CPSIA – My Testimony at the CPSC Hearing on 100 ppm Lead Standard 2-16-11

Here are clips from my testimony at the CPSC Hearing on 100 ppm Lead Standard on February 16, 2011. As noted in previous blogposts, there’s much more to see and hear in this panel discussion. The clips focus on me and my testimony. I admire the testimony of the other panelists and especially the quality of the dialogue after the testimony under questioning by the Commission. If you want to see it unedited, check out the full video at the CPSC website.

I have already published the links from the morning session. Viewing those clips before watching these clips may help you understand the flow of the argument better.

My full testimony:

[Notably, Ms. Tenenbaum cut me a break and let me go over my 10 minute allotment. I appreciate that courtesy.]

Commissioner Bob Adler questions me on the future of small business under the CPSIA and the need for the Commission to “follow the law” and implement the new standard despite the known consequences. This may be the most interesting interchange on the troubling issues under the CPSIA that I have participated in over the past four years. Check it out!

Commissioner Anne Northup asks about the ability of small business to obtain exemptions from the lead standard:

Commissioner Nancy Nord questions me about recycled materials, the cost implications of the new standards and injuries:

My call for a Five Year Stay on the new lead standard to allow for development of real injury statistics:

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CPSIA – My Testimony at the CPSC Hearing on 100 ppm Lead Standard 2-16-11

CPSIA – House Hearing Testimony of Jolie Fay and Wayne Morris

Testimony of Jolie Fay, HTA Board Member:

Testimony of Wayne Morris, Association of Home Appliance Manufacturers (AHAM):

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CPSIA – House Hearing Testimony of Jolie Fay and Wayne Morris

CPSIA – But Who Will Test the Test Lab Testing Testers???

Demonstrating that creative, innovative flair we look for in our regulatory agencies, the CPSC has just announced its discovery of a much-needed new testing protocol, the test lab testing tester. Okay, so you say someone’s been playing with their clacker balls a bit too much, but heck, they gotta know what they’re doing, right?

Embedded deep in the impressively long 160-pager entitled “Proposed Rule: Testing and Labeling Pertaining to Product Certification, April 1, 2010“, the CPSC reveals that there’s trouble in La-La-Land over variances between lab tests performed at different certified labs: “Another comment noted that variations in sample preparation by conformity assessment bodies can and do lead to differing test results. One comment, noting lab-to-lab variations in test results for the same product, suggested that CPSC should require CPSC-recognized third party conformity assessment bodies to conduct blind correlation studies and lab audits.”

Oy vey, what do people EXPECT? The CPSC can’t help out on every niggling problem: “The Commission’s limited resources preclude CPSC from directly conducting verification of the numerous CPSC recognized conformity assessment bodies. Additionally, the activities and requirements for accrediting conformity assessment bodies are outside the scope of this rulemaking.”

Case closed?

Au contraire, Pierre! This CPSC will face down every challenge! They ain’t no teething tiger any more, they are a Lion of Safety now, so they came up with the perfect rule to resolve this dilemma. After all, lest we forget, you CAN’T be too safe! Here’s what they came up with:

“Proposed § 1107.24(a) would state that a manufacturer is responsible for verifying that its children’s products, as tested by a third party conformity assessment body, comply with applicable children’s product safety rules. For purposes of proposed § 1107.24, “verification” would mean testing that demonstrates that the test results from one third party conformity assessment body are consistent with the test results from another third party conformity assessment body for a particular children’s product. Proposed § 1107.24(a) would require a manufacturer to send samples of a previously certified children’s product or a children’s product that previously has been tested periodically pursuant to proposed § 1107.21 to a third party conformity assessment body for verification.

. . . . Proposed § 1107.24(b) would require verification to occur on a reoccurring basis and be conducted at a frequent enough interval to provide a high degree of assurance that the children’s product that had been certified previously continues to comply with the applicable children’s product safety rules or that the periodic test for the children’s product was performed correctly.”

]Emphasis most enthusiastically added.]

This is GENIUS! Thank heavens we have the CPSC to protect us. Who else would have spotted this terrible and threatening gap in our consumer safety network? But having added this new layer of “protection”, aren’t other safety holes now visible? I call on the CPSC to bring out rules clarifying:

• Certification of testing testers;
• Certification of testing tester testing testers (you need those, too);
• Certification of testing tester testing certifiers;
• Rules for tolerable variances among testing labs for each certified test, record keeping on all test results and variances for at least 100 years, and plans of remediation for every conceivable variance for each possible test under all conceivable circumstances;
• Rules for a new agency to check all the work of the CPSC and to reconsider and rewrite every rule they have ever written, plus record keeping and hearings and comment periods for this new agency;

I think the new agency to check the work of the CPSC should be called the Consumer Product Safety Commission Checking Commission for Safety Enhancement and Verification Processes (CPSCCCSEVP), you know, for simplicity. Gotta keep it simple and efficient. That’s my motto!

[For more pleasure reading on this important topic, don't miss the 110-page Staff briefing or the equally riveting 29-page Slide Presentation for the April 15 Commission meeting on the same topic. Happy reading!]

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CPSIA – But Who Will Test the Test Lab Testing Testers???

CPSIA – New Waxman Amendment Draft Issued Tonight, Mark-up Set for Wednesday Morning

The third draft of the Waxman Amendment 2.0 was released this evening. I have attached a clean copy of the legislation, as well as a redline for your convenience. The powers-that-be also released a draft of their “report language“. The report language is interpretative language and is not included in the law mainly to keep future law clerks busy doing research. It should also give us something new to argue about.

