[Federal Register Volume 62, Number 132 (Thursday, July 10, 1997)]
[Notices]
[Pages 37115-37118]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-18065]


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DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration


Civil Penalty Policy Under the Small Business Regulatory 
Enforcement Fairness Act

AGENCY: National Highway Traffic Safety Administration (NHTSA), DOT.

ACTION: Notice of enforcement policy for small entities.

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SUMMARY: This document announces NHTSA's civil penalty policy for small 
entities, as required by the Small Business Regulatory Enforcement 
Fairness Act of 1996.

DATES: This policy statement takes effect July 12, 1997.

FOR FURTHER INFORMATION CONTACT: Taylor Vinson, Office of Chief 
Counsel, NHTSA, Room 5219, 400 Seventh St. S.W., Washington, D.C. 20590 
(tel. 202-366-5263).

SUPPLEMENTARY INFORMATION:

Background

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA or the Act) was enacted on March 29, 1996 (Pub. L. 104-121, 5 
U.S.C. Sec. 601 note). One of the purposes of the Act is to provide 
``small entities with a meaningful opportunity for redress of excessive 
enforcement activities.'' (Section 203(7)).
    Subtitle B of the Act, entitled REGULATORY ENFORCEMENT REFORMS, 
specifically Section 223, Rights of small entities in enforcement 
actions, addresses how this statutory goal is to be accomplished. For 
purposes of Subtitle B, a ``small entity'' has ``the same meaning as in 
section 601 of title 5, United States Code''; in turn, 5 U.S.C. 
Sec. 601.6 states that a ``small entity'' has the same meaning as 
``small business concern'' under section three of the Small Business 
Act. As explained in that Act (15 U.S.C. Sec. 632), a ``small business 
concern'' is one that is independently owned and operated and not 
dominant in its field of operation. The Small Business Administration 
(SBA) has adopted additional criteria that include the concern's number 
of employees or the dollar volume of its business. 13 CFR Part 121, 
Small business size standards. Section 121.201 specifically identifies 
as ``small entities'' manufacturers of motor vehicles, passenger car 
bodies, and motor homes that employ 1,000 people or less, and 
manufacturers of motor vehicle parts and accessories that employ 750 
people or less. See 61 FR 3280 (January 31, 1996).

[[Page 37116]]

    Under the previous version of SBA's regulation (13 CFR 
Sec. 121.601, as in effect before March 1, 1996), ``Major Group No. 
37'' also specifically covered manufacturers of truck and bus bodies, 
truck trailers, travel trailers and campers, motorcycles and parts, and 
classified the manufacturers of these vehicles as ``small entities'' if 
they employed not more than 500 persons. Although these manufacturers 
are no longer identified by their products in new section 121.201, they 
are encompassed in the general specification that manufacturing 
entities, unless otherwise excepted (i.e., those with up to 750 or 1000 
employees), are small businesses if they employ no more than 500 
persons. Revised section 121.201 also considers as ``small entities'' 
dealers in new and used motor vehicles whose annual receipts do not 
exceed $21,000,000; dealers in used vehicles whose annual receipts do 
not exceed $17,000,000; and automobile dealers not otherwise classified 
whose annual receipts do not exceed $5,000,000. 61 FR 3292.
    Section 223(a) of the SBREFA requires NHTSA, as an agency 
regulating small entities, to establish a policy ``to provide for the 
reduction, and under appropriate circumstances for the waiver, of civil 
penalties for violations of a statutory or regulatory requirement by a 
small entity.'' The Act allows NHTSA, ``under appropriate 
circumstances'', to ``consider ability to pay in determining penalty 
assessments on small entities.''
    Section 223(b) requires every agency's small entity civil penalty 
policy to contain conditions and exclusions. These may include, but are 
not limited to, the following:

    (1) Requiring the small entity to correct the violation within a 
reasonable correction period;
    (2) Limiting the applicability to violations discovered through 
participation by the small entity in a compliance assistance or 
audit program operated or supported by the agency or a State;
    (3) Excluding small entities that have been subject to multiple 
enforcement actions by the agency;
    (4) Excluding violations involving willful or criminal conduct;
    (5) Excluding violations that pose serious health, safety or 
environmental threats; and
    (6) Requiring a good faith effort to comply with the law.

Section 223(b), Public Law. 104-121.

