Extracted from Law360
One year ago this month, the House Energy and Commerce Committee released a scathing review of the National Highway Traffic and Safety Administration’s handling of high-profile automotive product recalls. After months of meetings, hearings and briefings and 2 million pages of documents (including more than 17,000 documents subpoenaed directly from the NHTSA), the Upton Report, as it is now widely known, settled on a rather terse conclusion: “NHTSA — the federal regulator responsible for motor vehicle safety — is an agency struggling to keep pace with the industry it is responsible for overseeing.”[1] The report painfully and publicly portrays the NHTSA as an “agency [that] does not hold itself to the same standard of accountability as those it regulates.”[2]
If this criticism sounds vaguely familiar, that is because the NHTSA is part of a long line of federal regulatory agencies — the U.S. Occupational Safety and Health Administration, U.S. Food and Drug Administration, U.S. Environmental Protection Agency and U.S. Department of Health and Human Services, to name a few — to be criticized by Congress in the wake of a public crisis.[3] However, the NHTSA’s current tug of war with Congress and the resulting rise in penalties and direct agency intrusions into private industry very closely resemble that of the Consumer Product Safety Commission nearly a decade ago.
Before passing the Consumer Product Safety Improvement Act in 2008, Congress made a very public example out of the world’s largest toy manufacturer for failing to report (and timely remediate) various unsafe contaminants in children’s toys. Congress also pointed the finger at the CPSC, a powerful but mostly benign consumer regulatory and oversight agency at the time. As a result of congressional and public scrutiny (as reflected in the CPSIA), the CPSC quickly and dramatically became a bureaucratic force for any company that manufactured, sold or imported consumer products under the agency’s jurisdiction. Since 2008, the CPSC has increased both the amount and number of fines it has levied, and recently the agency has taken a much more direct and active role in enforcing consumer product recalls.[4]
Congress and the NHTSA are following a parallel path with automotive safety that has invigorated yet another federal agency that regulates an industry representing anywhere from 3 to 3.5 percent of U.S. gross domestic product.[5] The NHTSA issued more fines and penalties in 2014 alone than in its prior 43-year history combined. Of the $126 million in civil penalties imposed last year, three of the fines were set at the $35 million cap established by Congress. The NHTSA has already issued two $35 million fines in 2015.[6] However, even beyond the amount of fines being imposed, the agency is imposing fines on automakers for conduct that took place over 20 years ago. The most recent maximum fines were issued for untimely responses to a series of recalls on vehicles that were manufactured from 1993 to 2007.[7] The NHTSA’s oversight and penalty trajectory (on a relative basis) has already far outpaced that of the CPSC.
Unlike the CPSC, which is a stand-alone agency, the NHTSA has come under fire from its federal parent agency — the U.S. Department of Transportation. In June 2015, the DOT’s inspector general released a 42-page report detailing the NHTSA’s significant failures in overseeing auto safety issues.[8] Congressional leaders agreed with this report and issued a press release stating, “[NHTSA] can do better, and indeed we believe they must do better.”[9] The NHTSA responded quickly by singling out major auto manufacturer Fiat Chrysler Automobiles NV and bringing public focus on this company’s response to prior safety recalls. At a DOT hearing in July 2015, the NHTSA presented evidence against FCA regarding its poor execution of 23 safety recalls that covered more than 11 million defective vehicles.[10] Specifically, the agency criticized the automaker for its slow completion rates on recalls, inadequate notifications to consumers, faulty approaches to fixing vehicle safety issues and failure to address improper actions by dealers. For example, in 2013 nearly 1.5 million Jeep Cherokees were recalled because the placement of the fuel tank allegedly could cause fires during rear-end collisions. FCA determined that a simple trailer hitch could be installed to fix this problem, but as of April 2015 it had only installed hitches on about 320,000 of the 1.5 million recalled Jeeps.