This is the Committee Briefing Memo accompanying the draft legislation.

Consistent with past practice, this draft was issued with the usual coercion. A mark-up has been scheduled for Wednesday AM 10:00 a.m. in Room 2123 Rayburn House Office Building BUT the Dems will decide tomorrow if they will proceed with that process. All talk of a hearing to vet this legislation has been quashed by the Dems who are scrupulous in managing the record. [I will never get to testify, that's for sure.] There will be a meeting on Tuesday at 4 PM to discuss this draft, at which point the Dems will either pull the plug or move forward. Presumably, this depends on the enthusiastic response to this draft. The Dems say they want a bipartisan bill and further want to send it to the Senate with the news that the bill is “supported by industry”. In other words, Mr. Waxman is not interested in negotiating with the Senate, just wants their rubber stamp. He’s not big on “jawboning” if that means he has to listen to others and make concessions . . . .

You are right to consider this another patented Waxman “take it or leave it” offer.

In response to complaints that this bill ignores the many legitimate concerns of the small business community, Waxman staff has advised that they “can’t help everyone”. That means you, guys.

Changes in this Draft:

a. Functional Purpose “Exception” – Minimal changes, mainly reverting back to the “public health or safety” test formulation. References to “all foreseeable users” is gone now. The “town hall” provision allowing “interested parties” to intervene in every proceeding has been eliminated. The “Previously Denied Petitions” provision is unchanged and still makes no sense.

The report language clarifies the meaning of “practicable”, noting that excessive or unreasonable costs should be considered not “practicable”. Specifically, they note: “The Committee does not consider a mere increase in the cost of manufacture or production, in itself, to be excessive. The Committee does expect that the Commission will consider compliance to be impracticable where compliance would place the viability and continuation of a class of products or materials in jeopardy, such as youth All Terrain Vehicles or youth bicycles made with recycled steel.” [Emphasis added]

In case you were wondering about the purpose of the functional purpose exception, it is a gift to the noted industries. It’s not for you. Remember, this relief is only available to those who are capable of mounting an exception application. Not a small undertaking.

Remember that the applicant for a functional purpose exception must apply for relief for a “specific product or material”. You must also PROVE that your costs are not “practicable”. Can you see some wiggle room there? A true believer Commission might have very little incentive to interpret these terms permissively. [You can count on that one with the Dems in charge.] This will be a costly and technical process. Think of this in the context of your business – is this realistic? With our 1500 products, it’s just inconceivable. Too bad for us. Let’s also not forget the stringency of the three-prong test.

The report language specifies that a “measurable adverse effect” on public health or safety refers to changes in blood lead levels. The language is pretty specific and will require a toxicologist’s report to justify any exemption. Here are the magic words: “Given that there is no current blood level at which the scientific community considers lead exposure to be ‘safe,’ the Committee understands that a very small adverse effect may theoretically occur at any level of exposure. The Committee intends, however, for the Commission to deny requests for exception under this section as having a ‘measurable adverse effect’ on health or safety only in the case of those adverse effects that the Commission determines to be empirically, as opposed to theoretically, measurable. At present, the Committee understands that there is scientific consensus to interpret the phrase ‘measurable adverse effect’ from lead exposure to mean a measurable increase in blood lead levels.“

This is a form of legislative filter to make sure that the exception is only for the chosen industries or companies. Again, this isn’t meant for small fry, just big business. That’s equity these days, I guess.

Anyone remember how hotly the Dems defended the inclusion of ATVs and bikes in this law back in ’08 and ’09? It was intentional, they insisted, necessary to protect the public against deadly lead. There’s no safe level of lead, blah blah blah. Guess they got over that one . . . after they received 170,000 emails from ATV’rs.

b. Thrift Store Relief: Virtually no change, other than minor clarifications.

Not unlike the workings of other parts of the CPSIA, this new provision will be good for large scale thrift organizations like Goodwill or Salvation Army who are presumably able to centrally evaluate complex laws and implement system-wide responses to changes in law. i wonder how the smaller independent Mom-and-Pops will react to this provision. In any event, the provision tacitly bans resale of children’s jewelry, painted toys and vinyl children’s products. Stores will have to keep straight which items are in and which are out. With many resale stores staffed with minimum wage workers, I question how effectively most owners can prevent violations without just avoiding the category (at least in part).

Resale of childcare articles, including cribs, seems unaffected. The real gotcha is the risk the stores will bear from recalls. For that reason, I think many stores will stay away from reselling this category of goods. Clothing may make a reappearance in resale shops, finally.

It is uncredible that the Democrats let this industry flap in the wind for almost two years before acting to save them from CPSIA oblivion. Think of the economic devastation these insensitive legislators wrought on small businesses all America, not to mention the patrons of this important industry – through two cold winters. This is just inexcusable, a true demonstration of stubbornness or being completely out of touch. Those who suffered at the hands of the Dem inaction have no recourse, either. Shame, shame.

c. Relief for Small Batch Manufacturers: The sham of this “relief” is perpetuated in this new draft. The definitions of “covered products” and “Small Batch Manufacturer” were left structurally intact but the thresholds were tweaked upward meaninglessly to 7500 units or $50,000 sold per item per (calendar) year, with an overall cap of company sales of $1 million. “Covered Products” oddly continues to refer only to manufactured items but Small Batch Manufacturers are defined by sales of manufactured OR imported goods. Go figure.

