Consumer Fraud

Bill to hold auto execs responsible for deceptive business practices

A powerful new consumer protection bill is making its way through the U.S. Congress, thanks mainly to Toyota and the sudden acceleration defect that causes so many of its model cars and trucks to speed out of control. If the bill becomes law, it would hold auto executives personally accountable for misleading federal safety regulators with imprisonment and millions of dollars in civil fines.

Legislators on the Senate Commerce Committee, led by West Virginia Democrat John D. Rockefeller, say that the top executives of auto manufacturing corporations need to be held responsible when they knowingly withhold information or deceive regulators in dealing with auto safety problems. They argue that the new measure would force executives to be more honest and forthright about defects and other problems.

The National Highway Traffic Safety Administration hit Toyota with a record $16.375 million civil penalty in April for its failure to promptly notify U.S. regulators about a known safety defect. The auto manufacturer notified Canada and several European nations in September 2009 about an accelerator pedal defect, but waited until January 2010 to inform U.S. regulators of the same problem.

Under the new law, Executives who knowingly violate federal safety standards would be fined up to $10 million and face imprisonment of up to a year in addition to whatever criminal penalties may be incurred under other laws.

Former NHTSA director Joan Claybrook, who pioneered the country’s first vehicle safety laws, gave the provision her support, saying that pressuring the top executives would force them to establish a culture of honesty and accuracy. Many lawmakers across the political spectrum expressed their frustration with Toyota’s executives during congressional hearings, blaming the company for engaging in deceptive, highly secretive and self-serving business practices while the lives of millions of Toyota drivers and their passengers were at risk.

“You want to have personal responsibility. That’s the only thing that’s really going to change the way these companies behave,” said Ms. Claybrook.

The auto lobby is fighting the proposed bill, arguing that executives can’t know everything that is happening within the company and that it would turn executives into public scapegoats while failing to address the underlying causes of safety problems.

The House and Senate bills have cleared committees and could face a full vote of each chamber this summer.