For years, a handful of companies that manufactured products consumers told them were dangerous seemingly violated the federal consumer safety rules as a business decision. They had a decision to make: quickly report the problem (as the law requires) and repair or replace hundreds of thousands of products in inventory, or sell out the product line before agreeing to a recall and risk paying the ensuing penalty.
The more calculating of the lot chose the later -- allowing untold numbers of children and adults to be injured by withholding information they knew and were required to disclose: that their products were dangerous. With the U.S. Consumer Product Safety Commission wielding a somewhat blunted sword by only being able to fine up to $1.8 million, those firms didn't have a lot to fear.
Safety experts said those companies simply considered the penalty the price of doing business. It became far more profitable to sell out the product first and deal with the consequences later. That's because such a small percentage of consumers respond to recalls and the penalties have been small enough that larger companies, in particular, could absorb the costs.
That equation is about to change. Starting Aug. 15, the CPSC will have a larger, sharper sword to swing. The maximum penalty the commission can assess will rise from $1.8 to $15 million, and officials hope that will be enough to get more companies to routinely and speedily report potential problems.
"It's to have a deterrent effect," CPSC spokesman Scott Wolfson said.
And newly sworn-in Chairman Inez Tenenbaum has signaled her intent to get tough with companies that choose to ignore very well-known rules about reporting product defects and dangers.
Wolfson urged companies to adopt a policy of reporting to the CPSC at the first hint a product could pose a risk even if there's a doubt that a recall is necessary. It is more prudent, he said, to let the CPSC determine what if any additional action should be taken.
"We get more reports every year than there are recalls," Wolfson said.
Take the first steps to building your portfolio.View Course »