Products Liability Law Daily Updated civil penalty effective date delayed indefinitely as NHTSA reconsiders final rule
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Wednesday, July 12, 2017

Updated civil penalty effective date delayed indefinitely as NHTSA reconsiders final rule

By Colleen Kave, J.D.

The National Highway Traffic Safety Administration (NHTSA) delayed indefinitely the effective date of the final rule updating the maximum civil penalty amounts authorized for violations of the statutes and regulations administered by the agency. NHTSA plans to reconsider the final rule, which it asserts did not give adequate consideration to all of the relevant issues, including the potential economic consequences of increasing Corporate Average Fuel Economy (CAFE) penalties by potentially $1 billion per year, as estimated in an Industry Petition. Additionally, NHTSA seeks public comment on whether and how to amend the civil penalty rate for violations of CAFE standards. Comments are due by October 10, 2017 (NHTSA Final Rule82 FR 32139 and 82 FR 32140, July 12, 2017).

In July 2016, NHTSA issued an interim final rule (IFR) pertaining to civil penalty amounts under the authority of the Federal Civil Penalties Inflation Adjustment Act Improvement Act (the 2015 Act), Pub. L. 114–74, Section 701. The interim final rule included adjustments for all civil monetary penalties administered by the agency, including those prescribed by the CAFE program, which provides standards for vehicle manufacturers that produce passenger cars and light trucks for sale in the United States. In accordance with the Act and Office of Management and Budget (OMB) guidance, the updated penalty rate applicable under the CAFE program increased from $5.50 per tenth-of-a-mile per gallon (mpg), which was the original amount of the civil penalty set by statute in 1975, to $14 per tenth-of-an-mpg. NHTSA stated in an implementation guidance that it issued following the IFR that the agency intended to apply the $14 rate to any penalties assessed on and after August 4, 2016, beginning with penalties applicable to violations for model year 2015, and also to any violations from prior model years that resulted from recalculation of a manufacturer’s previous CAFE levels.

Petitions. The Auto Alliance and Global Automakers jointly petitioned NHTSA for reconsideration of the interim final rule with regard to the inflation adjustment for CAFE non-compliance penalties in August, 2016, asking NHTSA not to apply the penalty increase to noncompliances associated with "model years that have already been completed or for which a company’s compliance plan has already been set." In the alternative, the petition requested that if NHTSA decided to apply the penalty increase to model years 2014–2018, the agency should recalculate the adjusted penalty rate using 2007 as the "base year" for calculating the inflation adjustment. As another alternative, the petition sought a finding that immediately increasing the penalty to $14 would cause a "negative economic impact," thereby requiring a smaller initial penalty increase.

Additionally, in October, 2015, the Center for Biological Diversity (CBD) petitioned NHTSA to conduct a rulemaking to raise the civil penalty rate for CAFE standard violations under NHTSA’s then-existing statutory authority. The CBD petition stated correctly that NHTSA had not adjusted the $5.50 civil penalty rate for inflation since 1997, and requested that the agency follow the procedure laid out at 49 U.S.C. 32912(c) to undertake a rulemaking to raise the amount to the maximum then allowed by Congress, $10 per tenth-of-an-mpg. A month later, Congress changed the statutory landscape by enacting the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015.

NHTSA’s response. In a final rule published in December 2016 (81 FR 95489), NHTSA agreed with the Auto Alliance and Global Automakers that applying the $14 civil penalty rate to violations of CAFE standards in model years prior to the enactment of the Act would not result in additional fuel savings, and thus would seem to impose retroactive punishment without accomplishing Congress’ specific intent in establishing the civil penalty provision of the Energy Policy and Conservation Act ("EPCA"). Consequently, NHTSA decided to grant the Auto Alliance and Global Automakers’ petition in part and deny it in part. Beginning with model year 2019, NHTSA will apply the full penalty prescribed by the Act. NHTSA is required by the Act to continue adjusting the civil penalty for inflation each year, so the penalty rate applicable to model year 2019 and after fleets will be $14 per tenth-of-an-mpg, plus any adjustment(s) for inflation that occur between now and a violation’s assessment. NHTSA concluded that this decision also effectively addressed the issue raised by the CBD petition.

Reconsideration of final rule. If NHTSA seeks to raise CAFE penalties under the EPCA, it may only do so if it concludes through rulemaking that the increase in the penalty both (1) will result in, or substantially further, substantial energy conservation for automobiles in model years in which the increased penalty may be imposed, and (2) will not have a substantial deleterious impact on the economy of the United States, a state, or a region of a state. A finding of "no substantial deleterious impact" may only be made if NHTSA determines that it is likely that the increase in the penalty will not: cause a significant increase in unemployment in a state or a region of a state, adversely affect competition, or cause a significant increase in automobile imports. Additionally, the Inflation Adjustment Act provides an exception to give federal agencies the ability to adjust the "catchup" amount of a civil monetary penalty by less than the required amount. In order to make such an adjustment, the head of the agency must determine through notice and comment rulemaking that either (1) increasing the penalty by the otherwise required amount will have a "negative economic impact," or (2) the social costs of increasing the penalty by the otherwise required amount outweigh the benefits. The Director of OMB must agree with either determination before an agency can act upon such a conclusion. The OMB guidance directed agencies to calculate the initial "catch-up adjustment" based on either the year the penalty was originally established by Congress, or last adjusted, whichever is later. If NHTSA determined that it was appropriate to use a different base year than the 1975 base year used to calculate the adjustment in the interim final rule, that decision could have a significant impact on the future CAFE penalties level.

After further consideration of these issues, and because the July 5, 2016 interim final rule did not provide an opportunity for interested parties to provide input fully, NHTSA has determined that it should seek public comment on whether and how NHTSA should consider the issues raised above in seeking to implement the Inflation Adjustment Act as it pertains to CAFE penalties.

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