CPSIA – McDonald’s Shrek Glasses Weren’t an "Imminent Hazard"

Some people apparently think I contend that product recalls can only take place if the CSPC insists. I have certainly argued that the CPSC has no authority to demand or even ask for a recall unless certain specific conditions are met. Hate to be the bearer of bad news, guys, but there are limits to the agency’s legal authority. Companies themselves can recall products for any reason. There need not be a safety reason – you can recall something from the market because the color’s wrong, the material is somehow less than expected, wrong size, wrong instructions, wrong packaging, whatever. A company’s ability to recall its own products is not limited by law.

In the case of the McDonald’s Shrek glasses, yes, McDonald’s declared a voluntary recall. That’s not unusual – the vast majority of recalls are voluntary. Only a tiny handful of recalls every year are “mandatory”. In any event, the critical issue here is NOT that McDonald’s made this choice. As we have discussed, the publicity from this event forced McDonald’s hand – they had to protect their brand at all costs. The issue here is that the CPSC apparently “urged” the company to “do the right thing”. [These words come from the OnSafety blog, the official blog of the CPSC, believed to be written by Scott Wolfson, Director of Public Affairs.] It was apparently the “right thing” to do although the agency conceded that the glasses were “not toxic”, in other words SAFE.

While companies are allowed to choose to recall safe products at their pleasure, the CPSC does not have the unlimited legal authority to reach out to American companies and tell them to take this kind of voluntary action.

The power to recall emanates from certain provisions of the CPSA and FHSA. Notably, Section 12(a) of the CPSA, the agency can’t go to court unless there is an “imminent hazard”. What might that be? “As used in this section, and hereinafter in this Act, the term ‘imminently hazardous consumer product’ means a consumer product which presents imminent and unreasonable risk of death, serious illness, or severe personal injury.” Given that the glasses have been acknowledged to be “non-toxic”, this standard is impossible to meet.

The relevant term in the FHSA is “banned hazardous substance”. In Section 2(q)(1)(A), it is defined as “any toy, or other article intended for use by children, which is a hazardous substance, or which bears or contains a hazardous substance in such manner as to be susceptible of access by a child to whom such toy or other article is entrusted”. [If a ban is done pursuant to subsection (B) of this clause as a "household item" because it is chemical in nature, it must be done by rule, subject to comment and so on. There was no rulemaking process involved in this case.]

“Hazardous material” is defined in Section 2(f)(1)(D) in relevant part as “Any toy or other article intended for use by children which the Commission by regulation determines, in accordance with section 3(e) of this Act, presents an electrical, mechanical, or thermal hazard.” And Section 3(e) refers only to electrical, mechanical or thermal hazards, clearly inapplicable here.

Bottom line, the McDonald’s glasses are outside the reach of the CPSC . . . if the wording of its principal empowering laws matter anymore.

Read more here:
CPSIA – McDonald’s Shrek Glasses Weren’t an "Imminent Hazard"

CPSIA – Anyone Care about Penalties Yet?

Cassandra here . . . .

Let me try you out on a hypothetical. What would you recommend as “consequences” for the following fact pattern? A company exhibits a pattern of safety incompetence over a period of time. Owing to agency vigilance, they are told multiple times to shape up, which they never get around to doing. No one is injured, but several minor recalls result. As we live in a time of political correctness and hyper-concern over trivial matters, the recalls not surprisingly involve only a few units of numerous products (less than 1000 units over two years). No injuries are reported. Numerous letters go back and forth, and theoretically, some of the culprit’s safety violations could have resulted in injuries.

So what penalty do you hit them with to get your message across?

For perspective, Mattel paid a fine of $2.3 million for about 2 million units recalled. This was national headline news. Mattel also recalled many millions more in other recalls in the same time period. RC2 paid $1.25 million for their recalls of 1.7 million units of Thomas the Tank Engine, a series of recalls that included an embarrassing recall of “thank you” gifts sent to people returning lead-laden Thomases. Target paid $600,000 for its “sins” in three relatively large scale recalls (545,500 total units). And I fully agree, respect and attentiveness to the details of the law are mandatory. Everybody needs to take these issues seriously.

And the answer is . . . . Try $2.05 million. Cash.

You wonder why I say that the CPSC leadership has blood lust . . . .

Oh yeah, I forgot, the CPSC also sicced the U.S. Attorney on ‘em, hitting the company with an injunction, a cease importation order and a mandatory plan of remediation.