Ultimately, such delays led the NHTSA to impose a record $105 million fine on FCA. The automaker was also required to buy back the nearly 500,000 vehicles it has recalled for defective suspension parts that could cause drivers to lose control and to offer Jeep Cherokee owners the opportunity to trade in their vehicles for above-market value compensation. While the penalties were mostly financial, the NHTSA indicated that it would hire an independent monitor to assess, track and report FCA’s recall practices over the next three years. The NHTSA instructed FCA to spend at least $20 million to meet certain “performance requirements” (plus an additional $15 million if the independent monitor discovers further violations). To meet its performance requirements, FCA must penalize dealers that sell unrepaired recall vehicles and must compile recall data using vehicle identification numbers so that dealers can check their used-car inventories for recalled cars. If that were not enough, FCA must teach other automakers about best safety practices by leading conferences with the Insurance Institute for Highway Safety and the Society of Automotive Engineers and developing ways to make recall notices more effective.
The NHTSA’s interest in FCA’s future recall policies parallels that of the CPSC, which recently has become interested in monitoring or requiring changes to company-specific product safety compliance programs to ensure that regulatory standards are met going forward. The imposition of performance requirements and the hiring of an independent monitor by the NHTSA is a clear sign that the NHTSA is not merely flexing its muscle with one manufacturer to shift public criticism away from itself, but putting the whole automotive industry on notice about the lengths the agency will go in order to enforce recalls in the future. DOT Secretary Anthony Foxx viewed the FCA consent order as a neon sign that “puts [all] manufacturers on notice that the department will act when they do not take their obligations to repair safety defects seriously.”
Indeed, the NHTSA has made clear that identifying and timely reporting defects is not enough. Automakers can no longer wait to issue a recall until they find a root cause or proposed solution; they also must address recalls quickly or risk paying a steep price — even 20 years down the road. Like the CPSC’s recent intrusion into private company compliance policies, the NHTSA’s interest in enforcing future recalls through new performance requirements may just be getting off the ground. In its proposed 2016 fiscal year budget, the DOT proposes to increase the cap on fines and penalties for noncompliance from $35 million to $300 million and seeks additional authority to aid in the NHTSA’s efforts to enforce recalls. For those who view the NHTSA as a formidable schoolyard bully, current trends point to it taking over the whole automotive block within the next several years.
[1] Sept. 16, 2014, Report of the House Energy and Commerce Committee, Vol. 2, Issue 1, p. 43. (“Upton Report”).
[2] Upton Report, p. 44.
[3] See, e.g.,http://www.help.senate.gov/imo/media/doc/Michaels.pdf (2007 statement detailing congressional criticism of OSHA); http://www.gao.gov/products/GAO-08-909T (2008 U.S. Government Accountability Office report referencing failures by the FDA to implement its own food safety plan, even though it is responsible for ensuring the safety of roughly 80 percent of the U.S. food supply); http://www.gpo.gov/fdsys/pkg/CHRG-111shrg63179/pdf/CHRG-111shrg63179.pdf (2010 hearing transcript where senators demanded answers from the EPA in the wake of the Deepwater Horizon oil spill); http://www.gao.gov/products/GAO-14-694 (2014 GAO report discussing the failures of HHS in connection with the rollout of the online health insurance exchange).
[4] http://www.law360.com/articles/636171/cpsc-civil-penalty-trend-continues.
[5] Contribution of the Automotive Industry to the Economies of All Fifty States and the United States, Center for Automotive Research, Economic Development Strategies Group, January 2015. See more at: http://www.cargroup.org/?module=Publications&event=View&pubID=16#sthash.5IqSNgK9.dpuf.
[6] http://www.nhtsa.gov/Laws+&+Regulations/Civil+Penalty+Settlement+Amounts.
[7] http://www.nhtsa.gov/About+NHTSA/Press+Releases/2015/nhtsa-fiat-chrysler-enforcement-action-07262015.
[8] https://www.oig.dot.gov/sites/default/files/NHTSA%20Safety-Related%20Vehicle%20Defects%20-%20Final%20Report%5E6-18-15.pdf.
[9] http://energycommerce.house.gov/press-release/committee-leaders-comment-inspector-general-report-detailing-issues-at-nhtsa.
[10] https://www.federalregister.gov/articles/2015/06/22/2015-15246/supplemental-notice-of-public-hearing-to-determine-whether-fiat-chrysler-has-reasonably-met-its?utm_content=next&utm_medium=PrevNext&utm_source=Article.