[Federal Register Volume 74, Number 168 (Tuesday, September 1, 2009)]
[Rules and Regulations]
[Pages 45101-45107]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-20591]


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CONSUMER PRODUCT SAFETY COMMISSION

16 CFR Part 1119


Civil Penalty Factors

AGENCY: Consumer Product Safety Commission.

ACTION: Interim 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. The 
Commission is issuing its interpretation of the statutory factors.

DATES: This rule is effective September 1, 2009. Comments must be 
received October 1, 2009.

ADDRESSES: You may submit comments, identified by Docket No. CPSC-2009-
0068, by any of the following methods:

Electronic Submissions

    Submit electronic comments in the following way:
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments. To ensure timely processing of 
comments, the Commission is no longer accepting comments submitted by 
electronic mail (e-mail) except through http://www.regulations.gov.

Written Submissions

    Submit written comments in the following way:
    Mail/Hand delivery/Courier (for paper, disk, or CD-ROM 
submissions), preferably in five copies, to: Office of the Secretary, 
Consumer Product Safety Commission, Room 502, 4330 East West Highway, 
Bethesda, MD 20814; telephone (301) 504-7923.
    Instructions: All submissions received must include the agency name 
and docket number for this rule. All comments received may be posted 
without change, including any personal identifiers, contact 
information, or other personal information provided, to http://www.regulations.gov. Do not submit confidential business information, 
trade secret information, or other sensitive or protected information 
electronically. Such information should be submitted in writing.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Melissa V. Hampshire, Attorney, 
Division of Enforcement and Information, Office of the General Counsel 
at 301-504-7631, [email protected].

SUPPLEMENTARY INFORMATION: 

A. Background

    The CPSIA specifies that the Commission, by August 14, 2009, must 
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\ 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 evaluating the amount of a civil penalty to be sought for 
knowing violations of the prohibited acts found in 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 nature, circumstances, 
extent and gravity of the violation, including the nature of the 
product defect, the severity of the risk

[[Page 45102]]

of injury, the occurrence or absence of injury, the number of defective 
products 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 3-0-1 to publish this interim final 
rule, with changes, in the Federal Register. Chairman Inez M. 
Tenenbaum and Commissioners Thomas H. Moore and Robert Adler voted 
to publish the notice with changes. Commissioner Anne Northup 
abstained from the voting. Commissioner Nancy Nord voted not to 
approve the publication. Chairman Tenenbaum and Commissioners Moore, 
Northup, and Nord issued statements, and their statements can be 
found at http://www.cpsc.gov/about/cpsia/sect217.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 and whether it should 
be remitted or mitigated by the Commission: 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 take effect on the date that 
is the earlier of the date on which a final rule providing the 
Commission's interpretation of penalty factors is issued or 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 factors identified in the 
proposed rule were in addition to those already required to be 
considered under section 20(b) and (c) of the CPSA in evaluating the 
appropriateness and amount of a civil penalty. The Commission invited 
comment on whether the Commission and staff should consider, as 
appropriate, one or more of the following factors in determining the 
appropriateness and amount of a civil penalty: (1) A firm's previous 
record of compliance with CPSA requirements; (2) timeliness of a firm's 
response to relevant information; (3) safety and compliance monitoring; 
(4) cooperation and good faith; (5) economic gain from any delay or 
noncompliance with CPSC safety or reporting requirements; (6) a 
product's failure rate; and (7) any other pertinent factors. 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'' for consideration. 
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 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 as outlined below:

------------------------------------------------------------------------
    CPSA (15 U.S.C.          FHSA (15 U.S.C.          FFA (15 U.S.C.
        2069(b))               1264(c)(3))              1194(e)(2))
------------------------------------------------------------------------
The nature,              The nature,              The nature,
 circumstances, extent,   circumstances, extent,   circumstances,
 and gravity of the       and gravity of the       extent, and gravity
 violation, including     violation, including     of the violations,
the nature of the        the nature of the        ......................
 product defect,          substance,
the severity of the      the severity of the      the severity of the
 risk of injury,          risk of injury,          risk of injury,
the occurrence or        the occurrence or        the occurrence or
 absence of injury,       absence of injury,       absence of injury,
the number of defective  the amount of substance  ......................
 products distributed,    distributed,
the appropriateness of   the appropriateness of   the appropriateness of
 such penalty in          such penalty in          such penalty in
 relation to the size     relation to the size     relation to the size
 of the business of the   of the business of the   of the business of
 person charged,          person charged,          the person charged,
 including how to         including how to
 mitigate undue adverse   mitigate undue adverse
 economic impacts on      economic impacts on
 small businesses,        small businesses,
and such other factors   and such other factors   and such other factors
 as appropriate           as appropriate           as appropriate
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    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;

[[Page 45103]]

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.