Of course, I am alluding to the case of Daiso, the Japanese dollar store chain with a small U.S. presence. I have written about this company in the past, noting that they recalled 40 inflatable baseball bats for phthalates violations. For this and other unpardonable sins, this company was subjected to regulatory horrors on an incomprehensible scale. Here are their five recalls for your consideration:

May 12, 2008: 48 units, two skus
June 3, 2008: 50 units, two skus
July 25, 2008: 40 units, two skus
October 6, 2009: 430 units, four skus
October 6, 2009: 130 units, nine skus

Total over two years: five recalls, 698 units, 19 skus.

I have no personal knowledge of these people or this case. I also agree that the facts suggest that this company was recalcitrant or possibly incompetent. In any event, it’s their responsibility to take our laws seriously. Nevertheless the CPSC press release and the injunction both portray a far more serious situation than the facts seem to demonstrate. This is hardly a case of ingested super-magnets and millions of units in circulation. And the penalty, of course, is so far beyond the pale that I consider it incomprehensible. It is also extremely worrisome.

Today’s CPSC is about sound bites and putting you “on notice”. Whether their tactics are fair or appropriate seem to be a secondary concern. Note this quote from Japan Today: “‘This landmark agreement for an injunction sets a precedent for any firm attempting to distribute hazardous products to our nation’s children,’ commission Chairwoman Inez Tenenbaum said. ‘We are committed to the safety of children’s products, and we will use the full force of our enforcement powers to prevent the sale of harmful products.’ . . . CPSC spokesman Scott Wolfson said the company had been warned several times about violating safety standards.” In other words, this is entirely justified because the company had been warned and laws had been broken. I see.

There is a concept in Anglo-American jurisprudence of a punishment to fit the crime. I wish the CPSC knew something about proportionality in administering justice. Unfortunately, this CPSC seems to think that the importance of public messaging allows them to justify whatever they want to do. There seems to be no constraints, whatsoever. As Mr. Wolfson intones, after all, Daiso had been warned several times. Ergo, it’s fair to whack them with a penalty almost as great as imposed on Mattel. For less than 1,000 units sold.

Have you ever sold less than 1,000 units of something? Has anything ever gone wrong in your business? Uh-oh. Start saving up!

If you are having trouble grasping the point, consider the recent case of the man caught stealing a $3.99 bag of cheese in California. The judge went easy on him, only sentencing him to 7.7 years in jail. Nothing wrong with that, right? As the defendant’s lawyer noted in her closing remarks, “She concluded that his most recent thefts were petty. ‘We’re talking about a pack of cheese,’ she said.” Good thing the judge was listening . . . . This kind of justice brings to mind Midnight Express, the nightmarish story about Turkish jails. We’re not that kind of country, right? Right???

But in this environment, with the pack of jackal consumer groups egging them on, this CPSC is prepared to lower the boom to squish anyone who dares be incompetent. Here’s Consumer Reports on the case: “Our take: This is more evidence that the CPSC has been reinvigorated and that the new leadership at the Commission, plus the new powers under the CPSIA, mean good things for consumers.” In other words, it’s not only okay, it’s a sign of returning “health” in our U.S. government. Yippee.

I agree some sort of penalty may be merited in a case involving a pattern of violations. A large company like this one might need a large-ish penalty to “get the message”. [I wonder about that. Is it certain that this company would not have changed its behavior for a penalty of $50,000 or $150,000? The CPSC never tried smaller penalties first, as escalation seems to not be part of their vocabulary.] Nevertheless, this penalty lacks any rational relationship to the trivial problems cited in the recalls. In other words, it is completely arbitrary.

And for those of us destined to have to deal with the CPSC on resolving problems in the future, the Daiso case in your warning. Under this Commission, the agency has no apparent intention or need to be reasonable. They are unfettered in their ability to punish and exhibit no self-restraint. You won’t be able to fight them, they print their own money. It must be nice to be both judge and jury.

This is what our country has turned into. I CAN’T WAIT TO VOTE AGAIN. November can’t come fast enough for me.

Read more here:
CPSIA – Anyone Care about Penalties Yet?

CPSIA – Missing the Point

I hate to beat a dead horse but something is amiss in the debate over safety policy in the community interested in the CPSIA debacle. As readers of this space know, Sean Oberle and I have engaged in a spirited exchange of views lately. In his latest short reference to me and my opinions, he criticizes my choice of words: “I stand by my criticism. I believe that certain words — visceral terms like terrorist, rapist, murderer — should be reserved for the actual perpetrators of heinous and brutal acts of violence. I believe that using them otherwise, no matter how justified the user’s anger, is inexcusable.”

