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[Federal Register: March 31, 2010 (Volume 75, Number 61)]
[Rules and Regulations]               
[Page 15993-16000]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31mr10-3]                         

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CONSUMER PRODUCT SAFETY COMMISSION

16 CFR Part 1119

 
Civil Penalty Factors

AGENCY: Consumer Product Safety Commission.

ACTION: Final interpretative rule.

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SUMMARY: The Consumer Product Safety Improvement Act of 2008 
(``CPSIA'') requires the Consumer Product Safety Commission 
(``Commission'') to issue a final rule providing its interpretation of 
the civil penalty factors found in the Consumer Product Safety Act 
(``CPSA''), the Federal Hazardous Substances Act (``FHSA''), and the 
Flammable Fabrics Act (``FFA''), as amended by section 217 of the 
CPSIA. These statutory provisions require the Commission to consider 
certain factors in determining the amount of any civil penalty to seek. 
The Commission published an interim final rule on September 1, 2009, 
providing its interpretation of the statutory factors and seeking 
public comment. The Commission is now issuing a final rule interpreting 
the statutory factors.

DATES: This rule is effective March 31, 2010.

FOR FURTHER INFORMATION CONTACT: Melissa V. Hampshire, Assistant 
General Counsel, Division of Enforcement and Information, Office of the 
General Counsel, Consumer Product Safety Commission, 4330 East-West 
Highway, Bethesda, Maryland 20814, telephone: 301-504-7631, e-mail: 
mhampshire@cpsc.gov.

SUPPLEMENTARY INFORMATION:

A. Background

    The CPSIA specified that the Commission, by August 14, 2009, issue 
a final regulation providing its interpretation of civil penalty 
factors in section 20(b) of the CPSA, section 5(c)(3) of the FHSA, and 
section 5(e)(2) of the FFA.\1\ The Commission issued an

[[Page 15994]]

interim final rule providing its interpretation on September 1, 2009, 
and sought public comment. As a result of the comments received and 
review of the interim final rule, certain information and terms are 
clarified in this final rule. This rule interprets the factors in 
section 20(b) of the CPSA, section 5(c)(3) of the FHSA and section 
5(e)(2) of the FFA, and describes other factors the Commission may 
consider in determining the amount of a civil penalty to be sought for 
knowing violations of section 19 of the CPSA, section 4 of the FHSA, 
and section 5 of the FFA. The statutory factors the Commission is 
required to consider in determining the amount of a civil penalty to 
seek are the following: The nature, circumstances, extent and gravity 
of the violation, including the nature of the product defect or of the 
substance, the severity of the risk of injury, the occurrence or 
absence of injury, the number of defective products distributed or the 
amount of substance distributed, the appropriateness of the penalty in 
relation to the size of the business of the person charged, including 
how to mitigate undue adverse economic impacts on small businesses, and 
such other factors as appropriate.
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    \1\ The Commission voted 4-1 to approve the Final Rule as 
amended. Chairman Tenenbaum, Commissioner Nord, Commissioner Adler, 
and Moore voted to approve the final rule as amended. Chairman 
Tenenbaum, Commissioner Moore and Adler issued a joint statement. 
Commissioners Nord and Northup each issued statements. All 
statements are available at http://www.cpsc.gov/pr/statements.html.
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    The statutory factors the Commission is required to consider in 
determining the amount of a civil penalty to seek are the same factors 
identified in section 20(c) of the CPSA, section 5(c)(4) of the FHSA, 
and section 5(e)(3) of the FFA for determining whether a civil penalty 
may be compromised by the Commission. These statutory provisions 
instruct the Commission to consider the following factors in 
determining the amount of a compromised penalty, whether it should be 
remitted or mitigated by the Commission, and, in what amount: The 
nature, circumstances, extent and gravity of the violation, including 
the nature of the product defect,\2\ the severity of the risk of 
injury, the occurrence or absence of injury, the number of defective 
products distributed,\3\ the appropriateness of such penalty in 
relation to the size of the business of the person charged, including 
how to mitigate undue adverse economic impacts on small businesses, and 
such other factors as appropriate. The Commission will apply its 
interpretation to these statutory terms in determining whether and in 
what amounts any penalties may be compromised.
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    \2\ This factor applies only to the CPSA. The FHSA factor is 
``the nature of the substance.'' The FFA has no comparable separate 
factor apart from the nature, circumstances, extent, and gravity of 
the violation.
    \3\ The FHSA factor is the ``amount of the substance.''
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    As set forth in section 217(a)(4) of the CPSIA, new penalty amounts 
specified in section 217(a) of the CPSIA became effective on August 14, 
2009 (one year after the date of enactment of the CPSIA). Under the 
amendments, the maximum penalty amounts increase from $8,000 to 
$100,000 for each knowing violation under the CPSA, FHSA, and FFA. 
Maximum penalty amounts for any related series of violations increase 
from $1,825,000 to $15,000,000.

B. Prior Proposal on Civil Penalty Factors

    On July 12, 2006, the Commission published a proposed 
interpretative rule (71 FR 39248) that identified additional factors to 
be considered in assessing and compromising civil penalties under 
sections 20(b) and (c) of the CPSA. The comment period closed August 
11, 2006. The Commission received four comments.