D. 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 prohibited acts and 
the addition of new prohibited acts, present the regulated community 
with many new compliance challenges.
    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 provision. 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 
the prohibited acts under those Acts. If a penalty cannot be 
compromised by the Commission, the Commission will seek to commence 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 (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 CPSIA amended these three statutes to 
strengthen the Commission's enforcement ability and allow for more 
uniform enforcement under the CPSA, where applicable.
    The new amendments expand the acts prohibited under the CPSA and 
give the Commission the ability to enforce violations of the FHSA and 
FFA 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 statute 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 CPSA 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 section 103 of 
the CPSIA 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).
    Misrepresentations to Commission officers or employees about the 
scope of consumer products subject to recall or material 
misrepresentations 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 adds as a new prohibited act, 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 that makes 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 voluntary recall announced by the 
Commission. 15 U.S.C. 2068(a)(15).

[[Page 45104]]

    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).

3. Should Penalties be Sought for Violations that do not Involve 
Evidence of ``Bad Intentions'' or ``Ill Will?''

    Some commenters stated that the Commission should reserve seeking 
penalties only for the most egregious and dangerous situations and that 
most violations do not involve bad intentions or ill will.
    The CPSA defines ``knowingly'' as actual knowledge or presumed 
knowledge based on knowledge attributed to a reasonable person acting 
in the circumstances, including knowledge obtainable upon the exercise 
of due care to ascertain the truth of representation. Since the 
knowledge requirements in the CPSA, FHSA, and FFA include presumed 
knowledge, as well as actual knowledge, the Commission declines to 
follow the commenters' suggestion to seek a penalty only where there is 
evidence of bad intentions or ill will. To follow the commenters' 
position to impose penalties only where there is knowing and willful 
conduct would read the ``presumed knowledge'' element out of the 
``knowing'' definition in the statute.

4. Should the Commission Implement a Matrix or Formula for Computing 
Penalty Amounts?

    All but two commenters rejected the concept of a penalty matrix or 
formula for use in the assessment of civil penalties. Commenters 
opposed to such a matrix or formula highlighted the difficulty of 
applying any formula in a particular circumstance as too rigid an 
approach that would not take into consideration information that might 
be important to consider in one instance of a penalty but not in 
another. One commenter suggested that if the Commission reduced its 
penalty formulation to a matrix it would encourage regulated parties to 
calculate the cost and risk of prohibited conduct and not to follow the 
statutory requirements.
    The Commission declines to follow a formulaic or matrix approach to 
penalty assessment or to otherwise state in the regulation any specific 
circumstances that will warrant a certain penalty amount but has 
instead provided guidance about what factors may influence the 
Commission's determination under the various statutory and other 
enumerated 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. Therefore, the rule does not contain a 
matrix or formula for assigning specified amounts to the various 
factors in this notice. Specific considerations under each factor are 
discussed below.