As I pointed out earlier today, Mattell and Hasbro have quarterly revenues of $880 million and $672 million, respectively. The so-called relief here is for companies with annual revenue of under $1 million. If these little companies pop over that revenue hurdle, they will be held to the same standard as Mattel and Hasbro. Don’t worry, the CPSC plans to coach the little guys! Now if only they could provide non-recourse financing . . . .

Even if you are salivating over this pathetic crumb of “relief”, I encourage you to reread what goodies Mr. Waxman is giving you. Here’s the meat of it: “Any such alternative requirements shall provide for reasonable testing methods to assure compliance with the relevant consumer product safety standards.” The reasonable TESTING METHODS must ASSURE COMPLIANCE. You tell me what this English sentence means. I think it means the small fry will be testing. I know the rest of us will, too. Testing and testing and testing and testing. It’s time to buy stock in Intertek, I think. Later on, the bill instructs the Commission to work “cooperatively” with the little guys to “impose the least burdensome testing requirements . . . consistent with goals of statute.” And those goals are, what exactly? Comprehensive, prophylactic testing.

Oh, the bounty of this relief!

d. Phthlates and Inaccessible Components: No material changes.

e. Subpoena Power: No changes whatsoever. Somebody’s going to be sorry someday that this procedural speed bump was removed. Unfettered power of government was always un-American . . . until we met these Democrats.

Conclusion:

I wish I could recommend this bill. It has some good stuff in it. Unfortunately, it is utterly ineffective to arrest the damage being inflicted by the CPSIA. It is a gift to large industries but leaves the hammerlock on American small businesses catering children’s markets. It sustains the fantastic notion that those of us in this business have somehow been poisoning kids for years or decades. That’s a slanderous notion, something deeply offensive to me, but for the Dems to admit otherwise would mean a mea culpa. And there’s no chance of that.

If the Dems manage to tempt enough corporate entities to sell out for this low price, it will be the biggest gift ever given by the corporate community to Mr. Waxman. He should host a champagne party for himself if he buys off the resistance. There will be no remaining organized opposition to the bulk of his CPSIA handiwork, and the focus will shift to surviving a manic CPSC bent on enforcing voluminous but ineffective safety rules and ladling out massive penalties for infractions without injuries. And once the action moves permanently to Bethesda, we’ll see finally how much Cassandra got right.

I’m not looking forward to finding out. Vote NO on Waxman.

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CPSIA – New Waxman Amendment Draft Issued Tonight, Mark-up Set for Wednesday Morning

CPSIA – The Eyes Glaze Over . . . .

Sometimes I wonder if they have completely lost it at the CPSC. This evening we received the CPSC Federal Register notice on the Stay decision (actually entitled “Consumer Product Safety Act: Notice of Commission Action on the Stay of Enforcement of Testing and Certification Requirements”). I seriously wonder if anyone read it over in Bethesda. I have NEVER seen anything this dense and unintelligible come out of that office.

As the Commission tucks itself into bed before an exciting day tomorrow in which it can either decently provide enough time for an orderly implementation of this mess of a law or send small businesses down the river, I hope somebody is thinking about the complexity of what they have wrought. Of course, rules always seem more complex when they apply to you than when they apply to someone else. Still, perhaps a quick scan of this document might enlighten the Democrat Commissioners who seem particularly dense on the subject of why businesses want more clarity before the rules go “hard”.

I uncovered this while on a mission from a reader of this space. I had been alerted to the possibility that this document said that the lead content stay was LIFTED. This could not be true, since a ballot vote is definitely docketed for tomorrow on this subject. Even at a Waxman-dominated CPSC, it would be rather ballsy to issue a notice announcing a decision before the vote was tallied. With three Democrats “highly sympathetic” and “seriously considering” the opposing views but by all appearances having irretrievably made up their minds, it is not hard to imagine that skipping a step might have a certain appeal. Why bother waiting for the Republicans to lose (again)???

Well, incredibly, my reader was RIGHT – the document states that the date for the lead content rules to become effective is August 10, 2010, a “date certain”:

“With regard to lead content, the Commission has determined that testing of children’s products for lead content by a third party conformity assessment body and certification based upon that testing should begin on products manufactured after August 10, 2010 to allow component testing to form the basis for certifications for lead content and permit the staff to complete an interpretative rule on the meaning of the term ‘children’s product.’ An interpretative rule on the meaning of the term ‘children’s product’ would provide firms with additional guidance on when testing for lead content will be required by the Commission.”

Apparently, no one updated this FR notice for this morning’s motion to docket this decision for ballot vote tomorrow. Oops!

Remember the part in the hearing today where they discussed market disruptions and the need for businesses to have time to absorb and adjust to the new rules? Does anyone wonder why we have confusion in the market after you read this document? Please be honest. Myself, I experience shortness of breath when I read dense prose like this. I think the works of David Hume seem more accessible than this kind of thing – so why does the Commission delude itself that anyone undersands the mountains of rules and rulings it spews out? Market confusion is all but certain when implementation is handled this insensitively.

