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Monday July 07, 2014

Why Are Section 15 Reports Decreasing?

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Data released by the CPSC indicates that Section 15(b) reports were substantially lower in Fiscal Year (“FY”) 2013 as compared with the previous two years. Plus, voluntary recalls also dropped in FY2013. What is going on here?




Under Section 15(b) of the Consumer Product Safety Act, companies are obligated to report to the Consumer Product Safety Commission (CPSC) if they have a reasonable basis to conclude that a substantial product hazard may exist. The vast majority of recalls supervised by the CPSC originate from those Section 15(b) reports.


The Numbers


Charts presented by the CPSC at the February 2014 annual meeting of the International Consumer Product Safety and Compliance Organization (ICPHSO) summarized recalls and Section 15 reports of potential substantial product hazards for the last few fiscal years. (The relevant charts are here and a complete set of the slides are here). While voluntary Section 15 reports had been at or near the level of 500 reports a year from FY2010 to 2012, they dropped by almost 200 – over 40% – in FY2013. Moreover, the reduction in reports was solely confined to those reports which resulted in a recall (e.g., a corrective action plan (or “CAP”) or a determination of probable hazard by the staff). Those reports dropped by almost two thirds, from 297 to 103.


It can take several months to negotiate and initiate a recall once the initial notice has been filed, so recalls initiated in one fiscal year cannot be correlated with notices in that year. However, since recalls largely originate from voluntary notices from companies, if notices resulting in recalls have substantially decreased, it would be reasonable to expect that the numbers of recalls would also decrease. They did. Recalls dropped in FY2013 from the previous average of 443 to 373 – a reduction of 16%.


Why the Changes?


Now, you are free to quibble with my calculations. I am no statistician, as my former Six Sigma instructors will readily agree. And, I do not have all of the numbers in the possession of the CPSC. However, these are the numbers that the CPSC chose to present, and the changes are significant. Why did the number of reports that resulted in recalls decrease so dramatically, while the notices that did not result in recalls stay the same?


The CPSC’s guidelines encourage companies to file Section 15 reports even if they do not think that a recall is necessary. 16 CFR §1115.4. “When in doubt, report” is the constant refrain from CPSC officials, past and present. These reports are useful to educate the CPSC staff regarding product issues that companies are investigating but (in the view of the company and ultimately the CPSC staff) do not rise to the level of a recall. According to the CPSC’s charts, these reports stayed at the level of 200 per year in FY 2012 and FY2013.


OK, so companies are sending in the same number of these provisional, “FYI” reports as they have in previous years. But why did the numbers of reports which did result in a recall decline so significantly in FY2013?


Frankly, the CPSC is, shall we say, less welcoming than it used to be to companies with acknowledged product safety issues. For example:

  • Commissioner Adler dissented from at $425,000 penalty against Hewlett Packard in early 2012, saying it was not high enough given the company’s size
  • Former Chairman Tenenbaum and Commissioner Adler commented in their approval of a civil penalty against children’s product company Kolcraft in early 2013 that the company had “too many” recalls (12 in 24 years)
  • All civil penalty agreements now contain vague requirements for product safety “compliance programs” which can create new violations if not complied with in the future
  • The CPSC proposed, and then retracted under strong pressure from regulated companies, a proposal to routinely release notices of CPSC “investigations” against companies who simply submitted Section 15 reports
  • Proposed guidelines for voluntary recall notices contain new provisions regarding compliance programs and legal obligations to follow the letter of corrective action plans, as well as eliminating the ability of a company to disclaim any substantial hazard unless the Staff agrees
  • All Section 15 notices are now investigated for late reporting penalties, and lawyers drive the discussions, not the compliance staff
  • The staff took the completely unprecedented step of seeking to impose personal liability against a company officer for the costs of a product recall in the Buckyballs. case

The developments listed above show that the “CPSC costs” of doing recalls have gone up. More companies appear willing to take the risk of a penalty for late or non-reporting for marginal safety issues over the second-guessing and punitive treatment that are now routine for companies that turn themselves in and volunteer to conduct recalls.


What Will the Future Hold?


Every experienced CPSC lawyer will tell you that ignoring a safety issue and hoping it will go away is not a responsible compliance strategy. However, it is an expectable response by companies to the CPSC’s current aggressive posture. Most consumer product recalls are the result of voluntary notices from companies. And, since the number of Section 15 reports has gone down, so have the number of recalls. A more punitive CPSC may have the completely unintended but entirely predictable effect of reducing the numbers of product recalls.


Like it or not, the CPSC relies on the good will of companies to drive the recall process. Perhaps proposed new chairman Elliot Kaye will step back and consider modifications to the compliance posture of the CPSC that may better serve the ultimate goal of consumer product safety that all of us share.


Lee Bishop is principal at Lee L. Bishop Law Offices. He provides legal counsel and representation on product safety compliance and risk avoidance. His practice includes not only the management of recalls and representation of clients before the Consumer Product Safety Commission (CPSC), but also the design of internal business processes to avoid recalls and the training and oversight to ensure they are working properly. Lee’s perspective is from the viewpoint of a business, not a regulator – for 16 years he was the product safety lawyer for General Electric. Contact him at (502) 882-2387,