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After U.S. regulators fined the American Honda Motor Company a record $70 million for failing to meet compliance reporting requirements under the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, the automaker pinned much of the blame on information technology. The compliance failures stemmed from systematic problems in Honda's databases and accompanying compliance reporting processes, the company acknowledged after an investigation by the National Highway Traffic Safety Administration (NHTSA).
These lapses were due to faulty coding in Honda's early warning reporting system, combined with a failure to properly enter the dates of claims and notices involving death or injury. Honda's noncompliance put its reporting procedures under the regulator's spotlight and has provided fuel to those seeking to raise NHTSA-administered fines to a maximum of $300 million going forward.
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The American Honda Motor Company Inc., a subsidiary of Honda Motor Company Ltd., failed to comply with the compliance reporting requirements under early warning reporting (EWR) provisions of the TREAD Act. Each quarter, vehicle manufacturers must provide the NHTSA with information regarding defects and any incidents involving deaths and injuries. From July 2003 to June 2014, Honda failed to inform the NHTSA about 1,729 claims or notices regarding deaths or injuries, and also under-reported data on warranty claims paid out.
Honda reported that an associate detected a compliance reporting problem in 2011 "and believed that it could have affected the accuracy of the EWR reports," but the company did not follow up. In early 2012, NHTSA notified Honda of the under-reporting incidents. After a third-party audit found reporting discrepancies in mid-2014, Honda met with NHTSA officials. The NHTSA followed up with a special order seeking more information, which ultimately led to a consent agreement signed on Dec. 29, 2014.
Several of the under-reporting instances were related to defects in airbags made by Takata Corp., which agreed to its own consent order with NHTSA in May 2015. By June of 2015, Takata products in more than 17 million vehicles made by multiple automakers had been recalled nationwide.
What reasons did Honda give for not complying with the reporting requirements?
The compliance reporting lapses were due to faulty coding in Honda's early warning reporting system, combined with a failure to properly enter the dates of claims and notices involving death or injury, according to the consent order the company signed with the NHTSA. Data entry personnel sometimes left the "written claim received" field blank, and the EWR program then omitted those incidents from the reports.
The EWR program was not configured properly from the beginning, and it incorrectly mapped the computer codes that track claims, the company said. The company also incorrectly interpreted some of the reporting regulations, erroneously leaving out some notices of deaths and injuries provided by third parties. Honda did not think information from police reports or documents from investigators it had hired, for example, had to be included in its reports.
Fact sheet: Honda's EWR audit and special order from the NHTSA
Regulators investigate whether Honda failed to disclose air-bag problem
What was the penalty for Honda's noncompliance with the TREAD Act reporting requirements?
Honda had to pay two civil penalties of $35 million each to the NHTSA. One fine was for not reporting 1,729 death and injury reports as required by the NHSTA's early warning reporting requirements. The other $35 million fine was for "failing to report customer satisfaction campaigns, special warranty extensions, and warranty claims that involved good will, third-party vehicle service contracts, or Honda-certified pre-owned vehicles," according to the consent order.
The $70 million fine was the highest ever imposed by the NHTSA, and the maximum it could impose under law. NHTSA administrator Mark Rosekind noted in a blog post, however, that $70 million is not a very high price to pay relative to an automaker's revenue. The NHTSA has asked Congress to raise the cap on penalties to $300 million to create a stronger disincentive for noncompliance.
Honda was also required to write new procedures to comply with early warning reporting requirements. Once the procedures are finalized, the automaker must give NHTSA a detailed report on their implementation and train staff annually on the early warning reporting requirements.
Department of Transportation fines Honda $70 Million TREAD Act noncompliance
Rosekind: Honda penalties send clear message on safety reporting
Were criminal charges brought against Honda for its noncompliance?
The Department of Justice has not brought criminal charges against Honda for failing to fully comply with the TREAD Act reporting requirements. The company admitted that it failed to correct its problems in a timely fashion, but it did not acknowledge that any deliberate action was taken to hide death and injury reports.
Critics argue that it is hard to believe that so much under-reporting could have been entirely inadvertent.
"For 11 years, Honda massively violated the TREAD Act by failing to report 1,729 death and injury claims. Honda hid more claims than the 1,144 claims it reported from July 1, 2003 to June 30, 2014," Clarence Ditlow, executive director at the Center for Auto Safety, said in a statement. "It strains credulity that a sophisticated company like Honda could make so many data entry errors, coding errors and narrow interpretations of what is a written claim."
What has Honda done to improve compliance with TREAD Act reporting requirements?
As part of its consent order with the NHTSA, Honda agreed to greater oversight of its TREAD Act reporting requirements. The company fixed its computer problems, correctly mapped reporting codes and has committed to new training for data entry processes.
The NHTSA's consent order also requires Honda to write new procedures for complying with the TREAD Act's early warning reporting requirements. Once the procedures are finalized, the automaker is required to give NHTSA a detailed report on the implementation, and it must train staff annually on the early warning reporting requirements.
About the author:
Caron Carlson is a freelance writer and editor based in the Washington, D.C., area. Having covered technology and telecommunications for more than 15 years, Caron has contributed to a wide variety of tech and business publications and websites. She has also moderated webinars, spoken at industry conferences and been a guest commenter on radio shows. Caron holds a master's degree in journalism from the University of Missouri and a bachelor's degree from Georgetown University.