I wanted it noted for the record that I have not used the terms “rapist” or “murderer” in this blog to my knowledge. “Terrorist”, certainly, but not those other terms.

Frankly, if I can dish it out, I have to be able to take it, so I have no problem with Sean having his own views on the subject of my diction. However, whether or not my words are offensive, the big issues in my blog do not relate to how I express myself. In this case, the issue I raised was the behavior of self-appointed public representatives (the consumer advocates) who wreak too much harm IMHO. To counter my clear argument with a continuing attack on my choice of words is to miss the point entirely.

I think the debate over safety and over the way we govern ourselves is just too important to be trivialized by arguments over whether I used a “bad” word. Let’s stick to the issues and try to resolve them. In this case, the consumer groups are misbehaving, seriously misbehaving. You have CEH turning in sandals for lead in the insoles, GoodGuide turning in Zhu Zhu Pets for failing an invalid test (and hyping an imaginary health risk that presents virtually no chance of causing harm to anyone), Illinois PIRG criticizing toys with lead levels above ZERO, and Kids in Danger promoting the notion that small companies are “the Trojan Horse” of big business and big chemical companies who are poised to swoop down and gut the law for their own benefit. The coordinated hype of these groups, irresponsible individually and collectively, is terrorizing the public, whether Sean Oberle likes the term or not. THAT’S the issue.

Feel free to ignore my words . . . but please heed my message.

Read more here:
CPSIA – Missing the Point

CPSIA – Learning Curve Begs for Common Sense (What a Joke)

On Friday, the CPSC Commission docketed a decision on a request for exclusion under Section 101(b) filed by Learning Curve Brands, Inc. Learning Curve (a company owned by RC2) is famous for its Thomas The Tank train sets, which had a little recall problem back in 2007 but we don’t need to go there right now . . . . In any event, among other things, they make die-cast vehicles like this and want permission to use brass bushings on the wheels.

In a sane world, no one would need to ask the government a question like this. Thanks to Mr. Waxman, that’s not our world anymore. Wacky or not, they must plead their case. As Learning Curve notes (their filing is not apparently public, or at least I cannot find it on the “easy to use” CPSC website): “1) CPSC has already granted an exemption for brass and other lead containing alloys in electronics where the material is necessary for the function of the product; 2) the brass is required to ensure that the products pass the necessary use and abuse tests by preventing the wheels from separating from the axles; 3) children are not likely to be exposed to the lead in the product; 4) other household products, including plumbing fixtures are allowed to contain lead at levels that exceed the CPSIA limits; and 5) a study conducted by RAM Engineering, a division of Intertek, determined that lead exposure to a child would be minimal, less than the amounts allowed in food.”

It’s sort of cute that LC attempts to reason with the CPSC. Darling, really. I applaud them for stating sensible reasons to exclude brass bushings. Of course, their common sense falls on deaf ears. The staff responded this way: “In this case, given the assessment provided by the requestors, the staff likely would have concluded that the estimated exposure to lead from children’s contact with the die-cast toys would have little impact on the blood lead level. Accordingly, based on the staffs assessment, the staff would have recommended that the Commission not consider the product to be a hazardous substance to be regulated under the FHSA. However, the CPSIA establishes the standard by which the staff evaluates the materials submitted with a request for exclusions. . . . Since contact with the toy could result in absorption of lead, however small the absorbed amount, the staff concludes that the statutory standard has not been met.”

I feel like humming the tune that they used to play on Bozo’s Circus when you missed the last bucket on the Grand Prize Game. Wah-wah-wah, too bad! Too bad, indeed.

Why on Earth do I care about this? The unfairness of the application of this law to Learning Curve affects all of us. We don’t happen to make brass bushings, but then again, we do use connectors of various kinds, like staples, screws, nuts and bolts. Many people use these items in their products innocently enough. Connectors are not regulated EXCEPT for their inclusion in children’s products. I would note that I have NEVER seen a single article directly or referenced that suggested that connectors present a HEALTH DANGER to anyone. Likewise, any deaths or injuries attributable to poisoning from brass in any form. Don’t stick connectors in your eye or eat them, and I think you are going to be fine.

Some connectors have brass content in them (horrors!). Does this matter? Only under the awful CPSIA. Why do I care? Some random and terrible results are possible when connectors become the subject of CPSIA disputes. Let’s not forget that the CPSIA criminalizes any “intentional” violation of the law. Thus, it is now IMPOSSIBLE to work out any issue between supplier and customer, no matter how trivial. The law incentivizes customers to turn in their suppliers. [When I consider this dynamic under the CPSIA, I always think of historical precedents where governments turned one part of the society against another, with terrible results. I am sure you are aware of the parallel. Why isn't anyone bothered by this besides me?]