5. How Does the New Rule Interpret the Civil Penalty Factors?

A. 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), Federal Hazardous 
Substances Act (15 U.S.C. 1261-1278), and the Flammable Fabrics Act (15 
U.S.C. 1191-1204).
B. 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 prohibited acts under the CPSA, the FHSA, or 
the FFA.
C. Section 1119.3--Definitions
    Section 1119.3 defines certain terms used in the rule. For example, 
the term ``product defect'' is broadly defined to cover a product or 
substance associated with a prohibited act under the CPSA, FHSA or FFA 
as well as to include the meaning of defect as referenced in the CPSA 
and the Commission definition of defect at 16 CFR 1115.4. The term 
``violator'' would define any legally responsible party who committed a 
knowing violation of a prohibited act under the CPSA, FHSA or FFA. The 
rule explains that the definitions apply for purposes of this rule.
D. Section 1119.4(a)(2)--Nature, Circumstances, Extent, and Gravity of 
the Violation
    One commenter observed that Congress amended the CPSIA adding this 
general factor in addition to the enumerated statutory factors to 
clarify its intention that the Commission adopt a holistic assessment 
of all relevant information for penalty determinations rather than 
place undue emphasis on one or more specific factors.
    The Commission agrees that this language 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 the 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 
paragraph J below) that the Commission may determine are appropriate, 
and consider all of the factors in determining the civil penalty 
amount.
E. Section 1119.4(a)(3)--Nature of the Product Defect
    The Commission will 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 considers this factor broadly as applying 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 
any other violation of a prohibited act and how the nature of those 
violations relate to the underlying products or substances. Therefore, 
with respect to this factor, a proposed penalty could involve a 
prohibited act violation, such as a reporting failure under section 
15(b) of the CPSA or a failure to comply with any consumer product 
safety rule under the CPSA, or any similar rule, regulation, standard 
or ban under any other act enforced by the Commission. A penalty also 
could involve any other prohibited act, and the Commission may examine 
its relation to the underlying product or substance and the prohibited 
act. Under this factor, the Commission could consider, as appropriate 
and where the business has reported in a timely fashion under section 
15, information about the complexity of identifying a particular 
product hazard.
    Two commenters suggested that the Commission should evaluate 
violations of regulatory standards by distinguishing those that do not 
involve actual risk of harm, but rather the potential risk of harm, 
differently than those that do involve real potential for significant 
injury.
    The Commission declines to accept the suggestion that it 
distinguish any violations of regulatory standards, rule,

[[Page 45105]]