C. CPSIA Requirements

    The enactment of the CPSIA superseded the proposed rule by 
requiring that the Commission provide its interpretation of the 
enumerated statutory factors under section 20(b) of the CPSA, section 
5(c)(3) of the FHSA, and section 5(e)(2) of the FFA. The CPSIA also 
indicated that under the CPSA, FHSA, and FFA, the Commission should 
consider the nature, circumstances, extent, and gravity of the 
violation in determining the appropriate penalty amount. The statute 
provides examples of elements that should go into that consideration. 
The CPSIA modified the factor of appropriateness of the penalty in 
relation to the size of the business of the person charged by requiring 
that this factor include a consideration of how to mitigate undue 
adverse economic impacts on small businesses. This small business 
analysis element was added to the CPSA and FHSA but not added to the 
FFA factor. The Commission will consider the undue adverse economic 
impacts on small businesses as another appropriate factor under the 
FFA. The CPSIA also added to the CPSA, FHSA, and FFA a new catch-all 
statutory factor ``other factors as appropriate.'' The effect of the 
CPSIA amendments was noted in the Fall 2008 Current Regulatory Plan and 
the Unified Agenda (RIN: 3041-AC40) by stating that the proposed July 
2006 rule would be withdrawn. In the Federal Register of August 26, 
2009 (74 FR 43084), the Commission withdrew the July 12, 2006, notice 
of proposed rulemaking (71 FR 39248).
    On November 18, 2008, the Commission staff posted a notice on the 
Commission Web site inviting comment on information the Commission 
should address in considering the amended statutory factors under the 
CPSA, FHSA, and FFA. The Commission staff also invited comment on what 
other factors are appropriate to consider in penalty determinations 
including: (1) A previous record of compliance; (2) timeliness of 
response; (3) safety and compliance monitoring; (4) cooperation and 
good faith; (5) economic gain from noncompliance; (6) product failure 
rate; and (7) what information the Commission should consider in 
determining how to mitigate the adverse economic impact of a particular 
penalty on a small business. The Commission staff also invited comment 
on whether it should develop a formula or matrix for weighing any or 
all of the various factors and what criteria it should use in any 
weighting formula or matrix. The Commission received 16 comments in 
response to the 2008 Web site notice and considered the comments in 
issuing the interim final rule.
    On September 1, 2009, the Commission published an interim final 
interpretative rule setting forth the Commission's interpretation of 
the statutory factors under the CPSA, FHSA, and FFA, for seeking and 
compromising civil penalties. The Commission sought comments on the 
interim final rule. The Commission received 10 comments in response to 
the September 1, 2009 notice. Some commenters responded on behalf of 
their trade or industry associations.

D. Statutory Discussion

1. What Are the Requirements for Imposition of Civil Penalties?

    The determination of the amount of any civil penalty to seek and/or 
compromise should allow for maximum flexibility within an identified 
framework. The CPSIA requirement for the Commission to interpret the 
civil penalty factors gives transparency to the regulated community 
about the framework the Commission will use to guide its penalty 
calculations in the enforcement process and may provide incentives for 
greater compliance. The changes made by various CPSIA provisions to the 
CPSA, FHSA, and FFA, including those to the CPSA's prohibited acts and 
the addition of new prohibited acts, present the regulated community 
with many new compliance challenges and responsibilities.

[[Page 15995]]

    Any proposed civil penalty determination is based first on a 
violation of a prohibited act under the CPSA, FHSA, or FFA. Civil 
penalties may then be sought against any person who ``knowingly 
violates'' section 19 of the CPSA, section 4 of the FHSA, or a 
regulation or standard under section 4 of the FFA. The term 
``knowingly'' is defined in section 20(d) of the CPSA, 15 U.S.C. 
2069(d), section 5(c)(5) of the FHSA, 15 U.S.C. 1264(c)(5), and section 
5(e)(1) of the FFA, 15 U.S.C. 1194(e)(1), to mean the having of actual 
knowledge or the presumed having of knowledge deemed to be possessed by 
a ``reasonable man'' who acts in the circumstances, including knowledge 
obtainable upon the exercise of due care to ascertain the truth of 
representations. Since its enactment in 1973, the CPSA always contained 
a civil penalty provision; however, until 1990, the FHSA and FFA did 
not contain comparable provisions for civil penalties. Under the FFA, 
the Commission had to seek civil penalties under the Federal Trade 
Commission Act, using the authorities under that act. The FHSA had no 
civil penalty provision. The Consumer Product Safety Improvement Act of 
1990, Public Law 101-608, 104 Stat. 3110, November 16, 1990, amended 
section 5 of the FHSA and section 5 of the FFA giving the Commission 
authority to seek civil penalties for knowing violations of those acts. 
If a penalty settlement cannot be negotiated between the Commission and 
a person, the Commission may seek an action in Federal court to obtain 
a penalty. See, Advance Machine Co. v. Consumer Product Safety 
Commission, 666 F.2d 1166 (8th Cir. 1981); Athlone Industries, Inc. v. 
Consumer Product Safety Commission, 707 F.2d 1485 (DC Cir. 1983).

