Wednesday, February 24, 2010

CPSIA - CPSC Commission to Vote on Civil Penalty Factors

According to the latest CPSC Calendar, the Commission is due to vote on the Civil Penalty Factors "final rule" at their weekly meeting on Wednesday, March 3 at 9 AM EST. [The webcast can be found at this link.] This long-awaited rule has been the subject of comments on two occasions (once before any rule was produced and one after the first draft was released). The most recent draft was the subject of considerable controversy and created the potential for great unfairness to anyone subject to the awful CPSIA.

It's worth noting that the CPSC has yet to assess a single penalty under the CPSIA. The whoppers assessed against Mattel, RC2, Target and Schylling, among others, all reflect prior law. I rather doubt they are done knocking on doors and waking up the occupants with news of penalties for long-ago infractions. When they're finished with that task, the agency can begin assessing penalties under the CPSIA. The new penalty section became effective on August 14, 2009 and increased the maximum penalty per violation from $8,000 to $100,000 and the maximum penalty for a related series of violations from $1.825 million to $15 million (see Section 20 of the CPSA). Gets your attention, right?

There is a considerable risk of abuse of the penalty assessment process without procedural protections. The penalties being assessed today are substantially larger than in the past, and seem (to this observer) to follow no clear pattern or bear any relationship to the infractions. Arbitrary penalties will depress trade as manufacturers reassess risk or find that they cannot bear the increased cost of insurance (self-insurance or commercially-available insurance). The cost will come to rest somewhere and like any tax, will reduce the incentive to innovate or compete.

It is also debatable how negotiable the agency has been or will be on penalties, amplifying the risk of arbitrary penalties. After all, how are you supposed to use leverage against the CPSC - no one has enough money to fight the federal government in court. Nor the time or energy. As someone said, never sue someone who has access to a printing press. This lack of a level playing field raises questions of due process in CPSC penalty assessment. The dilemmas presented by the current version of the civil penalty factors prompted many comment letters, including one from me.

Nothing scares me more than the populist blood lust we continue to see from the agency. The penalty factors need to restrain efforts to please politicians then in power. The urge to "cut [the agency's] conscience to fit this year's fashions” may be overwhelming at times. It is worth noting that Gib Mullan, head of enforcement at the agency, is signalling more sensitivity to this issue in his recent speeches. This is much appreciated and is a much-needed change. That said, to restore trust and confidence, the agency MUST tie its hands in important ways. The unfettered ability to whack manufacturers however they arbitrarily feel on a given day is too much power for the CPSC and places too much risk on businesses.

The agency received many comments giving this advice. Let's hope they had an open mind as they read the comments.

No comments: