general, Web sites and catalogs that offer children's toys for sale must include the same warnings that accompany the products when purchased in person. Web sites must comply by December 12, 2008 and catalogs published or distributed after February 10, 2009 must comply by that date. A 180-day grace period for compliance is available, and the Commission is accepting public comments as it develops rules to implement these new requirements. |
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Permissible lead content is the subject of stricter new rules. The new law bans children's products that contain certain amounts of lead in parts accessible to children, and phases in even stricter standards on lead content over time. The Commission will issue a rule on what component parts are "inaccessible" within a year. The Commission will also evaluate whether certain electronic devices, including devices that contain batteries, must comply with the lead limit. The CPSC's General Counsel has issued a memorandum explaining that the limitation on lead in children's products will be applied retroactively to existing inventory. All products not complying with the initial 600 ppm lead standards — regardless of their date of manufacture — cannot be legally sold beginning February 10, 2009. |
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Sales of children's toys and "child care articles" containing certain concentrations of three types of phthalates will be prohibited as of February 10, 2009. Other phthalates will be subject to an interim ban pending further study by a Chronic Hazard Advisory Panel and final rulemaking by the Commission within three years. |
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"Child care articles" are consumer products designed or intended by the manufacturer to facilitate sleep or the feeding of children age three and younger, or to help such children with sucking or teething. |
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The requirements for dealing with existing inventory differ among the new law's various provisions. |
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Preemption of Some State Laws but not Others |
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The legal doctrine of "preemption" addresses whether state governments are permitted to regulate on a particular topic in tandem with the federal government, or whether federal law forbids such additional regulation. |
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Significant existing "warning" legislation in the states, like California's Proposition 65, is specifically not preempted under the new federal law. |
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Consumer lawsuits under state common law and statutes are likewise specifically not preempted. |
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Some new federal requirements (for example, those restricting the use of lead and phthalates) likely preempt any state regulation on the subject. |
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Other state regulations, such as toy safety standards, may or may not be preempted by federal law. The new law permits states to petition the CPSC to "grandfather in" many existing state laws of this kind. The deadline for states to apply to have their toy safety rules deemed exempt from preemption is November 12, 2008. |
These and other provisions of the Consumer Product Safety Improvement Act of 2008 will be the subject of increased activity in the coming months, as the CPSC publishes new proposed rules and announces its positions about the new law. If you have a particular interest in monitoring these developments more closely, please send your e-mail address to marketing@schiffhardin.com so that we may add you to our product safety circulation list.
Please let us know if we can assist you in determining how to comply with the new consumer product safety law and its related regulations.