Civil Penalties Under Statutes Enforced by NHTSA

    NHTSA's primary civil penalty enforcement actions arise under 49 
U.S.C. Chapter 301--MOTOR VEHICLE SAFETY (formerly known as Title I of 
the National Traffic and Motor Vehicle Safety Act of 1966, 
incorporating the Imported Vehicle Safety Compliance Act of 1988). 
Under Chapter 301, a violator is liable for a civil penalty of up to 
$1,100 for each violation, up to a maximum of $880,000 for a continuing 
series of violations (These amounts recently were raised from $1,000 
and $800,000, respectively, pursuant to the Federal Civil Monetary 
Penalty Act of 1990 (P. L. 101-410), as amended by the Debt Collection 
Improvement Act of 1996, (P. L. 104-134). See 62 FR 5167).
    Liability for a civil penalty is authorized for violations of ``any 
of sections 30112, 30115, 30117-30122, 30123(d), 30125(c), 30127, 
30141-30147, or 30166 of [title 49] or a regulation prescribed under 
any of those sections. * * *'' 49 U.S.C. 30165(a). These include the 
manufacture, sale, introduction into interstate commerce, or 
importation into the United States of motor vehicles and motor vehicle 
equipment that fail to conform to all applicable Federal motor vehicle 
safety standards (Section 30112(a)), or whose certification of 
compliance is false and misleading in a material respect (Section 
30115). In addition, violations occur upon failure to provide 
notification of safety-related defects or noncompliances within a 
reasonable time and to conduct remedial campaigns, as well as upon 
making required safety equipment inoperative (Sections 30117-30122), 
failure to comply with regrooved tire regulations (Section 30123(d)), 
failure of a manufacturer to test-drive a school bus before 
introduction in commerce when required to do so by regulation (Section 
30125(c), failure to comply with requirements for automatic occupant 
crash protection and seat belt use (Section 30127), failure to comply 
with the importation conformance and documentation requirements 
(Sections 30141-30147), and failure to keep required records or make 
required reports to NHTSA (Section 30166).
    When a violation occurs, the statute provides that ``[i]n 
determining the amount of a civil penalty or compromise, the 
appropriateness of the penalty or compromise to the size of the 
business of the person charged and the gravity of the violation shall 
be considered.'' 49 U.S.C. Sec. 30165(c).
    Historically, NHTSA has reached civil penalty settlements with 
companies that violated Chapter 301 which would be termed ``small 
entities.'' These penalties have ranged over the years from $250 to 
$10,000 for small entities, and represent amounts well below the 
statutory maximum.
    NHTSA has also collected penalties for violations of 49 U.S.C. 
Chapter 327--ODOMETERS. Under Chapter 327, a violator is liable for a 
civil penalty of up to $2,200 for each violation, to a maximum of 
$110,000 for a related series of violations (also recently increased 
from $2,000 and $100,000 respectively. 62 FR 5167.)
    Civil penalties under this provision may be incurred for tampering 
with odometers and for failing to provide a prescribed mileage 
disclosure statement at the time a vehicle is transferred. To date, all 
known violators who have been subjected to civil penalties under 
Chapter 327, with one possible exception, have been ``small entities.'' 
The penalties imposed have ranged from $250 to $32,500, with most of 
them $1,000 or less.
    Finally, NHTSA collects civil penalties for violations of 49 U.S.C. 
Chapter 329--AUTOMOBILE FUEL ECONOMY. Under Chapter 329, a manufacturer 
is subject to civil penalties for failure to meet the Corporate Average 
Fuel Economy (CAFE) requirements in effect for each model year. These 
penalties are calculated according to a statutory formula. As the 
prescribed penalty formula is based upon the total number of vehicles 
manufactured in a given model year, the resulting penalty is often 
small for small manufacturers. Some past CAFE violators appear to have 
been small entities, such as Sun International, which paid a penalty of 
$45; Vector Aeromotive Corporation, which paid three separate penalties 
of $1,740, $1,740 and $870; Panoz Auto Development Corporation 
($3,080); Autokraft, Ltd. ($2,590); and Consulier Industries, Inc. 
($150). However, NHTSA's authority under the CAFE legislation to 
compromise or remit a civil penalty for violation of a CAFE standard is 
extremely limited. Under 49 U.S.C. Sec. 32913(a), such a penalty may be 
reduced only to the extent ``(1) necessary to prevent the insolvency or 
bankruptcy of the manufacturer of automobiles; (2) the manufacturer 
shows that the violation was caused by an act of God, a strike, or a 
fire; or (3) the Federal Trade Commission certifies under subsection 
(b)(1) of [section 32913] that a reduction in the penalty is necessary 
to prevent a substantial lessening of competition.'' These provisions 
also could afford a measure of relief to small manufacturers.

