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Retailer to Pay $3.9 Million for Drawstrings in Children’s Garments

Wednesday, June 26, 2013
Sandler, Travis & Rosenberg Trade Report

The Consumer Product Safety Commission has provisionally accepted a settlement agreement under which a California-based retailer will pay a $3.9 million civil penalty to settle charges that it sold and/or held for sale 12 series of various styles, models and quantities of children’s upper outerwear products with drawstrings at the neck and/or waist and knowingly and repeatedly failed to immediately inform the CPSC about these garments. CPSC regulations designate as substantial product hazards children’s upper outerwear in sizes 2T to 12 (or extra-small to large) with neck or hood drawstrings and children’s upper outerwear in sizes 2T to 16 (or extra-small to extra-large) with certain waist or bottom drawstrings. Manufacturers, distributors and retailers must report to CPSC within 24 hours after obtaining information reasonably supporting the conclusion that a product contains a defect that could create a substantial product hazard, creates an unreasonable risk of serious injury or death, or fails to comply with any consumer product safety rule or any other rule, regulation, standard or ban enforced by CPSC.

The CPSC points out that this retailer has taken numerous steps over the years in an effort to comply with federal requirements on drawstrings. Since the CPSC first issued its guidelines on drawstrings in 1996 it has been the retailer’s policy to prohibit the purchase of children’s upper outerwear with drawstrings, and prior to 2009 the company’s management had procedures in place that it reasonably believed prevented such purchases. The retailer first learned of the alleged violations with respect to two series of garments upon receiving notice that they were being recalled by the vendors, whereupon it conducted an extensive and voluntary manual audit throughout all of its stores and distribution centers that identified violations with respect to the other ten series of garments that were promptly notified to the CPSC. The company also began developing new compliance measures to augment its existing policies, including a product recall inventory and sales tracking system, the creation of a dedicated product safety personnel position to address product safety compliance, training and policy issues, increased training of personnel who order and process children’s apparel, an enhanced distribution center review process in which children’s outerwear is audited for compliance prior to distribution to stores, and a point-of-sale register lock system that prohibits the sale of recalled products. These compliance measures were implemented and refined through 2012 and will continue to be evaluated and modified as appropriate.

As part of this settlement agreement the retailer represents that it has implemented and will maintain a compliance program designed to assure compliance with the laws and regulations on drawstrings in children’s products and that this program contains (a) written standards and policies, (b) a mechanism for confidential employee reporting of compliance-related questions or concerns to either a compliance officer or another senior manager with authority to act as necessary, (c) appropriate communication of company compliance-related policies and procedures to all applicable employees through training programs or otherwise, (d) management oversight of compliance and appropriate personnel responsibility for implementing compliance, and (e) a policy to retain all compliance-related records for at least five years and make such records available to CPSC staff upon reasonable request. The retailer also represents that it has designed and implemented internal controls and procedures that are designed to assure that all reporting made to the CPSC is timely, truthful, complete, accurate and in accordance with applicable law and that prompt disclosure is made to company management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to adversely affect in any material respect the company’s ability to record, process and report to the CPSC in accordance with applicable law.

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