2. How Do the CPSIA Amendments to the CPSA's Prohibited Acts Affect 
Civil Penalties?

    In the past, the majority of civil penalties for prohibited acts 
were imposed either for a knowing failure to furnish information 
required by section 15(b) of the CPSA, or for regulatory violations 
under the CPSA, FHSA, or FFA. The interim final rule described how the 
CPSIA amended these three statutes to strengthen the Commission's 
enforcement ability and allow for more uniform enforcement under the 
CPSA.
    The new amendments expand the acts prohibited under the CPSA and 
give the Commission the ability to enforce violations of the FHSA, FFA, 
and other acts enforced by the Commission as prohibited acts under the 
CPSA. Thus, the amended CPSA now prohibits the sale, offer for sale, 
distribution in commerce, or importation into the United States of any 
consumer product, or other product or substance that is regulated under 
the CPSA or any other act enforced by the Commission, that is not in 
conformity with an applicable consumer product safety rule under the 
CPSA, or any similar rule, regulation, standard, or ban under any other 
act enforced by the Commission. 15 U.S.C. 2068(a)(1).
    The CPSA, as amended, adds a new prohibited act for the sale, 
manufacture, distribution, or importation of products subject to a 
voluntary corrective action taken by the manufacturer, in consultation 
with the Commission, and publicly announced by the Commission, or if 
the seller, distributor, or manufacturer knew or should have known of 
such voluntary corrective action. 15 U.S.C. 2068(a)(2)(B).
    The CPSA, as amended, broadens the prohibited act for the sale, 
offer for sale, manufacture for sale, or distribution or importation of 
any consumer product or other product or substance subject to a section 
15 mandatory recall order to include products subject to a section 12 
order. A section 15 order is imposed in an adjudicative proceeding to 
declare a product a ``substantial product hazard'' under section 15 of 
the CPSA, 15 U.S.C. 2064. A section 12 order, which may include a 
mandatory order requiring notification to purchasers, and repair, 
replacement, or refund, is one imposed by a District Court after an 
``imminent hazard'' proceeding under section 12 of the CPSA, 15 U.S.C. 
2061.
    The amended prohibited acts section of the CPSA is also broadened 
to include the sale, offer for sale, manufacture for sale, distribution 
in commerce, or importation into the United States of a banned 
hazardous substance under the FHSA as an act prohibited under the CPSA. 
15 U.S.C. 2068(a)(2)(D).
    The prohibited act in section 19(a)(6) of the CPSA relating to 
certification under section 14 of the CPSA is newly expanded to make 
the failure to furnish a certificate required by any other act enforced 
by the Commission a prohibited act under the CPSA. This prohibited act 
now also references a new tracking label requirement of CPSA section 
14(a)(5) by specifying that the failure to comply with any requirement 
of section 14 includes the failure to comply with the requirement for 
tracking labels or any rule or regulation promulgated under section 14.
    The CPSA statutory language has also been expanded to include a new 
prohibited act for the sale, offer for sale, distribution in commerce, 
or importation into the United States of any consumer product 
containing an unauthorized third-party certification mark. 15 U.S.C. 
2068(a)(12).
    Any misrepresentation to Commission officers or employees about the 
scope of consumer products subject to recall or material 
misrepresentation in the course of an investigation under any act 
enforced by the Commission also is a new prohibited act under the CPSA. 
15 U.S.C. 2068(a)(13).
    In addition, the CPSA now contains a new prohibited act for the 
exercise or attempt to exercise undue influence on a third-party 
conformity assessment body that tests products for compliance under 
laws administered by the Commission. 15 U.S.C. 2068(a)(14).
    The CPSIA adds to the Commission's export prohibition authority 
section 19(a)(15) of the CPSA, making it illegal to export from the 
United States for purposes of sale any consumer product or other 
product or substance (other than the export of a product or substance 
permitted by the Secretary of the Treasury under section 17(e) of the 
CPSA) that is subject to court- or Commission-ordered recall or that is 
banned under the FHSA or subject to a voluntary recall announced by the 
Commission. 15 U.S.C. 2068(a)(15).
    The CPSIA also adds a new prohibited act that makes it illegal to 
violate a Commission order issued under new section 18(c) of the CPSA, 
which allows the Commission to prohibit export for sale of any consumer 
product not in conformity with an applicable consumer product safety 
rule. 15 U.S.C. 2068(a)(16).

E. Discussion and Response to Comments on the Interim Final Rule

    The comments that the Commission received on the Interim Final Rule 
and the Commission's responses are discussed in this section of the 
preamble.

1. Should Penalties Involving Actual Knowledge Be Higher Than Those 
Involving Presumed Knowledge?

    Some commenters stated that the Commission should reserve seeking 
the highest penalties only for those violations involving actual 
knowledge where death or serious injury is likely. The commenters 
suggested that penalties involving presumed knowledge and circumstances 
where no injury or only minor injury occurred should result in lower or 
no penalties. Some commenters also suggested that technical violations 
should not involve a penalty at all. These commenters sought 
clarification of these concepts in the rule.

[[Page 15996]]

    The CPSA, FHSA, and FFA define ``knowingly'' as the having of 
actual knowledge, or the presumed having of knowledge deemed to be 
possessed by a ``reasonable man'' who acts in the circumstances, 
including knowledge obtainable upon the exercise of due care to 
ascertain the truth of representations. Thus, the knowledge 
requirements in the CPSA, FHSA, and FFA include presumed knowledge, as 
well as actual knowledge. Only in section 20(a)(2) is a distinction 
made and this limits the civil penalty liability of certain persons 
without actual knowledge to those who are not the manufacturer, private 
labeler or distributor of the products involved. Aside from this 
limitation, actual and presumed knowledge are treated equally under the 
statutes, and both could have the same consequence for civil penalty 
liability. Thus, the Commission declines to follow the commenters' 
suggestion to seek a higher penalty only where there is evidence of 
actual knowledge and serious injury or death, or a lower or no penalty 
where there is evidence of presumed knowledge. To follow the 
commenters' position would treat the ``presumed knowledge'' element 
differently than it is treated in the statute. However, the presence or 
absence of actual knowledge could reflect on a person's culpability and 
affect the size of the penalty. Moreover, the adoption of the 
distinction sought by the commenters would be a formulaic approach to 
penalty determinations. Almost all the commenters opposed the idea that 
the Commission adopt such a formulaic approach. However, the Commission 
has attempted to further clarify in the final rule its guidance about 
what factors may influence the Commission's determination under the 
various statutory and other factors. Importantly, in an individual 
case, the Commission would review the facts and circumstances 
surrounding the violations and the proposed assessment of penalties in 
light of the factors and framework described in the rule. Specific 
comments relating to each factor are discussed below. The CPSIA has 
greatly expanded the number of prohibited acts. Accordingly the 
Commission intends to use its civil penalty authority in a manner best 
designed to promote the underlying goals of the CPSA--specifically that 
of protecting the public against unreasonable risks of injury 
associated with consumer products. In so doing, the Commission may 
reserve the highest civil penalty for more serious or extensive 
violations.

2. In the Final Rule, How Does the Commission Interpret the Civil 
Penalty Factors?

Section 1119.1--Purpose
    Section 1119.1 describes the purpose of new Part 1119 ``Civil 
Penalty Factors,'' explaining that it is the Commission's 
interpretation of the statutory civil penalty factors set forth in the 
Consumer Product Safety Act (15 U.S.C. 2051-2089), the Federal 
Hazardous Substances Act (15 U.S.C. 1261-1278), and the Flammable 
Fabrics Act (15 U.S.C. 1191-1204). The Commission has revised the 
interim final rule's text in the final rule to add clarification on the 
underlying goals and policies of civil penalties.
Section 1119.2--Applicability
    Section 1119.2 explains that the part applies to all civil penalty 
determinations that the Commission proposes to seek or compromise for 
knowing violations of the CPSA, the FHSA, or the FFA.
Section 1119.3--Definitions
    Section 1119.3 defines certain terms used in the rule. The 
Commission has revised the definition of the term ``product defect'' 
from that in the interim final rule. The term is defined in the final 
rule to have the same meaning as the term ``defect'' referenced in the 
CPSA and the Commission's definition of ``defect'' at 16 CFR 1115.4. 
The term ``violator'' has been revised to reflect the statutory 
terminology that any ``person'' is subject to civil penalties. As noted 
in the rule, ``person'' includes any legally responsible party who 
committed a knowing violation of the CPSA, FHSA or FFA. The rule 
explains that the definitions apply for purposes of the rule.
Section 1119.4(a)(2)--Nature, Circumstances, Extent, and Gravity of the 
Violation
    The Commission believes that this factor allows the Commission to 
consider the totality of the circumstances surrounding a violation 
while recognizing that depending upon the case, the significance and 
importance of each factor may vary. The Commission also believes that 
this particular factor allows for consideration of the seriousness and 
extent of a particular violation that may not otherwise be considered 
with respect to the other enumerated statutory factors. Therefore, in 
each case, the Commission will continue to look at the enumerated 
statutory factors, as well as other factors (described in section 
1119.4(b) below) that the Commission may determine are appropriate, and 
consider all of the factors in determining the civil penalty amount.
Section 1119.4(a)(3)--Nature of the Product Defect
    The interim final rule indicated that the Commission would 
consider, under this provision, where appropriate and applicable in 
each particular case, the nature of the hazard presented by the product 
for which a penalty is sought. The Commission construed this factor as 
applying broadly to products or substances that may in fact contain a 
defect which could create a substantial product hazard (as defined and 
explained in 16 CFR 1115.4), to products which present a hazard because 
of a violation of a rule, regulation, standard, or ban under the CPSA, 
FHSA, and FFA, as well as to any other violation and how the nature of 
those violations relate to the underlying products or substances.
    A number of commenters addressed the definition of ``product 
defect'' in section 1119.3 of the interim final rule as overly broad 
and unnecessarily expansive and inconsistent with the Commission's 
interpretation of defect as used in 16 CFR 1115.4. The commenters 
pointed out that defining ``product defect'' beyond the definition in 
section 1115.4 as a product or substance ``associated with a prohibited 
act'' had no basis in the statutory language of the CPSA and that the 
definition should be clarified to refer only to the Commission's 
definition in 16 CFR 1115.4.
    The Commission agrees that the definition of ``product defect'' in 
the interim final rule should be revised. The Commission agrees that 
certain CPSA violations may not involve a ``product defect'' or a 
``defective product.'' For example, failure to supply a required 
General Conformity Certification that a product complies with an 
applicable consumer product safety rule may not necessarily involve a 
product defect or a defective product. Thus, ``product defect'' may not 
be a relevant consideration in such a circumstance. Therefore, the 
Commission has revised the final rule to clarify that where ``product 
defect'' or ``defective product'' does not apply, in such 
circumstances, the other statutory factors will be considered.
Section 1119.4(a)(4)--Severity of the Risk of Injury
    Several commenters noted that penalties should not be sought for 
violations where the products presented risks of minor or moderate 
injury.

[[Page 15997]]

    The Commission declines to follow this suggestion. However, the 
Commission notes that minor or moderate injury is considered as a 
factor in the determination of the overall penalty. The Commission 
refers to the discussion of 16 CFR 1115.12 which specifies that 
severity of the risk includes a consideration of the likelihood of an 
injury occurring, the intended or reasonably foreseeable use or misuse 
of the product, and the population group exposed. The Commission 
retains these references in the final rule. The Commission also notes 
that the interim final rule has been modified in the final rule to 
further clarify that the Commission will consider ``illness'' along 
with injury and death as a consideration under this factor. The 
Commission believes that consideration of illness is consistent with 
the statutory direction which defines a ``risk of injury'' in section 
3(a)(14) of the CPSA to mean a risk of death, personal injury, or 
serious or frequent illness.
Section 1119.4(a)(5)--The Occurrence or Absence of Injury
    The Commission received several comments suggesting that it should 
not seek a penalty where the information the Commission evaluates 
reveals that the violation involved no injury or only minor injuries 
have occurred.
    The Commission declines to follow this suggestion because a 
violative product, a product about which a person did not report as 
required, or another type of violation, may present a serious risk to 
consumers even though no injuries have occurred. However, the final 
rule is further clarified to state that the Commission would consider 
under this factor whether illnesses or deaths have occurred, in 
addition to considering whether injuries have or have not occurred. The 
rule is further clarified to explain that this consideration will also 
involve the number and nature of such injuries, illnesses, or deaths. 
Finally, the Commission has pointed out that both acute and the 
likelihood for chronic illness will be considered.
Section 1119.4(a)(6)--The Number of Defective Products Distributed
    The Commission is required to consider the number of defective 
products or amount of substances distributed in commerce. The 
Commission recognizes, as some commenters pointed out, that the number 
of defective products in consumers' hands may be different from the 
number of defective products distributed. However, the statutory 
language makes no distinction between those defective products 
distributed in commerce that consumers received, and those defective 
products distributed in commerce that consumers have not received. 
Therefore both could be considered in appropriate cases. With respect 
to the number of defective products or amount of substances involved in 
a recall, the Commission clarifies in the rule that the Commission does 
not intend to penalize a person's decision to conduct a wider-than-
necessary recall undertaken out of an abundance of caution. This would 
not include situations where such a recall is conducted due to a 
person's uncertainty concerning how many or which products may need to 
be recalled.
Section 1119.4(a)(7)--The Appropriateness of Such Penalty in Relation 
to the Size of the Business of the Person Charged, Including How To 
Mitigate Undue Adverse Economic Impacts on Small Businesses
    The Commission is required to consider the size of a business in 
relation to the amount of the penalty. This factor reflects the 
relationship between the size of the business of the person charged and 
the deterrent effect of, and other policies underlying, civil 
penalties. In considering business ``size,'' the Commission may look to 
several factors including but not limited to the number of employees, 
net worth, and annual sales. The Commission may be guided, where 
appropriate, by any relevant financial factors to help determine a 
person's ability to pay a penalty including but not limited to:
     Liquidity factors--factors that help measure a person's 
ability to pay its short-term obligations;
     Solvency factors--factors that help measure a person's 
ability to pay its long-term obligations; and
     Profitability factors-- factors that measure a person's 
level of return on investment.
    The Commission is aware that penalties may have adverse economic 
consequences on persons, including small businesses. The statute 
requires the Commission to consider how to mitigate the adverse 
economic consequences on small businesses only if those consequences 
would be ``undue.'' What the Commission considers in determining what 
is ``undue'' may include, but is not limited to, the business's size 
and financial factors relating to its ability to pay. The interim final 
rule is modified in the final rule to explain that the burden to 
present clear, reliable, relevant, and sufficient evidence relating to 
a business's size and ability to pay rests on the business. When 
considering how to mitigate undue adverse economic consequences, the 
Commission will, as appropriate, follow its Small Business Enforcement 
Policy set forth at 16 CFR 1020.5. In determining a small business's 
ability to pay a proposed penalty, the Commission may be guided, where 
appropriate, by the financial factors set forth above. The Commission 
recognizes that on occasion its announced civil penalty amounts do not 
seem to reflect the seriousness of the violations due to the 
Commission's mitigation of the amount of the penalty based on ability 
to pay. While the Commission, unlike certain other federal agencies, 
has never publicized the amount it would have sought absent the 
mitigation, it acknowledges that it has that authority and may exercise 
that authority in appropriate circumstances.
Section 1119.4(b)--Other Factors as Appropriate
    Some commenters suggested that the Commission should identify other 
factors that will be considered in penalty determinations. The factors 
the commenters suggested included previous record of compliance, good 
faith, efforts taken to respond to the violations, duration of the 
violations, and compliance with mandatory and/or voluntary standards. 
The Commission has determined that some of these factors would already 
be evaluated in the context of the enumerated statutory factors to 
consider, such as the nature, circumstances, extent, and gravity of the 
violation. Therefore, it is not necessary to separately enumerate these 
factors.
    Congress clarified in the CPSIA that the Commission has the ability 
to consider factors in addition to the ones enumerated in the act in 
individual cases, as appropriate. However, the Commission retains the 
concept from the interim final rule in the final rule that in any 
penalty matter the Commission and the person are free to raise any 
other factors they believe are relevant in determining an appropriate 
civil penalty amount. Factors not identified below could therefore be 
raised in a penalty matter. The Commission has determined that the 
factors listed below should remain with changes and other 
clarifications as noted:
     Safety/Compliance Program and/or System Relating to a 
Violation: The Commission listed a number of factors relating to 
consideration of a safety/compliance program or system in the interim 
final rule. The Commission received comments seeking further definition 
of a safety or compliance program. The rule is intended to