The law also incentivizes the CPSC to not forgive these “transgressions”. Why won’t the CPSC just overlook these issues, using “enforcement discretion”? The reason: apparently, the CPSC has no taste for “defiance” these days. They defend their practices (off-the-record) by noting that they are only imposing a “no-sale” requirement on such inventory. [Remember the Potato Clock?] This “innocuous” position is usually accompanied by a demand that suppliers notify their dealers of the “no sale” requirement. [In the case of the Potato Clock, I believe the company felt it might incur liability if it didn't tell dealers to stop sale. More of the same.] While this is short of a full-scale recall, it is tantamount to financial Armageddon for many small companies, and has the potential to kill brands.

Am I just a worrywart? Well, this is same CPSC that just allowed or demanded a recall of 40 inflatable baseball bats for a phthalate violation. Good thing they stopped short of a house-to-house search, that showed GOOD JUDGMENT. You can hold 40 inflatable toy bats in one hand (if uninflated). So nothing is apparently beneath their scrutiny. In this case, they can shrug off the consequences of their actions. After all, they are “just doing their job”. How satisfying for them!

In any event, the Learning Curve exclusion request is a loser. Get ready for more rationalizing from some Commissioners and hand-wringing from others. We should have a pool for when the new Democratic leadership of the CPSC will stand up publicly and call for needed change in this law. Your guess is as good as mine.

Read more here:
CPSIA – Learning Curve Begs for Common Sense (What a Joke)

CPSIA – How Much Should We Pay to Prevent "Cheating"?