One reason is that some Commissioners hear what they want to hear, and ignore the rest. This is called “selective hearing”; I know all about this topic, as there is at least one person who lives in my house who has been regularly accused of this malady. [No names, please.] For instance, yours truly pointed out serious errors in the presentations by CPSC professional staff during last week’s workshop as well as in the preceding December 2 hearing to a Commission staffer. I don’t blame the CPSC staff nor do I consider these errors to mean much . . . other than the fact that the CPSC staff is supposed to know these rules better than anyone else, and if they make errors (understandable), what do they honestly expect of the regulated community??? If we make these errors, we get whacked with high fines or possibly, if the CPSC is riled up enough, go to the pokey. Isn’t the occurrence of serious errors by CPSC staff an indication of over-complexity? This was all known to the Commission before today’s hearing. Get this – the Emperor has no clothes.

Still not convinced? Try this passage on for size, and then TRY to imagine running a normal business catering to children and in your spare time attempting to comply with this law. Imagine trying to master this law as implemented by the CPSC, given that you are not a lawyer, can’t afford a lawyer or a legal department, and don’t have a few unoccupied months to study the mountains of paper the CPSC emits. It’s something you have to do in between everything else you do in your job. And the CPSC says:

“In the months after the Commission issued the stay of enforcement, the regulatory environment has changed significantly [No problemo!], and both the CPSC and interested parties have increased their understanding of the CPSIA and its requirements. [Yes, bring it, baby!] For example, between February 9, 2009 and the date of publication of this notice, the Commission issued more than 20 FEDERAL REGISTER notices, statements of policy, guidance documents, proposed rules, interim final rules, and final rules pertaining to the CPSIA, and most of these documents pertained to testing and certification issues. [This is not a joke. I didn't write this part, either.] These FEDERAL REGISTER documents include:

• “Third Party Testing for Certain Children’s Products; Notice of Requirements for the Accreditation of Third Party Conformity Assessment Bodies to Assess Conformity with the Limits on Total Lead in Children’s Products,” 74 FR 55820 (October 29, 2009);
• “Notice of Availability of a Statement of Policy: Testing and Certification of Lead Content in Children’s Products,” 74 FR 55820 (October 29, 2009);
• Proposed Rule on “Safety Standard for Infant Walkers,” 74 FR 45704 (September 3, 2009);
• Proposed Rule on “Safety Standard for Bath Seats,” 74 FR 45719 (September 3, 2009);
• “Third Party Testing for Certain Children’s Products; Notice of Requirements for Accreditation of Third Party Conformity Assessment Bodies to Assess Conformity with Parts 1203,1510,1512, and/or 1513 and Section 1500.86(a)(7) and/or (a)(8) of Title 16, Code of Federal Regulations,” 74 FR 45428 (September 2,2009);
• Final Rule on “Children’s Products Containing Lead; Determinations Regarding Lead Content Limits on Certain Materials or Products,” 74 FR 43031 (Aug. 26, 2009);
• “Notice of Availability of a Statement of Policy: Testing of Component Parts With Respect to Section 108 of the Consumer Product Safety Improvement Act,” 74 FR 41400 (August 17,2009);
• Final Rule on “Children’s Products Containing Lead; Interpretative Rule on Inaccessible Component Parts,” 74 FR 39535 (August 7, 2009);
• Proposed Rule on Requirements for Consumer Registration of Durable Infant or Toddler Products, 74 FR 30983 (June 29, 2009);
• Final Rule on “Children’s Products Containing Lead; Final Rule; Procedures and Requirements for a Commission Determination of Exclusion,” 74 FR 10475 (Mar. 11,2009);
• Notice of Availability of Draft Guidance Regarding Which Children’s Products are Subject to the Requirements of CPSIA Section 108; Request for Comments and Information, 74 FR 8058 (Feb. 23, 2009); and
• Interim Final Rule on “Children’s Products Containing Lead; Exemptions for Certain Electronic Devices; Interim Final Rule,” 74 FR 6990 (Feb. 12, 2009).

Additionally, the Commission has met with numerous parties to discuss various aspects of the CPSIA or educate interested parties about the CPSIA’s requirements, and, on December 10, and 11, 2009, it held a two-day workshop to discuss issues relating to the testing, certification, and labeling of certain consumer products pursuant to section 14 of the CPSA (see 74 FR 58611 (November 13, 2009). [You know, the one last Thursday and Friday with simultaneous panels going on all day on both days. There has been no time to review or consider the data gathered at the workshop, or the written comments which will continue to come in for the next 25 days.] Given the issuance of many rules and other FEDERAL REGISTER documents, statements of policy, and guidance documents [OMG, there were other documents besides these?!], as well as increased understanding of the CPSIA’s requirements, the Commission believes it is appropriate to phase in the testing and certification requirements as described in more detail below.” [This passage is followed by pages of details of stays lifted, extended, partially extended, whathaveyou. It also includes the errant language on the lead content stay.]

I find myself scratching my head in wonder. What is going on here? Is this being staged for effect, or are they SERIOUSLY trying to regulate this way? Is ANYONE accountable over at the CPSC? Can they get away with anything and everything?

It is sickening that a discussion is even necessary for the extension of the stay on lead content. The Commission should hang its head in shame for foisting this mess off on an innocent manufacturing community. What on earth did we do to deserve this treatment? I am tired of this Commission bowing down to Henry Waxman and a howling pack of fear mongering consumer groups. Those people have never worked for actual operating companies and know nothing about the realities of the marketplace or manufacturing itself. It’s time to stop sticking it to the manufacturing community.