[[Page 15998]]

provide examples of information that a person should consider, but not 
to provide one particular model of a program or system. The Commission 
intends to allow flexibility for the regulated community. However, the 
Commission has modified the final rule from the interim final rule in 
two important respects. First, the rule now makes explicit that the 
burden to present clear, reliable, relevant, and sufficient evidence of 
any such program and its relevance is on the person seeking 
consideration of this factor. Second, the rule makes explicit that any 
such program being asserted as relevant to a penalty matter must 
specifically relate to the violation or violations at issue and must be 
reasonable and effective. The Commission recognizes that the mere fact 
of a violation does not necessarily render a program ineffective.
     History of Noncompliance: Some commenters sought greater 
clarification on this factor and stated that the Commission should 
consider a history of compliance as well as noncompliance. The 
Commission declines to add ``compliance'' in the final rule because the 
factor by its nature is intended to address repeat violators. However, 
the Commission clarifies in the final rule that repeat violations of 
the same law or regulation, or prior violations of a different law or 
regulation enforced by the Commission, as well as the number of such 
violations, will be considerations.
     Economic Gain from Noncompliance: Some comments suggested 
that the Commission consider this factor after consideration of the 
statutory factors in determining a penalty amount. The Commission 
agrees that economic gain may be a consideration that should be 
factored in, where appropriate, with other factors.
     Failure to respond in a timely and complete fashion to the 
Commission's requests for information or remedial action: The 
Commission received a number of comments suggesting that this factor as 
written implied that a person may be penalized for exercising their 
legal rights to disagree and seek counsel on the Commission's requests 
for information or remedial action. The Commission agrees that a person 
has the legal right to decline to respond or act voluntarily and the 
legal right to seek advice on information and remedial action requests 
from the Commission and, therefore, is clarifying that it did not 
intend to impede such rights. This factor was intended to address 
egregious and dilatory tactics in response to the Commission's written 
requests for information or remedial action but not to impede any 
person's lawful rights. The rule is clarified to reflect this 
consideration.

Which additional factors the Commission considers in determining an 
appropriate penalty amount, including, but not limited to, those listed 
above, will be unique to each case.
    A person will be notified of any factors beyond those enumerated in 
the statutes that the Commission relies on as aggravating factors for 
purposes of determining a civil penalty amount.
Section 1119.5--Enforcement Notification
    Section 1119.5 of the rule sets forth a notification provision 
whereby, if it is believed that a person has violated the law and a 
penalty is sought, the person will be so advised. This provision has 
been informally followed by the Commission in determining the amount of 
a civil penalty to seek or compromise for knowing violations. The 
Commission has provided further clarification of this process in the 
rule.

F. Immediate Effective Date

    The Commission issued an interim final rule, in accordance with the 
procedures set forth at 5 U.S.C. 553 of the Administrative Procedure 
Act, on September 1, 2009, providing its interpretation of the penalty 
factors in section 20(b) of the CPSA, section 5(c)(3) of the FHSA, and 
section 5(e)(2) of the FFA. Maximum civil penalty amounts have 
increased for violations that occurred on or after August 14, 2009. 
This final rule is effective upon publication. The rule is 
interpretative and does not impose obligations on regulated parties 
beyond those imposed by the CPSA, FHSA, and FFA. Therefore, there is no 
need to provide a delayed effective date in order to allow for 
regulated parties to prepare for the rule.

G. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-612, directs 
agencies to consider the potential impact of regulations on small 
business and other small entities. However, the RFA does not apply to 
rulemaking that is not subject to the notice and comment requirement of 
the Administrative Procedure Act, 5 U.S.C. 553. Interpretative rules, 
such as the one issued by this notice, are not subject to the notice 
and comment requirement. Accordingly, neither an initial nor a final 
regulatory flexibility analysis is required for this rule.

H. Paperwork Reduction Act

    The rule does not impose any information collection requirements. 
Rather, it describes the statutory civil penalty factors and how the 
Commission interprets those factors. Accordingly, it is not subject to 
the Paperwork Reduction Act, 44 U.S.C. 3501-3520.

I. Environmental Considerations

    The Commission's regulations at 16 CFR 1021.5(a) provide that there 
are no CPSC actions that ordinarily produce significant environmental 
effects. The rule does not fall within the categories in 16 CFR 
1021.5(b) of CPSC actions that have the potential for producing 
environmental effects. The rule does not have any potential for 
adversely affecting the quality of the human environment. Council of 
Environmental Quality regulations at 40 CFR 1508.18(a) provide that 
agency actions subject to environmental review ``do not include 
bringing judicial or administrative enforcement actions.'' Therefore, 
no environmental assessment or environmental impact statement is 
required.

