Retailers Must Prevent Sales of Recalled Products


Retailers Must Prevent Sales of Recalled Products

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Jonathan Judge

Recently, Home Depot became the latest mass retailer to pay a civil penalty for selling products previously recalled by the U.S. Consumer Product Safety Commission (CPSC). This penalty is the latest in a series of actions intended to signal that the CPSC has made enforcement of this issue a priority.

Selling Recalled Products is Now Illegal — For a Change

Under the Consumer Product Safety Act (CPSA), it is generally illegal for any person to sell a product subject to a CPSC recall, regardless of whether the recall was conducted voluntarily or pursuant to court order.[1]

This prohibition probably comes as no surprise, but it is actually fairly recent in origin. Up until the passage of the Consumer Product Safety Improvement Act (CPSIA) in 2008, there was no federal restriction on the resale of recalled products. Before that time, products with identified safety hazards could freely be sold and resold, particularly on secondary market sites like Craigslist.

Needless to say, this substantially hampered the effectiveness of product recalls in removing unsafe products from the market, and the CPSIA finally closed this loophole. Now, it is illegal for anyone — not just retailers — to sell recalled products. Like other prohibited acts under the CPSA, selling recalled products exposes offenders to a penalty of up to $100,000 per product sold, to a maximum of $15 million.

Nonetheless, it took several years for violations of the recall sale ban to make their way into penalty proceedings. The first such penalty we can find is from 2014, when Meijer was penalized $2 million for selling 1,700 units of 12 different recalled products. In 2016, Best Buy agreed to pay $3.8 million for selling 600 units of 16 different products. Now, Home Depot has agreed to pay $5.7 million, having distributed just over 2,800 units cutting across 33 different recalls.

Understanding the Problem

Considering the hundreds of thousands — if not millions — of products sold by these particular retailers, the small number of affected products is actually somewhat encouraging. That said, the CPSC does not appear to be impressed by a practice of being merely “mostly compliant.”

It is likely this is because modern brick-and-mortar sales usually check out items via product code scanning, a process that, with reasonable inventory management, should make it almost impossible to sell products which have been recalled. This is probably even easier for online retailers, who can strictly control the means by which customers interact with the store and acquire merchandise.

So then, how did these particular violations occur? The circumstances are actually fairly understandable. The question is what to do about them.

A review of all three recalls suggests that the prohibited sales seem to be one-off problems with particular stores or products — a particular problem faced by brick-and-mortar retailers. For these stores, previously sold products are constantly being returned, often with no indication of any problem.

Physical stores also tend to pride themselves in customer service, which understandably leads to a willingness to override an otherwise blocked sale holding up a busy checkout line, particularly when the cashier has no idea why the product is not being allowed to check through.

Indeed, it seems that similar situations were behind many of the cited compliance failures. Best Buy was accused of overriding codes, and Home Depot allegedly sold recalled products through its return and special services desks, as opposed to its normal checkout lines. Home Depot also allegedly distributed some of the recalled products as donations; in what can only be described as a double whammy, the CPSC treated these donated products the same as those off of which Home Depot had actually profited.

Spotting Problematic Sales Transactions Early

All three retailers agreed to adopt improved procedures in the future, suggesting that more rigorous reverse logistics should be able to prevent such transactions from happening.

Beyond infrastructure, however, these penalties also suggest the need for cashiers and customer service personnel to receive better information as to why a product cannot be sold. A customer who simply receives a vague error message is likely to pressure a hassled manager to override an error, and may be successful.

On the other hand, a cashier whose monitor alerts her that the product in question is under a recall is likely to get a much more understanding response. Moreover, the ability to state with confidence that the sale is “out of our hands” provides a much sounder basis for a manager to put an end to the potential transaction, and perhaps offer the customer some other compensation for their trouble.

It may not be possible to prevent all such sales, but the CPSC clearly expects retailers to have a robust discovery system in place — more robust than what was in place at the penalized stores. Retailers unsure as to whether their existing protocols pass muster may wish to consult experienced CPSC counsel.

Retailer Investigations Under the Trump Administration

Analysis of the past inevitably leads to speculation about the future, particularly for commissions with political leadership. Recently, the Trump administration nominated existing commissioner (and acting chair) Ann Marie Buerkle to be chair of the CPSC, and Dana Baiocco to succeed Marietta Robinson as commissioner beginning this November. If approved by the Senate, these nominations would tilt the balance of commissioners 3-2 in favor of Republican appointments.

Changes in commissioners often prompt questions about possible changes in the regulatory environment, or whether fewer penalty investigations are to be expected. In our view, changes among the commissioners rarely affect commission priorities in the short term, and often make little difference over the long term.

Commissioners of both parties place great faith in their staff, so maintaining the confidence of CPSC staff is a more reliable place for a company to focus its efforts. From the retailer perspective, this means, at a minimum, that the company has a robust policy in place to discourage sales of possibly recalled products, as well as the ability to document the effectiveness of that policy should any interested regulator come calling.

[1] 28 U.S.C. §§ 2068(a)(2).