NHTSA's Enforcement Priorities Made Clear in U.S. DOT's Transportation Bill (Grow America Act)

Last year, the U.S. Department of Transportation unveiled its long-term transportation bill, entitled the Grow America Act, which contained the Department’s wish list for funding and new authorities. On March 31, 2015, the Department submitted a similar bill, also called the Grow America Act, which builds upon its prior proposal. The bill includes a number of proposals related to the National Highway Traffic Safety Administration. While several provisions are the same or similar to the previous proposal, there are some differences that demonstrate NHTSA is prioritizing detecting and notifying consumers of defects and improving the recall process.

Similar to the previous bill, this year’s bill proposes to:

• Increase the civil penalty cap for a related series of violations from $35 million to $300 million, and to increase the per-vehicle penalty from the current inflation-adjusted $7,000 per vehicle to $25,000 per vehicle (and $100,000 per vehicle for certain violations related to school buses).
• Require NHTSA to adopt rules or guidelines “for the design, functional safety process, verification and validation, and development of safety-related electronics or software used in motor vehicles and motor vehicle equipment to ensure that they are likely to function as intended and contain fail safe features.” Unlike any of NHTSA’s current safety standards, these standards (or guidelines) would specify process requirements related to the development and production of electronics and software for vehicles and equipment.
• Authorize NHTSA to issue a stop sale or repair order when the agency determines that vehicles or equipment contain a defect presenting an imminent hazard. The agency (in its section-by-section analysis of the bill) stated that the threshold for what constitutes an “imminent hazard” is high, representing any condition “that substantially increases the likelihood of death or serious injury to the public if not discontinued immediately.”
• Under certain circumstances, limit the ability to challenge NHTSA orders (such as recall orders) and limit the level of judicial review.
• Authorize NHTSA to require rental car companies and used car dealers to remedy defective and noncompliant vehicles before rental, sale, or lease.
• Extend the existing “render inoperative” provision of the Safety Act – which prohibits a “manufacturer, distributor, dealer, or motor vehicle repair business” from knowingly taking a vehicle out of compliance with a safety standard – to cover any person other than the vehicle owner. (The stated purpose of this proposed amendment is “to permit enforcement actions against persons who use electronic devices to affect the performance of a motor vehicle or motor vehicle equipment of which they are not the individual owner,” but the amendment itself is not limited to electronic devices.)
• Provide NHTSA broader investigative authority under the fuel economy laws, including the right to conduct inspections at vehicle dealers.
• Extend recall obligations on manufacturers in bankruptcy to include Chapter 7 bankruptcies in addition to Chapter 11.
• Significantly increase NHTSA’s funding for enforcement activities around safety standards and defect investigations.

The latest version of Grow America adds the following proposals:

• Allow recall notices to be sent to consumers via e-mail.
• Require independent tire dealers and distributors to maintain tire registration information
• Extend the tire remedy period from 60 days to six months.
• Require dealers to notify consumers of any outstanding recalls on their vehicles at the time of service as a condition to their statutory right to be reimbursed for remedying recalled vehicles.
• Create a pilot program to evaluate the feasibility and effectiveness of states notifying consumers of outstanding defects when registering vehicles.

NHTSA’s wish list of proposals dovetails the agency’s high profile enforcement actions of the last year, which included a $35 million civil penalty settlement related to GM’s highly-publicized ignition switch recall, as well as several other civil penalty settlements with vehicle and equipment manufacturers ranging from $1.75 million to $70 million to resolve a variety of alleged violations. NHTSA and the Department have repeatedly stated that the current civil penalty cap is too low and, as noted above, they are urging Congress to dramatically increase it.

In addition to the record setting penalties, the agency broke from its past practice of entering into simple settlement agreements that only required payment of the civil penalty and instead entered into consent orders, which permit additional oversight from the agency. The heightened oversight included requiring third-party audits of the companies policies and procedures, agency review and feedback on new policies, regular reports to the agency of potential safety issues prior to the manufacturer making its defect determination, waiver of confidentiality claims on reports submitted to the agency, and, in the most recent example, requiring a manufacturer to spend at least $7 million on safety programs that seek to increase the rate of recalled products that receive the free remedy.

Comparing the new authorities sought by the agency to its recent enforcement actions paints a clear picture that NHTSA’s current enforcement and regulatory priorities are focused on ensuring:  (1) compliance with EWR and other reporting requirements, (2) timely reporting of defects, and (3) more effective implementation of recall campaigns. Due to the potential impact these proposed provisions would have on the industry, manufacturers, dealers and rental car companies would be wise to follow the bill very closely.