The WSJ noted tonight that Congress and Mr. Obama have hit new lows in popularity. I particularly found interesting that 81% of the participants in the new poll considered this “a period of division where the parties held fast to their positions and showed little willingness to compromise” in Congress. Do we really want this export at the CPSC? As a member of the regulated community, I vote no!

Tomorrow’s vote is going to tell us all a lot about this Commission and its leadership. Watch this space for news.

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CPSIA – The Eyes Glaze Over . . . .

CPSIA – Interesting Admissions by Mattel

In a November 9 Product Safety Letter article, Mattel spokesmen were quoted bemoaning the burdens and confusion of the CPSIA.

In Mattel’s public meeting with Commissioner Bob Adler, Mattel sounded bedraggled and overwhelmed by the new law:

“Peter Biersteker, a lawyer for Mattel with the law firm Jones Day in Washington D.C., said his client is finding the CPSIA difficult to decipher. The law, he said, is unclear on what products the company needs to test, how often it needs to test them, and how many samples need to be tested. ‘It’s a lot of work. I don’t know how smaller companies do it,’ Biersteker told Commissioner Robert Adler. Despite Mattel’s large team of in-house lawyers, he said, the company needed to hire outside lawyers to help understand the CPSIA. He said Mattel holds weekly conference calls on the issue, discussing how to comply with the act while remaining ‘cost competitive.’”

Ed. Note: Hmmm, where have I heard this before??? Oh yeah, in this space, about 100 times since the blog went live in January. Key points:

• The new law is unclear
• The implementing rules are unclear
• CPSC guidance has not resolved these mysteries (and IMHO made them worse)
• A team of lawyers is needed to interpret the mess – a team of business people is insufficient
• Small businesses have no chance under the CPSIA
• Internal resources are overwhelmed by the CPSIA’s legal demands – even for companies with a large internal law department
• The seriousness of the legal risks under the CPSIA means that any prudent company MUST hire expensive outside experts to provide compliance advice (and for many small businesses, this is just not a realistic option economically)
• Remaining “cost competitive” is a seemingly unsolvable puzzle under this law.

And if Mattel says so, it MUST be true.

Adler was sympathetic (I can see the tears welling up . . . ):

“Adler responded with, ‘Believe me. I’ve been struggling to learn it myself.’ He said it’s hard for CPSC to issue guidelines that are applicable to both large and small firms.”

So the Commissioners themselves don’t understand the law and the agency’s rules. Join the club. And Adler admits that the law doesn’t permit the agency to address small business concerns adequately.

Perhaps the CPSC leadership should talk to Congress??? Hey, that’s an interesting thought . . . .

More good news – Mother Mattel is trying get the rest of the world to adopt the U.S. insanity:

“[Jim Walter, Mattel's senior vice president of product integrity & chief regulatory officer] said Mattel is working to internationally harmonize future product safety standards, finding that harmonizing standards after they have been issued is too difficult.”

I have also heard directly from the TIA and others that lobbying efforts are underway to make the CPSIA a world standard. In other words, by drumming up support for this craziness, the big toy companies can ensure that no one will escape the costs that they must incur to remain active in the world’s largest toy market, the U.S. To heck with small business interests! How generous of Mattel to get behind the law developed in response to its own bad behavior. I am so grateful for their guidance and oversight – they did such a great job in 2007/8, no doubt they will do even better now!

About the only consolation I can offer is that I don’t think the failings of the CPSIA are lost on the outside world. The recent ICPHSO conference in Toronto made clear that no one in Canada is clamoring to use the CPSIA as a model for their new safety law. Contentions to the contrary by officials in this country must be taken with a grain of salt. It is abundantly clear that the CPSIA is yet another self-destructive U.S. initiative by the worst Congress in U.S. history – and no foreign government is any hurry to work that magic on their own economy just because Henry Waxman and his merry band has Hari-Kari in mind for us. Interestingly, other countries seem to know that jobs matter.

Mattel’s admissions frame the challenge for the rest of us. We need to make sure that the CPSC is well-aware of the completely unrealistic scenarios they are forcing on businesses (large and small) and to hold them accountable to push Congress to address these issues SOON. 2010 is an election year and it will be increasingly obvious to one and all that we will have our chance to replace those members of Congress who will not cooperate with our reasonable requests. Let’s hope that they can see the future . . . and choose to act before it’s too late.