List of Subjects in 16 CFR Part 1119

    Administrative practice and procedure, Business and Industry, 
Consumer protection, Reporting and recordkeeping requirements.

0
Accordingly, the Commission revises 16 CFR Part 1119 to read as 
follows:

PART 1119--CIVIL PENALTY FACTORS

Sec.
1119.1 Purpose.
1119.2 Applicability.
1119.3 Definitions.
1119.4 Factors considered in determining civil penalties.
1119.5 Enforcement notification.

    Authority:  15 U.S.C. 2058, 2063, 2064, 2067(b), 2068, 2069, 
2076(e), 2084, 1261, 1263, 1264, 1270, 1273, 1278, 1191, 1192, 1193, 
1194, 1195, 1196.


Sec.  1119.1  Purpose.

    This part sets forth the Consumer Product Safety Commission's 
(Commission) interpretation of the statutory factors considered in 
determining the amount of civil penalties that the Commission may seek 
or compromise. The policies behind, and purposes of, civil penalties 
include the following: Deterring violations; providing just punishment; 
promoting respect for the law; promoting full compliance with the law; 
reflecting the seriousness of the violation; and protecting the public.

[[Page 15999]]

Sec.  1119.2  Applicability.

    This part applies to all civil penalty determinations the 
Commission may seek or compromise under the Consumer Product Safety Act 
(CPSA) (15 U.S.C. 2051-2089), the Federal Hazardous Substances Act 
(FHSA) (15 U.S.C. 1261-1278), and the Flammable Fabrics Act (FFA) (15 
U.S.C. 1191-1204). Any person who knowingly violates section 19 of the 
CPSA, section 4 of the FHSA, or section 5(e) of the FFA, is subject to 
a civil penalty.


Sec.  1119.3  Definitions.

    For purposes of this rule, the following definitions apply:
    (a) Product defect means a defect as referenced in the CPSA and 
defined in Commission regulations at 16 CFR 1115.4.
    (b) Violation means a violation committed knowingly, as the term 
``knowingly'' is defined in section 19 of the CPSA, section 4 of the 
FHSA, or section 5 of the FFA.
    (c) Person means any manufacturer (including importer), 
distributor, or retailer, as those terms are defined in the CPSA, FHSA, 
or FFA, and any other legally responsible party.


Sec.  1119.4  Factors considered in determining civil penalties.

    (a) Statutory Factors. (1) Section 20(b) of the CPSA, section 
5(c)(3) of the FHSA, and section 5(e)(2) of the FFA, specify factors 
considered by the Commission in determining the amount of a civil 
penalty to be sought upon commencing an action for knowing violations 
of each act. These factors are:
    (i) CPSA (15 U.S.C. 2069(b)). The nature, circumstances, extent, 
and gravity of the violation, including:
    (A) The nature of the product defect;
    (B) The severity of the risk of injury;
    (C) The occurrence or absence of injury;
    (D) The number of defective products distributed;
    (E) The appropriateness of such penalty in relation to the size of 
the business of the person charged, including how to mitigate undue 
adverse economic impacts on small businesses; and
    (F) Such other factors as appropriate.
    (ii) FHSA (15 U.S.C. 1264 (c)(3)). The nature, circumstances, 
extent, and gravity of the violation, including:
    (A) The nature of the substance;
    (B) Severity of the risk of injury;
    (C) The occurrence or absence of injury;
    (D) The amount of substance distributed;
    (E) The appropriateness of such penalty in relation to the size of 
the business of the person charged, including how to mitigate undue 
adverse economic impacts on small businesses; and
    (F) Such other factors as appropriate.
    (iii) FFA (15 U.S.C. 1194 (e)(2)). The nature, circumstances, 
extent, and gravity of the violations:
    (A) The severity of the risk of injury;
    (B) The occurrence or absence of injury;
    (C) The appropriateness of such penalty in relation to the size of 
the business of the person charged; and
    (D) Such other factors as appropriate.
    (2) The nature, circumstances, extent, and gravity of the 
violation. Under this factor, the Commission will consider the totality 
of the circumstances and all other facts concerning a violation. The 
Commission will consider the enumerated statutory factors, as well as 
the factors described in paragraph (b) of this section.
    (3) Nature of the product defect. The Commission will consider the 
nature of the product defect associated with a CPSA violation. This 
consideration will include, for example, whether the defect arises from 
the product's design, composition, contents, construction, manufacture, 
packaging, warnings, or instructions, and will include consideration of 
conditions or circumstances in which the defect arises. The Commission 
will also consider the nature of the substance associated with an FHSA 
violation. Two of the statutory factors in the CPSA civil penalty 
factors include the terms ``product defect'' or ``defective products.'' 
However, certain violations of the CPSA, for example, failing to supply 
a required certificate that the product complies with an applicable 
consumer product safety rule, do not necessarily require that there be 
a product defect or defective product. The terms ``product defect'' or 
``defective products'' would not apply to such situation. In such 
cases, however, the other civil penalty factors would still be 
considered.
    (4) Severity of the risk of injury. Consistent with its discussion 
of severity of the risk at 16 CFR 1115.12, the Commission will 
consider, among other factors, the potential for serious injury, 
illness, or death (and whether any injury or illness required medical 
treatment including hospitalization or surgery); the likelihood of 
injury; the intended or reasonably foreseeable use or misuse of the 
product; and the population at risk (including vulnerable populations 
such as children, the elderly, or those with disabilities).
    (5) The occurrence or absence of injury. The Commission will 
consider whether injuries, illnesses, or deaths have or have not 
occurred with respect to any product or substance associated with a 
violation, and, if so, the number and nature of injuries, illnesses, or 
deaths. Both acute illnesses and the likelihood of chronic illnesses 
will be considered.
    (6) The number of defective products distributed. The Commission 
will consider the number of defective products or amount of substance 
distributed in commerce. The statutory language makes no distinction 
between those defective products distributed in commerce that consumers 
received and those defective products distributed in commerce that 
consumers have not received. Therefore both could be considered in 
appropriate cases. This factor will not be used to penalize a person's 
decision to conduct a wider-than-necessary recall out of an abundance 
of caution. This would not include situations where such a recall is 
conducted due to a person's uncertainty concerning how many or which 
products may need to be recalled.
    (7) The appropriateness of such penalty in relation to the size of 
the business of the person charged, including how to mitigate undue 
adverse economic impacts on small businesses.
    (i) The Commission is required to consider the size of the business 
of the person charged in relation to the amount of the penalty. This 
factor reflects the relationship between the size of a business and the 
policies behind, and purposes of, a penalty (as noted above in Sec.  
1119.1). In considering business size, the Commission may look to 
several factors including, but not limited to, the number of employees, 
net worth, and annual sales. A business's size and a business's ability 
to pay a penalty are separate considerations. In some cases for small 
businesses, however, these two considerations may relate to each other. 
The Commission will be guided, where appropriate, by relevant financial 
factors to determine a small business's ability to pay a penalty, 
including, but not limited to, liquidity, solvency, and profitability. 
The burden to present clear, reliable, relevant, and sufficient 
evidence relating to a business's size and ability to pay rests on the 
business.
    (ii) The statute requires the Commission to consider how to 
mitigate the adverse economic impacts on small businesses only if those 
impacts would be undue. What the Commission considers in determining 
what is undue may include, but is not limited to, the business's size 
and financial factors relating to its ability to pay. When considering 
how to mitigate undue

