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CPSC Releases Controversial Proposal on Voluntary Recalls and Corrective Plans

Thursday, November 21, 2013
Sandler, Travis & Rosenberg Trade Report

A new proposal from the Consumer Product Safety Commission would increase the agency’s ability to punish companies that don’t do enough to address defective products. A CPSC official has described the proposal as a tweak to existing regulations but critics say it would be a major change that appropriates authority Congress never granted. Comments on the proposed rule are due no later than Feb. 5, 2014.

This rule was initially aimed at setting forth principles and guidelines for the content and form of voluntary recall notices that firms provide as part of corrective action plans under Section 15 of the Consumer Product Safety Act. The Commission believes that these principles and guidelines will result in greater efficiencies during recall negotiations, greater predictability for the regulated community in working with the agency to develop voluntary recall notice content, and timelier issuance of recall announcements to the public. The CPSC notes that this portion of the proposed rule is based in part on a recommendation in the House of Representatives report on the Consumer Product Safety Improvement Act that voluntary recall notices should contain information similar to that required for mandatory recall notices.

It is another aspect of the proposal, however, that is generating some concern. Specifically, this rule would provide that if a firm voluntarily agrees to undertake a corrective action plan it is legally bound to fulfill the terms of that agreement. The CPSC states that this provision would give it “the necessary tools to compel a noncompliant or dilatory firm to carry out the terms” of a voluntary CAP.

The Commission explains that while it has the authority to order mandatory recalls of defective or violative products, in the interests of the public and most importers, manufacturers, wholesalers and retailers almost all recalls are conducted on a voluntary basis. In fact, since the CPSC’s mandatory recall notice rule was published in January 2010, not a single mandatory recall has been announced, but there have been more than 1,000 voluntary CAPs and associated recall notices. However, current regulations prohibit the CPSC from enforcing the terms of those CAPs if they are violated.

The CPSC also wants to add compliance program-related requirements as possible components of a CAP. Under this rule such requirements could be proposed in circumstances such as multiple previous recalls and/or violations of CPSC requirements over a relatively short period of time, failure to timely report substantial product hazards on previous occasions, or evidence of insufficient or ineffectual procedures and controls for preventing the manufacturing, importation and/or distribution of dangerously defective or violative products. Specific requirements could include maintaining and enforcing a system of internal controls and procedures to ensure that a firm promptly, completely and accurately reports required information about its products to the Commission; ensuring that information required to be disclosed is recorded, processed and reported in accordance with applicable law; establishing an effective program to ensure the firm remains in compliance with safety statutes and regulations enforced by the Commission; providing firm employees with written standards and policies, compliance training, and the means to report compliance-related concerns confidentially; ensuring that prompt disclosure is made to the firm’s management of any significant deficiencies or material weaknesses in the design or operation of such internal controls that are reasonably likely to affect adversely, in any material respect, the firm’s ability to report to the Commission; providing the Commission with written documentation, upon request, of the firm’s improvements, processes and controls related to its reporting procedures; or making available all information, materials and personnel deemed necessary to the Commission to evaluate the firm’s compliance with the terms of the CAP. Violations of a voluntary CAP could be met with enforcement actions such as seeking an injunction or specific performance as well as pursuing all applicable sanctions under the CPSA.

According to press reports, the CPSC’s lone Republican commissioner and a number of private-sector attorneys argue that the proposed rule is unnecessary because the agency already has effective tools to deal with noncompliant firms, from administrative measures to litigation, and these tools are working well. The Commission’s Democratic soon-to-be chairman reportedly agreed at a recent hearing that CAP violations are not typically a major concern but emphasized that the agency must guard against the harm that even one violation could cause. He also asserted that the proposed rule is merely a modification to current practice that most companies will “see and yawn and move on with.” Others, however, believe the rule would be a dramatic change likely to increase attorney involvement in recalls, thereby raising costs and possibly delaying the removal of potentially dangerous goods while CAPs are being negotiated.

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