Read more here:
CPSIA – Interesting Admissions by Mattel

CPSIA – My Comment Letter on Civil Penalty Factors

October 1, 2009 Todd A. Stevenson Director, Office of the Secretary Room 502 U.S. Consumer Product Safety Commission 4330 East West Highway Bethesda, Maryland 20814 Re: Docket No. CPSC–2009–0068 Civil Penalty Factors Dear Mr. Stevenson: I am hereby submitting comments in response to the Solicitation of Comments on Civil Penalty Factors (.Docket No. CPSC–2009–0068) dated September 1, 2009 (the “Factors”). I have previously submitted comments on December 17, 2008 regarding Section 217(b)(2) Civil Penalty Criteria which are posted online at the CPSC website. The Civil Penalties Factors are Especially Significant for an Administrative Agency. Because the CPSC is an independent federal agency (15 U.S.C. §2053), enormous governmental power is held by the agency. As noted by some commentators, “[independent] agencies typically exercise all three constitutionally divided powers within a single bureaucratic body: That is, agencies legislate (a power vested solely in the legislature by the Constitution) through delegated rulemaking authority; investigate, execute, and enforce such rules (via the executive power these agencies are typically organized under); and apply, interpret, and enforce compliance with such rules (a power separately vested in the judicial branch).” [Footnotes omitted.] See http://en.wikipedia.org/wiki/Fourth_branch_of_government . With one agency standing essentially as judge, jury and legislature and with fewer checks-and-balances in place, penalties imposed by the CPSC under the Factors have the potential to be abusive. The unchecked authority to punish can be damaging to markets regulated by the CPSC. Problems arising out of self-oversight or a possible lack of due process can be anticipated, as well. Without placing clear limits on the CPSC’s authority or process to impose penalties, the agency’s enforcement activities may become economically depressing. The CPSC may believe that large penalties will simply spur the market to uphold its compliance responsibilities: “’These highly publicized toy recalls were among many that helped spur action last year to impose even stricter limits on lead paint on toys,’ said CPSC Chairman Inez Tenenbaum. ‘This penalty should remind importers and retailers that they have always had the same obligation to meet the strict lead limits as the manufacturers.’” [CPSC Press Release dated October 1, 2009.] While that effect will certainly be felt, other less positive impacts will also be generated. Applying the rule of “once burned, twice shy”, we anticipate that retailers will clamp down tightly on compliance, making the sale of low volume items unprofitable and triggering a Darwinian “survival of the fittest” selection in children’s markets. For instance, implementation of new compliance rules at Toys R Us make it difficult or near impossible for small businesses to sell through that retail outlet (16% market share in the U.S. toy market). In addition, other market participants may conclude that the CPSC is now enforcing a strict liability standard and just exit the market altogether, abandoning their customers. The effects will be both direct and indirect. Arbitrary results are already noticeable. Recent penalties announced for lead or lead-in-paint follow no apparent pattern, are “round numbers” and equate to per-unit penalties ranging between $.01 and $2.17 (July 7 press release). Likewise, recent penalties for drawstring violations have ranged as high as $10.63 per unit (and up to a breathtaking 60% of revenue), again without apparent pattern. These widely varying penalties appear to be arbitrary. A fear of arbitrary penalties is certain to depress markets by discouraging investment in new products or new markets. The penalty imposed on Target today in the amount of $600,000 provides another chilling example. The Target penalty is the equivalent of $1.10 per unit recalled. The October 2009 penalty applies to sales made between May 2006 and August 2007, and two of the three voluntary recalls resulted from Target’s unprompted, good faith self-reporting. The Settlement Agreement and Order even states: “Target’s quality assurance procedures were reasonable and satisfied the standard of care. Target’s knowledge when the subject products were imported and offered for sale was that they complied with the lead paint standard. Notwithstanding satisfactory pre-production test results, certain units were subsequently found to contain impermissible levels of lead paint.” [Emphasis added] Notably, no lead-in-paint injuries were reported from the Target sales. The agreement also indicates that Target had begun to implement a new multi-stage testing and quality assurance initiative BEFORE the recalled items were manufactured, further confirming Target’s good faith and absence of presumed knowledge. Yet the company was forced to pay a $600,000 penalty for this unfortunate and regrettable incident. I also understand that many (if not all) penalties were imposed without negotiation, exposing the violative companies to an extended, expensive, highly public and risky investigation (with possible referral to the Department of Justice) if the settlement agreements were not signed. The inherently coercive nature of such demands, with appeal a practical impossibility for all but the largest violators, makes the CPSC’s penalty determination essentially final and non-negotiable. The power of the CPSC to impose penalties needs to be restricted to assure that the threat of penalties will not adversely affect the operation of markets and to eliminate abuse. In the current proposal, the ability of the CPSC to impose penalties is for all practical purposes unfettered. This is neither necessary nor desirable. In Order to Preserve Flexibility, the Factors Fail to Discount ANY Possible Penalty Scenario. The Discussion has repeated instances where the agency declined to take a common sense position, ostensibly because circumstances exist where a penalty might possibly be merited. For instance, the Discussion states: “Some commenters stated that the Commission should reserve seeking penalties only for the most egregious and dangerous situations and that most violations do not involve bad intentions or ill will. . . . Since the knowledge requirements in the CPSA, FHSA, and FFA include presumed knowledge, as well as actual knowledge, the Commission declines to follow the commenters’ suggestion to seek a penalty only where there is evidence of bad intentions or ill will.” [Another similar formulation is found in the Discussion on Section 1119.4(a)(4).] I interpret this verbiage to mean that under circumstances where the conduct is NOT egregious (no ill will or bad intentions) and where the hazard is NOT dire, the Commission anticipates that circumstances may exist where a penalty may still be called for. This could occur, for instance, where the company is persistently in violation of law (perhaps because of inadequate operational controls) or had repeated recalls for the same violation. In my opinion, the right way to word the Factors would be to state that the absence of egregious conduct or substantial product hazard would be considered as