I was contacted today by an ex-CPSC’r who read my blog on Section 102(d)(2)(B) and wanted to point out that sometimes people lie and cheat when it comes to disclosure to the agency. So the question is: if people might pull the “switcheroo” or otherwise commit intentional fraud, wouldn’t the right solution be to make everyone test under much more controlled and regulated circumstances? This might make things much harder for cheaters. Isn’t that good? My response is NO . First of all, I hope it is no surprise to you or anyone that some people cheat. I believe this was discussed in the Bible and frequently thereafter. This MIGHT be the reason we have a criminal code and JAILS. Some people are also incompetent. They don’t cheat, they just fail repeatedly but goodnaturedly. The rest of us work hard and get our jobs done. As for me, although some people might cheat, I do NOT. If all the honest people must pay a high certain price in order to squeeze out the bad guys, we will all be crushed. This is akin to being treated like a murderer – just because there have been murders in your town. The CPSIA punishes the many for the sins of the few. The dispiriting idea underlying the lunkheaded Section 102(d)(2)(B) is that no one can be trusted, and that unless the government gets involved in regulating the minutia of safety testing, we cannot be sure that everything will be okay. [Did you ever think about why the CPSC must now accredit testing labs? We never needed it before - what precipitated the change? I am not aware of a single recall that was blamed on an incompetent or fraudulent lab. This is all the more troubling when you consider how much money has been wasted on this pointless and growing devotion of CPSC resources.] The economics of over-regulation are poor. Investment incentive is crushed by excessive regulatory costs as a profit motivation is rendered moot. In this case, we are CERTAIN to bear excessive costs for needless and pointless testing, all because a panicked Congress’ felt an urgent need to “do something” about recalls. What costs will be eliminated as a result? If our company has to pay 2-5% of our revenue for compliance with this new law (my estimate), can we save that much or more in avoided costs? Not based on our 25-year track record (recalled 130 pieces out of a billion in 25 years, or 0.000013% per annum). We now must trade an annual cost increase of 2-5% for an annual savings of 0.000013%. What about the costs to society? Well, in our case, all 130 pieces were recovered and there were no known injuries. Cost to society: zero. This is not so crazy, as less than 0.01% of all children’s products are ever recalled. Consider the famous lead-in-paint recalls of 2007-8: 125 recalls, no deaths and only one claimed injury (from a crib). So, who will pay for this folly? You. Some myths need to be dispelled: a. America pays the costs of the CPSIA. This is simple economics. The law of land regulates us a community. We pay for all recalls and we incur the costs of all injuries. Although costs may be shifted (reallocated) among us by law (some winners, some losers), ideal laws lower our net societal costs by incentivizing the most efficient allocation of resources. Thus, a law might assign one party to bear a responsibility because they can manage it at the lowest overall cost, thus avoiding significant and greater costs by a less efficient party. Common examples of this are torts (the law places strict burden for product liability on manufacturers) and railroad crossings (railroads must pay for safety of the crossings). Manufacturers and railroads are in the best position to protect against safety dangers, as opposed to consumers acting individually. If manufacturers and railroads weren’t allocated this responsibility, consumers would bear too much cost (inefficiently) in the form of injuries or losses. This is nothing more than a law-and-economics explanation of how legal systems work. See “The Problem of Social Cost” by Ronald Coase (Coase received the Nobel Prize for this theory). In the bargaining world hypothesized by Mr. Coase, costs would be borne by the party best able to bear them efficienlty, which might be manufacturers . . . or might be consumers. [It also is clear that no matter what happens to the CPSIA (be still, my heart!), manufacturers will still have a strong incentive (by law) to make their products as safe as possible. Tort law provides this economic incentive quite well.] b. NOT all recalled items are “deadly”. Some recalls have the potential to kill, but most do not. Of the simple “risk of injury” recalls, many are technical violations (immaterial threats of injury), theoretical risks, or worst of all, self-imposed (sometimes companies insist on recalls over the objection of the CPSC). It is plainly WRONG to contend that recalled items are “deadly” (Ahem, Ms. Tenenbaum). c. We cannot simply “raise” our prices to cover the new costs. Products have a strong “perceived value” which cannot be overcome with marketing. Some items are quite price sensitive. How much would you pay for your Starbucks latte? If the price went over $5, would you change coffee shops? $6? $8? No one is indifferent to price. How much would you pay for napkins at McDonalds, given that you probably think you are entitled to free napkins? Most people would cut their napkin use by 90%+ if the cost was as little as 1 cent each. This reasoning applies to ALL products and ALL services, no exceptions (even medical care). In the case of toys, many toys are commodities and have essentially a known “market value”. If you price them too high, you will lose business. “Perceived value” is set or heavily influenced by the mass market, precisely the part of the children’s market most able to absorb new CPSIA costs. Those of us in the specialty markets are toast as a consequence. d. The right way to measure recall effectiveness is in their economics. As noted above, we Americans will bear the net cost of this law. Is it worth it? We know that some items subject to recall present “unacceptable” risks of injury and others do not. It has always been the common sense practice of the CPSC (until recently) to exercise judgment when imposing a recall. They used to recognize that recalls come at a cost. There are many factors to assess in determining that a recall is merited. Having never been a CPSC manager or a legislator (heaven forbid!), please take my amateur’s list of factors with a grain of salt: (i) nature and severity of the risk of injury, (ii) number of units in circulation, (iii) age of the child subject to the risk, (iv) public policy [Is there a reason to justify strict liability? This would presumably be infrequent.] and (v) durability and value of the recalled item. Common sense dictates that you must weigh the benefits of a recall against the economic damage wrought by the recall. Since we finance both sides of the ledger, we Americans have an incentive to behave rationally and take the lowest cost route. [ The Coase Theorem again.] If you think about the case where one “dangerous” children’s product (say, a pair of shoes) is in circulation somewhere in the United States, it probably wouldn’t be worth the significant expense of recovering that special pair of shoes unless we knew that one or more lives were DEFINITELY at risk, a very high cost. [Exploding shoes, perhaps.] Thus, if some situations present low grade risk of injury and a high expense for a recall, it may sense to NOT expend the money on a recall, but perhaps to engage in other activities to keep costs down (like education or a “running” change in product design). Let’s also not forget that manufacturers that go through a CPSC process incur meaningful “transaction” costs even if there is NO recall (i.e., legal expenses, possible inventory loss, embarrassment, etc.). Thus, even without penalties, there is an incentive to do better next time – a recall is not needed to get most companies to straighten up. Given my estimate that we will expend 2-5% of revenues to comply with this awful law, could the economics ever justify that expense to save “injuries”? You already know that we incur an anticipated annual expense for recalls of 0.000013% of revenue, all to avoid a 25-year injury rate of zero. This annual “CPSIA tax” of 2-5% is entirely “inefficient” in a Coase sense, as the imposition (and allocation) of costs is irrational. This completely explains why the law is misconceived. Since the CPSC is not allowed to exercise judgment under the CPSIA, and since economics are not allowed to be considered either, it is by definition an irrational and shamefully inefficient law. Mr. Coase would be outraged. I happen to be outraged, too. Cheaters frustrate me but that’s no justification for treating everyone like they are cheaters. It’s time to rewrite the law to permit the cheaters to be treated like cheaters, and leave the rest of us ALONE.

See the original post here:
CPSIA – How Much Should We Pay to Prevent "Cheating"?