Product Defects and Whether to Report Them

By Cindy Skrzycki

The Consumer Product Safety Commission has proposed new factors for determining when manufacturers have to report defective products to the agency. Some industry groups have pushed for and welcome the changes, while one commissioner and some consumer groups warn that the result may be less reporting of safety hazards.

The proposal would allow companies to take into account factors such as whether they complied with voluntary and mandatory safety standards and whether the product poses less risk because it is old and not being sold or used much anymore.

"This is a modest, but useful, attempt to provide guidance to the regulated community . . . on whether to report to the commission," said Charles A. Samuels , general counsel to the Association of Home Appliance Manufacturers .

"This will result in less information being relayed to the commission, and that's bad for consumers," countered Rachel Weintraub , director of product safety for the Consumer Federation of America .

The home-appliance and toy industries have been lobbying the CPSC since 2004 to spell out just which factors count in determining whether a product is unsafe and a candidate for a recall.

John " Gib " Mullan , the agency's director of compliance, said the purpose of the proposal "is to try to demystify the current rule." Mullan said it's ambiguous because it directs manufacturers, retailers and distributors to report to the CPSC when they can "reasonably support" that a product is defective.

Consumer groups complain that the main changes were proposed by industry groups and that they might have the effect of shifting blame for mishaps to consumers from manufacturers.

Companies are obligated to tell the agency immediately if they suspect a problem with a product, particularly if it poses the risk of serious injury or death. Most recalls are "voluntary" agreements, but the agency sometimes presses companies to make recalls and has the last word when it comes to imposing penalties.

Last year, the CPSC was responsible for some 400 recalls. About 27 percent of them were toy-related, and 7.5 percent were appliance recalls.

The agency assessed its largest civil penalty last year -- $4 million against Graco Children's Products Inc. for failing to report safety incidents, injuries and a fatality related to its products. The agency also has a new program for retailers to report defective products.

The calculations for determining defects now include factoring in the nature of the risk of injury, how the product will be used, who is exposed to the risk, case law and the commission's judgment.

The proposal adds four criteria: the obviousness of the risk, the adequacy of warnings from the manufacturer and instructions, consumer misuse of the product, and whether misuse was predictable.

The proposal also revises how the CPSC would calculate whether a product is defective, an important threshold determination that can lead to a recall or fines for late reporting.

Almost immediately, Thomas H. Moore , the sole Democratic member of the three-member commission, and consumer groups criticized the proposal as a sop to the industry and a weakening of the current hazard-reporting system.

They said the law setting up the agency was intended to encourage reporting of defects and to protect consumers regardless of the age of the product, warning labels or a company's compliance with a voluntary standard.

"A defect, by its very nature, results in an unintended consequence, and, therefore there would not likely be warnings or instructions to mitigate the risk with regard to it," Moore said in a statement when the proposal was published.

"The Commission was created to protect consumers, sometimes even from what might be viewed as an obvious risk and, with regard to children, sometimes even from the inattentiveness of their own parents," he said.

The push for change began in 2004, when the appliance group and the toy manufacturers sent the agency recommendations on how to change the system.

The Toy Industry Association said the regulations were vague, "and this invites the CPSC staff to second-guess a company's decision about both what is a reportable risk and when the obligation to report arises."

The appliance makers also sent a letter, saying they sought "a reporting, corrective action and penalties regime which is predictable, fair and effective." It added that "a fair system means that the emphasis will be on real safety issues and not 20/20 hindsight of what somebody might have done."

The appliance makers suggested the commission give credit for compliance with voluntary standards, how consumers used -- or misused -- the product, the age of the product and the adequacy of warnings and instructions -- suggestions adopted in the proposal.

Samuels, the appliance trade group's attorney, said the proposal would not lead to a decrease in defect reporting. "Warnings and instructions may be relevant but not the whole story. These are not exemptions," he said.

The consumer federation and Consumers Union said they will oppose finalizing the proposal. Comments are due June 26.

Donald Mays , Consumers Union senior director of product safety, said standards and warnings often don't offer adequate protection to consumers.

For example, he said, portable heaters come with warnings, but they still might leak carbon monoxide. "You can't sticker over a safety problem with a warning."

Alan Schoem , a former top CPSC compliance official who advises companies on following agency rules, said he is skeptical of the proposal.

"So what if a product is old? If it's injuring people, you have a reporting obligation," he said. "And if there is misuse and it's reasonably foreseeable, then you have to take that into account in designing the product."

The CPSC's Mullan said companies that take liberties with their reporting obligations may end up being penalized. "We second-guess manufacturers' reporting decisions all the time. If a company gets it wrong, they do so at their own peril."