a significant mitigating factor to be weighed against the presumed knowledge built into the “knowingly” definition (see below). This formulation would lend much greater clarity to the rules and Discussion set forth in the Factors. Unfortunately, if the CPSC wishes to preserve total flexibility, it will eventually act arbitrarily in setting penalties and hence unjustly. In the same vein, the Factors do not place enough emphasis on consideration of positive factors. While the bad behavior or failures of an offending company should be considered in setting penalties, so should mitigating factors without limitation. For instance, the long term record of compliance should be considered when a violation is up for penalty. The investment in good faith safety practices and supply chain management should mitigate against evidence of non-compliance. The consideration of mitigating factors needs to be explicitly added to the process to ensure that mitigation is part of every penalty deliberation. The Factors Fail to Recognize the Potential for Myriad Technical Violations of the CPSA, as amended. The Discussion states: “Two commenters suggested that the Commission should evaluate violations of regulatory standards by distinguishing those that do not involve actual risk of harm, but rather the potential risk of harm, differently than those that do involve real potential for significant injury. The Commission declines to accept the suggestion that it distinguish any violations of regulatory standards, rule, or bans in this manner. The promulgation of a mandatory regulation by the Commission, or by Congress when they enact statutory bans and standards, carries with it a corresponding determination that the standard is necessary to address an unreasonable risk of injury presented by the product included within its scope. Violations of such a statutory provision or Commission regulation presents a risk to consumers that has previously been determined to be addressed by compliance with the statute or regulation. If the commenters’ suggestion were followed, the Commission would be classifying certain mandatory standards as more important than others. In addition, the comment does not account for the fact that the Commission can seek penalties for other prohibited act violations (in addition to knowing violations of mandatory rules, standards or bans).” As noted above, the Factors seem to seek flexibility without acknowledging the common sense reality of the regulated community’s situation. Regulated companies certainly recognize and respect that the entirety of the law must be observed. Nevertheless, because the CPSIA imposes so many tiny, hyper-technical obligations that can be the cause of (multiple) violations, penalties for repeated technical violations is a realistic possibility for almost all companies. If, for instance, a company has 50 violations of the advertising rules because of missing warning labels in catalogs or on a website (out of 10,000 relevant catalog listings), should they be subject to penalty? In my opinion, the Factors should clearly set out that some kind of violations are IN FACT different in nature and that the presumption will be AGAINST penalties in such circumstances. This preserves the ability of the agency to seek penalties for technical violations if the rare circumstances arise that merit such action. Clear statements of a presumption against penalties for technical or other low risk violations avoids terrifying the regulated community with the implicit threat that every violation could be subject to heavy penalty. [Consider the value of this change on the current trend among resale shops to refuse children’s goods.] For regulated companies, this clarification will significantly raise comfort levels and thereby strengthen the healthy operation of the marketplace. The Definition of “Knowingly” Should Not Expand the Use of Penalties under the CPSIA. The definition of “knowingly” under Section 20 of the CPSA introduces yet another opportunity for penalty abuse by the agency and should be restrained in the Civil Penalties Factors guidance. Under Section 20 of the CPSA, a “knowing” violation of the law by someone other than a distributor, manufacturer or private labeler will not result in a penalty unless the offender had ACTUAL knowledge. However, for distributors, manufacturers or private labelers, the definition of “knowingly” includes imputed knowledge, allowing virtually unlimited 20-20 hindsight by the CPSC. The potential for penalty abuse is demonstrated by the penalties announced for lead-in-paint in July. In the publicly-released documents relating to the first nine cases, each offender was apparently forced to sign an agreement admitting a “knowing” violation of the law, despite the fact that the agreements do not document actual knowledge. It appears to me that the imputed reasonable man standard could be described as “woulda, coulda, shoulda” (also known as 20-20 hindsight). Under the imputed knowledge standard, virtually any presumed knowledge can be imputed, especially when determined ex parte as is the practice at the CPSC. In the case of lead-in-paint, all the CPSC needs to do is impute a failed test report to create the illusion of a “knowing” violation (a test that may or may not have been run, even if not legally required). Even a manufacturing error could be subject to a “knowing” violation on this basis (as in, a reasonable man would have controlled for that error). We believe that a lead-in-paint violation backed up with PASSING test reports could also be considered a “knowing” violation since a reasonable man would have (obviously) run a more careful test on the right units to reveal the problem. [Target was cited for a “[failure”] to take adequate action to ensure . . . .”] The opportunity to assess penalties based on imputed knowledge verges on a strict liability standard, which is NOT what the law imposes. If the CPSC wants to impose strict liability penalties, it should say so in plain language. The issue of how to administer the definition of “knowingly” is especially important in light of the mind-boggling array of possible violations under the law. I would direct your attention to the Discussion section of the Factors in which the prohibited acts are described. ONE example of the new scope of the prohibited acts is set out thus: “The new amendments expand the acts prohibited under the CPSA and give the Commission the ability to enforce violations of the FHSA and FFA as prohibited acts under the CPSA. Thus, the amended CPSA now prohibits the sale, offer for sale, distribution in commerce, or importation into the United States of any consumer product, or other product or substance that is regulated under the CPSA or any other Act enforced by the Commission, that is not in conformity with an applicable consumer product safety rule under the CPSA, or any similar rule, regulation, standard, or ban under any other Act enforced by the Commission. 