or bans in this manner. The promulgation of a mandatory regulation by 
the Commission, or by Congress when they enact statutory bans and 
standards, carries with it a corresponding determination that the 
standard is necessary to address an unreasonable risk of injury 
presented by the product included within its scope. Violation of such a 
statutory provision or Commission regulation presents a risk to 
consumers that has previously been determined to be addressed by 
compliance with the statute or regulation. If the commenters' 
suggestion were followed, the Commission would be classifying certain 
mandatory standards as more important than others. In addition, the 
comment does not account for the fact that the Commission can seek 
penalties for other prohibited act violations (in addition to knowing 
violations of mandatory rules, standards or bans).
F. Section 1119.4(a)(4)--Severity of the Risk of Injury
    The Commission is to be guided by its discussion of the severity of 
the risk at 16 CFR 1115.12, as appropriate, in evaluating a particular 
penalty.
    One commenter noted that penalties should not be assessed for risks 
of minor or moderate injury.
    The Commission declines to follow this suggestion. However, the 
rule indicates that the Commission may, in addition to considering 
information about injury potential and the seriousness of the potential 
injuries, consider the likelihood of injury occurring. In assessing the 
severity of the risk, the Commission may also consider the intended or 
reasonably foreseeable use or misuse of the product, and the population 
group exposed to the risk (e.g. children, elderly, handicapped.)
G. 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 product 
may present a serious risk to consumers due to a failure to comply with 
a mandatory standard or other prohibited act even though no actual 
injuries have occurred. Therefore, the Commission states in the rule 
that it would consider under this factor whether injuries have or have 
not occurred.
H. Section 1119.4(a)(6)--The Number of Defective Products Distributed
    Under this provision, the Commission is required to consider the 
actual number of defective products or amount of substances distributed 
in commerce. The Commission recognizes, as some commenters pointed out, 
that the actual number of defective products in consumers' hands may be 
different than the number of defective products distributed. However, 
the statutory language makes no distinction between those defective 
products that consumers receive and those defective products 
distributed in commerce. Therefore, the Commission chooses not to make 
any such distinction in any evaluation of information under this 
factor. The rule reflects this consideration.
I. 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 proposed penalty. This factor reflects 
the relationship between the size of the business of the person charged 
and the deterrent effect of civil penalties. In considering business 
``size,'' the Commission may look to several factors, including the 
firm's number of employees, net worth, and annual sales. The Commission 
may be guided, where appropriate, by any relevant financial factors to 
help determine a violator's ability to pay a proposed penalty 
including:
     Liquidity factors--factors that help measure a violator's 
ability to pay its short-term obligations;
     Solvency factors--factors that help measure a violator's 
ability to pay its long-term obligations; and
     Profitability factors--factors that measure a violator's 
level of return on investment
    The Commission is aware that penalties may have adverse economic 
consequences on violators, including small business violators. The 
statute requires the Commission to consider how to mitigate the adverse 
economic consequences on small business violators only if those 
consequences would be ``undue.'' What the Commission considers to be 
``undue'' will vary based upon the violator's business size and 
financial condition as well as the nature, circumstances, extent and 
gravity of the violation(s). When considering how to mitigate undue 
adverse economic consequences, the Commission may also follow its Small 
Business Enforcement Policy set forth at 16 CFR 1020.5. In determining 
a small business violator's ability to pay a proposed penalty, the 
Commission may be guided, where appropriate, by the financial factors 
set forth above.
J. Section 1119.4(b)--Other Factors as Appropriate
    Congress clarified in the CPSIA that the Commission does have the 
ability to consider factors in addition to the ones enumerated in the 
Act in individual cases, as appropriate. Both the Commission and the 
violator are free to raise any other factors they believe are relevant 
in determining an appropriate civil penalty amount. Additional factors 
which may be considered in an individual case include, but are not 
limited to, the following:
     Safety/Compliance Program and/or System: The Commission 
may consider, for example, whether a violator had at the time of the 
violation, a reasonable program/or system for collecting and analyzing 
information related to safety issues, including incident reports, 
lawsuits, warranty claims, and safety-related issues related to repairs 
or returns; and whether a violator conducted adequate and relevant 
premarket and production testing of the product(s) at issue.
     History of Noncompliance: The Commission may consider if 
the violator has a history of noncompliance with the CPSC and whether a 
higher penalty should be assessed for repeated noncompliance.
     Economic Gain from Noncompliance: The Commission may 
consider whether a firm benefitted economically from a delay in 
complying with statutory and regulatory requirements.
     Failure of the violator to respond in a timely and 
complete fashion to the Commission's requests for information or 
remedial action: The Commission may consider whether a violator's 
failure to respond in a timely and complete fashion to requests for 
information or for remedial action should increase the amount of the 
penalty.
    Which, if any, 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. In all civil penalty 
matters, any additional factors beyond those enumerated in the statute 
that the Commission takes into consideration for purposes of 
determining an appropriate civil penalty amount will be made known to 
and discussed with the violator.

[[Page 45106]]

M. Section 1119.5--Enforcement Notification
    Section 1119.5 of the rule sets forth a notification provision that 
has been informally followed by the Commission in determining the 
amount of a civil penalty to seek or compromise for knowing violations 
of the prohibited acts.

E. Immediate Effective Date

    The Commission must issue a final rule, in accordance with the 
procedures set forth at 5 U.S.C. 553 of the Administrative Procedure 
Act, by August 14, 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 are 
increasing on August 14, 2009. Therefore, the Commission proposes that 
any final rule resulting from this rulemaking become 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.

F. 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.

G. 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.

H. 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 state 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 amends title 16 of the Code of Federal 
Regulations by adding a new 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 the Commission may seek or 
compromise.


Sec.  1119.2  Applicability.

    Application. 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 a prohibited act 
set forth in 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 product or substance that is associated 
with a prohibited act under the CPSA, FHSA, or FFA, including the 
meaning of defect as referenced in the CPSA and defined in Commission 
regulations at 16 CFR 1115.4. Where applicable and where the term 
``number of defective products distributed'' is used it shall include 
``amount of substance distributed'' for purposes of violations under 
the FHSA.
    (b) Violation means a knowing violation, as defined in the CPSA, 
FHSA, or FFA of any prohibited act found in section 19 of the CPSA, 
section 4 of the FHSA, or section 5 of the FFA.
    (c) Violator means any manufacturer, importer, distributor or 
retailer or any other legally responsible party who committed a knowing 
violation of a prohibited act under the CPSA, FHSA, or FFA and is thus 
subject to penalties.