NHTSA'S Existing Civil Penalty Policy

    NHTSA has had an unwritten policy in force for some years with 
respect to civil penalties against small entities. This policy 
originated in the statutory directive in the Vehicle Safety Act that, 
in determining the amount of a civil

[[Page 37117]]

penalty or compromise, NHTSA must consider ``the appropriateness of the 
penalty or compromise to the size of the business charged * * * '', 
(now codified at 49 U.S.C. Sec. 30165(c)). When NHTSA's Office of Chief 
Counsel considers appropriate civil penalty action, it tries to 
determine the size of the manufacturer or other violator, often on the 
basis of the violator's position within its particular industry. If the 
number of employees and/or the amount of gross sales in the previous 
year are known, this information is also considered. When the Chief 
Counsel asks a violator to show cause why a penalty should not be 
imposed, the violator is informed of the statutory provision and asked 
to address the size of its business in its response.
    Chapter 301 affords a defense of reasonable care to a violator of 
Section 30112(a). 49 U.S.C. Sec. 30112(b)(2)(A). When the agency 
concludes that a manufacturer has a ``reasonable care'' defense, no 
penalty is imposed. If a violator is unable to establish that it 
exercised ``reasonable care'' in its response to the show cause letter, 
the Chief Counsel proposes a penalty figure that appears appropriate 
under the circumstances. In addition to the size of the business, the 
agency must also consider ``the gravity of the violation'' in setting 
this figure (49 U.S.C. Sec. 30165(c)). The violator is then informed by 
a settlement letter that the proposed amount appears appropriate under 
the circumstances and that NHTSA would be willing to accept this sum to 
settle the matter if the violator wishes to offer it in compromise. In 
setting the suggested amount, the Chief Counsel attempts to be 
realistic about the financial capabilities of individual violators. 
While most violators accept the agency's proposed terms, NHTSA 
occasionally has accepted the offer of a smaller sum, or permitted 
payment of the sum originally suggested in installments to accommodate 
the financial needs of the violator.
    Although NHTSA's past policy has not provided expressly for the 
reduction or waiver of civil penalties for small businesses, in 
practice NHTSA believes that it has been sensitive to the finances of 
small entities, and that its enforcement policy meets the intent of the 
Small Business Regulatory Enforcement Fairness Act. However, to more 
fully implement this new legislation, effective immediately, NHTSA will 
modify its policy by including in its civil penalty settlement letters 
a statement that informs violators who may be small entities of the 
definition of ``small entity.'' Upon a showing by a violator that it is 
a small entity, NHTSA will make appropriate adjustments to the 
suggested settlement amount, except for violations of CAFE standards, 
where NHTSA does not suggest a settlement but informs the violator of 
the penalties calculated under the statutory formula.
    From time to time, a violator has made the argument to NHTSA that 
no penalties should be imposed because it is in compliance with other 
NHTSA standards and regulations. NHTSA has discounted this argument in 
civil penalty deliberations on the grounds that a person should not be 
rewarded for doing what it is legally obligated to do. NHTSA sees no 
justification for modifying this policy.