[[Page 16000]]

adverse economic impacts, the Commission will, as appropriate, also 
follow its Small Business Enforcement Policy set forth at Sec.  1020.5.
    (b) Other factors as appropriate. In determining the amount of any 
civil penalty to be sought for a violation of the CPSA, FHSA, or FFA, 
the Commission may consider, as appropriate, such other factors in 
addition to those listed in the statutes. Both the Commission and a 
person may raise any factors they believe are relevant in determining 
an appropriate penalty amount. A person will be notified of any factors 
beyond those enumerated in the statutes that the Commission relies on 
as aggravating factors for purposes of determining a civil penalty 
amount. Additional factors that may be considered in a case include, 
but are not limited to, the following:
    (1) Safety/compliance program and/or system relating to a 
violation. The Commission may consider, when a safety/compliance 
program and/or system as established is relevant to a violation, 
whether a person had at the time of the violation a reasonable and 
effective program or system for collecting and analyzing information 
related to safety issues. Examples of such information would include 
incident reports, lawsuits, warranty claims, and safety-related issues 
related to repairs or returns. The Commission may also consider whether 
a person conducted adequate and relevant premarket and production 
testing of the product at issue; had a program in place for continued 
compliance with all relevant mandatory and voluntary safety standards; 
and other factors as the Commission deems appropriate. The burden to 
present clear, reliable, relevant, and sufficient evidence of such 
program, system, or testing rests on the person seeking consideration 
of this factor.
    (2) History of noncompliance. The Commission may consider whether 
or not a person's history of noncompliance with the CPSA, FHSA, FFA, 
and other laws that the CPSC enforces, and the regulations thereunder, 
should increase the amount of the penalty. A person's history of 
noncompliance may be indicated by, for example, multiple violations of 
one or more laws or regulations that the CPSC enforces, including 
repeated violations of the same law or regulation. History of 
noncompliance may include the number of previous violations or how 
recently a previous violation occurred.
    (3) Economic gain from noncompliance. The Commission may consider 
whether a person benefitted economically from a failure to comply, 
including a delay in complying, with the CPSA, FHSA, FFA, and other 
laws that the CPSC enforces, and the regulations thereunder.
    (4) Failure to respond in a timely and complete fashion to the 
Commission's requests for information or remedial action. The 
Commission may consider whether a person's failure to respond in a 
timely and complete fashion to requests from the Commission for 
information or for remedial action should increase a penalty. This 
factor is intended to address a person's dilatory and egregious conduct 
in responding to written requests for information or remedial action 
sought by the Commission, but not to impede any person's lawful rights.


Sec.  1119.5  Enforcement notification.

    A person will be informed in writing if it is believed that the 
person has violated the law and if the Commission intends to seek a 
civil penalty. Any person who receives such a writing will have an 
opportunity to submit evidence and arguments that it should not pay a 
penalty or should not pay a penalty in the amount sought by the 
Commission.

    Dated: March 24, 2010.
Todd A. Stevenson,
Secretary, Consumer Product Safety Commission.
[FR Doc. 2010-6940 Filed 3-30-10; 8:45 am]
BILLING CODE 6355-01-P
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