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 the prohibited acts section 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.

[[Page 45107]]

    (2) The nature, circumstances, extent and gravity of the violation. 
Under this factor, the Commission will consider the totality of the 
circumstances surrounding a violation, including how many provisions of 
law were violated. The Commission will continue to look at the 
enumerated statutory factors, as well as other factors (as described in 
paragraph (b) of this section) that the Commission may determine are 
appropriate, and consider all of the factors in determining the civil 
penalty amount.
    (3) Nature of the product defect. The Commission will consider the 
nature of the product hazard/substance for which a penalty is sought. A 
product defect under this factor includes violations for products that 
contain defects which could create substantial product hazards as 
referenced in the CPSA and defined and explained in 16 CFR 1115.4; 
regulatory violations of a rule, regulation, standard or ban; or 
product hazards presented by any other violation of the prohibited acts 
of section 19 of the CPSA.
    (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 or 
death (and whether any injury required actual 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 have or have not occurred with respect to any 
product associated with the violation.
    (6) The number of defective products distributed. The Commission 
will consider the actual number of products or amount of substances 
imported or placed in the stream of commerce to distributors, 
retailers, and consumers.
    (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 a business in relation to the amount 
of the proposed penalty. This factor reflects the relationship between 
the size of the business of the person charged and the deterrent effect 
of civil penalties. In considering business ``size,'' the Commission 
may look to several factors including the firm's number of employees, 
net worth, and annual sales. The Commission may be guided, where 
appropriate, by any relevant financial factors to help determine a 
violator's ability to pay a proposed penalty including: liquidity 
factors; solvency factors; and profitability factors.
    (ii) The statute requires the Commission to consider how to 
mitigate the adverse economic impacts on small business violators only 
if those impacts would be ``undue.'' What the Commission considers to 
be ``undue'' will vary based upon the violator's business size and 
financial condition as well as the nature, circumstances, extent and 
gravity of the violation(s). When considering how to mitigate undue 
adverse economic consequences, the Commission may also follow its Small 
Business Enforcement Policy set forth at 16 CFR 1020.5.
    (b) Other factors as appropriate. In determining the amount of any 
civil penalty to be pursued when a knowing violation of the prohibited 
acts section of the CPSA, FHSA, or FFA has occurred, the Commission may 
consider, where appropriate, other factors in addition to those listed 
in the statutes. Both the Commission and the violator are free to raise 
any other factors they believe are relevant in determining an 
appropriate penalty amount. Which, if any, 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. In all civil penalty matters, any additional factors beyond those 
enumerated in the statute that the Commission takes into consideration 
for purposes of determining an appropriate civil penalty amount will be 
made known to and discussed with the violator. Additional factors which 
may be considered in an individual case include, but are not limited 
to, the following:
    (1) Safety/Compliance Program and/or System: The Commission may 
consider, for example, whether a violator had at the time of the 
violation, a reasonable program/or system for collecting and analyzing 
information related to safety issues, including incident reports, 
lawsuits, warranty claims, and safety-related issues related to repairs 
or returns; and whether a violator conducted adequate and relevant 
premarket and production testing of the product(s) at issue.
    (2) History of noncompliance: The Commission may consider if the 
violator has a history of noncompliance with the CPSC and whether a 
higher penalty should be assessed for repeated noncompliance.
    (3) Economic Gain from Noncompliance: The Commission may consider 
whether a firm benefitted economically from a delay in complying with 
statutory and regulatory requirements.
    (4) Failure of the violator to respond in a timely and complete 
fashion to the Commission's requests for information or remedial 
action: The Commission may consider whether a violator's failure to 
respond in a timely and complete fashion to requests from the 
Commission for information or for remedial action should increase the 
amount of the penalty.


Sec.  1119.5  Enforcement notification.

    A potential violator will be informed in writing that the 
Commission believes it is subject to a possible civil penalty. The 
violator will be able to submit evidence and arguments that it is not 
subject to such a penalty.

    Dated: August 19, 2009.
Alberta E. Mills,
Acting Secretary, Consumer Product Safety Commission.
[FR Doc. E9-20591 Filed 8-31-09; 8:45 am]
BILLING CODE 6355-01-P