Exclusions From the Enforcement Policy

    As discussed above, the SBREFA legislation sets forth six 
categories which may form the basis of exclusion from the small 
business enforcement policy, and permits the establishment of 
additional such categories as well. Each of the six statutory 
categories is discussed below, in the context of both past and future 
policy. In addition, this policy will not apply to civil penalties 
imposed under 49 U.S.C. Sec. 32921(b) (failure to comply with fuel 
economy standards), due to the statutory limitations set out in 49 
U.S.C. Sec. 32913(a).
    (1) Requiring the small entity to correct the violation within a 
reasonable correction period:
    On a numerical basis, by far the greatest number of violations of 
Chapter 301 involve the manufacture and sale of noncomplying vehicles. 
These faults are required to be corrected ``within a reasonable time.'' 
49 U.S.C. 30120(c)(1). Failure to repair a motor vehicle adequately not 
later than 60 days after its presentation for repair ``is prima facie 
evidence of failure to repair within a reasonable time.'' 49 U.S.C. 
30120(c)(2). Thus, a manufacturer is required by statute to correct a 
violation within a reasonable period. Therefore, NHTSA cannot say to a 
small entity that it will not impose a penalty if the noncompliance is 
corrected within a reasonable time, since this would reward conduct 
that is already required.
    Historically, the penalties that NHTSA imposes under Chapter 301 
are almost always those for violations that the agency uncovers in the 
course of its testing and investigations. There have been two 
situations in which the agency has regularly chosen not to impose 
penalties for violations. The first is the case in which a 
manufacturer, independently of a NHTSA investigation, makes its own 
determination that it has failed to comply with a safety standard or 
regulation or has identified a safety related defect, and reports it to 
the agency in a timely manner. The reason for this policy is to 
encourage manufacturers to make their own determinations and file their 
own reports without the fear that they will be penalized for the 
violations.
    The second situation in which NHTSA generally does not impose 
penalties is the case in which the agency has decided that a 
noncompliance is inconsequential to safety, and the manufacturer is 
therefore exempted from the statutory obligation to notify and remedy 
(see 49 U.S.C. Secs. 30118, 30120). This waiver of the agency's right 
to impose a penalty is based upon the de minimis aspect of the 
violation.
    NHTSA has a longstanding policy of considering the facts that a 
company, large or small, has been diligent in determining the existence 
of a noncompliance or safety related defect and reporting it to the 
agency, and has remedied it in a timely manner, as mitigating factors 
in deciding whether to seek civil penalties from violators. In response 
to the SBREFA, NHTSA will initiate a policy under which it will waive 
penalties when a noncompliance is determined to exist following a test 
failure in the product of a first offender small business, provided 
that the violation is not a knowing one, and that the manufacturer 
formally notifies the agency that it has made a noncompliance 
determination by the deadline for its response to OVSC's initial letter 
regarding the test failure.
    (2) Limiting the applicability to violations discovered through 
participation by the small entity in a compliance assistance or audit 
program operated or supported by the agency or a State:
    NHTSA has no compliance assistance or voluntary audit programs, 
either by itself or in conjunction with a state. Thus, it will not 
limit its policy to such situations.
    (3) Excluding small entities that have been subject to multiple 
enforcement actions by the agency:
    It has been NHTSA's practice to sharply increase penalties for 
repeated violations of the same standard or regulation, whether the 
violator is large or small. NHTSA plans to continue this practice.
    (4) Excluding violations involving willful or criminal conduct:
    NHTSA is unsure how ``criminal conduct'' could result in a 
``civil'' penalty and not a criminal one. With the exception of the 
odometer legislation,

[[Page 37118]]

violations of NHTSA statutes are not defined as criminal offenses. The 
odometer legislation does prescribe criminal penalties for knowing and 
willful violations of its requirements, and civil penalties for other 
violations.
    However, NHTSA agrees with the apparent idea behind this exclusion, 
i.e., that enforcement relief should not be extended to small entities 
that willfully violate the law. In fact, a violator may not be found to 
have exercised reasonable care when it knows that its products failed 
to comply with an applicable Federal motor vehicle safety standard. In 
the agency's opinion, a company that acts, knowing that it is violating 
the law, is acting willfully, as that term is used in the SBREFA.
    (5) Excluding violations that pose serious health, safety or 
environmental threats:
    As stated above, 49 U.S.C. Sec. 30165(c) already requires NHTSA to 
consider the ``gravity of the violation'' in compromising civil 
penalties. The agency will continue its present policy of doing so. 
Excluding violations that pose serious safety threats from a mitigation 
policy appropriately reflects current agency practice.
    (6) Requiring a good faith effort to comply with the law:
    The 1996 SBREFA legislation contemplates as a matter of policy that 
penalties may be waived or reduced against small entities that have 
made a good faith effort to comply with the law. This policy, in 
essence, is already in effect for violations of 49 U.S.C. Sec. 30112. 
If a violator can demonstrate that it had no reason to know in the 
exercise of reasonable care that the motor vehicle or item of equipment 
involved failed to conform, the violator will be held not to have 
violated Section 30112. 49 U.S.C. Sec. 30112(b)(2)(A). Where there is 
no violation, no penalty can be imposed.

    Authority: Sec. 223(a), Pub. L. 104-121.

    Issued on: July 3, 1997.
Kenneth N. Weinstein,
Associate Administrator for Safety Assurance.
[FR Doc. 97-18065 Filed 7-9-97; 8:45 am]
BILLING CODE 4910-59-P