15 U.S.C. 2068(a)(1). ” [Emphasis added] For perspective on the breadth of these requirements, please note that at the ICPHSO conference in February 2009, I asked in a public Q&A session for a list of these requirements and was instructed by a senior CPSC staff person (in front of an audience of several hundred people) to hire a lawyer. No list of these requirements exists to my knowledge. As a member of the regulated community, I fear imputed knowledge of an ever-changing and evolving set of rules, regulations, standards and laws that have not been listed clearly by the regulatory agency. The CPSC Commission has an obligation to issue clearer guidelines that sets out precisely how imputed knowledge penalties will be assessed. While the Commission may prefer to retain full authority and flexibility for all possible fact scenarios, the ultra-flexible guidelines may create new and unintended victims. The Definition of “Defect” Needs to be Reconsidered. In the Discussion section of the Factors, the distinction between a product defect and an act of non-compliance has been extinguished. This is very unfortunate and needs to be reversed. While non-compliance can be controlled (at least in theory), product defects cannot always be anticipated, even by appropriate risk management practices. Despite the holding of the Factors on this point, the CPSC is well-aware of this problem and has admitted that it is no better than the regulated community at anticipating the unknown and the unknowable. On May 12, at the CPSC Tracking Labels panel discussion (Second Panel video, beginning at 58:40), John “Gib” Mullan, Assistant Executive Director, Office of Compliance and Field Operations, made the following statement during Q&A: “It’s hard though to predict risk sometimes. I mean, we do this. We don’t always see it coming. If you’d asked me a couple years ago, how safe is that drywall in your house, I would have said, you know, really safe. Man, that’s all safe stuff! But right now we’re dealing with drywall in a big way and that’s something that’s a brand new thing.” This analysis by Mr. Mullan essentially concedes that product defects cannot be equated with non-compliance since compliance can be planned for but latent product defects cannot be easily anticipated. If the CPSC cannot foresee latent safety issues in familiar products like drywall, the regulated community cannot possibly be held to a higher standard. Presumably, if the CPSC intends to impose unrealistic standards on the regulated community by allowing penalties for product defects, the agency would accept sanctions for its failure to anticipate the drywall problem in Florida and Louisiana. Of course, drywall sanctions would not be fair to the agency, and equating unanticipated product defects with non-compliance under the Factors would be no less unfair. Given Mr. Mullan’s observation of the difficulty of anticipating certain product defects or product problems, it is hard to comprehend why the agency chose to allow consideration of the complexity of identifying a particular product hazard ONLY IF the business had filed in a timely fashion under Section 15. This is a remarkably inflexible position, given that a business is required to file “immediately” under Section 15(b) (interpreted to be 24 hour notice) if it “obtains information which reasonably supports the conclusion that such product . . . contains a defect which could create a [a product defect which (because of the pattern of defect, the number of defective products distributed in commerce, the severity of the risk, or otherwise) creates a substantial risk of injury to the public] . . . .” In other words, a business has only 24 hours to report information that reasonably supports the conclusion that a serious product defect exists. If the incident is a highly complex situation, it might be difficult or ill-advised to report that quickly (further research might be needed, among other things). Of course, due process reasons may underlie a failure to file in the 24-hour time window, too. For hidden or emerging hazards, this formulation of the Factors is tantamount to saying that NO extenuating circumstances will be considered to mitigate penalties for unanticipated, highly-complex hazards. If that’s the intention of the CPSC, I think the rule would state it directly so that the regulated community can familiarize itself with the policy. Small Business Impact Guidelines Are Too Vague. The guidance provided by the Factors on the appropriateness of penalties on small businesses is in this author’s opinion so vague as to permit and support any conceivable outcome. The Factors as written seem to express a view that only the size of a penalty will impact small business. I do not agree with this as penalties may have a greater indirect impact on the small business community. In my opinion, the intent of this provision is to ensure that a rational and clearly stated policy on penalties will be designed to encourage the continued investment of the small business community in children’s products. These indirect or collateral impacts can also be regarded as “undue” under the statute. Small businesses are the economy’s most vulnerable participants. They are the most likely Darwinian victim of any shake-out in the marketplace. The CPSC’s Civil Penalty Factors will form base expectations for small businesses and will certainly affect their decision-making. Small businesses, facing an incomprehensible blizzard of requirements under this ultra-complex law, can be anticipated to fail in substantial ways. [However, it does not follow that small businesses will fail their customers or endanger consumers in general or in greater proportion than large companies.] Small businesses recognize their disadvantage in this new highly complex legal environment and will look to the agency for clues on their likely treatment in the event of regulatory problems. The outpouring of small business protests over the CPSIA in the past two years is evidence of the real fear in this community. For this reason, the vagueness of the Factors in defining the exposure and limits on penalties will ITSELF depress the small business environment. If a small business has exhibited good faith and its non-compliance does not lead to injury or reasonably foreseeable exposure of the public to risk of injury, the Factors should indicate that there is a presumption against penalties . If a pattern of non-compliance emerges in a series of interactions with the CPSC (e.g., a company clearly is informed of its legal obligations but persists in violating the law), then perhaps penalties can be used to bring the company into compliance. The selective use of penalties makes the issue of protecting small business much easier to administer. Thus, a clear statement of presumptions in setting penalties for small businesses would go far in limiting the impact on this fragile community. Lack of Focus on the Purpose of Penalties Will Lead to Arbitrary Results. The Discussion in the Factors makes clear that the agency will not take into account the materiality of risk caused by violations or restrict its penalties to egregious conduct. In not restricting penalties in this way, the CPSC opens up all violations to possible assessment of penalties. By considering virtually unlimited options for penalties, the ability of the agency to administer rational, consistent and predictable imposition of penalties will greatly decline. As noted above, penalties assessed this year seem arbitrary. The consequence of arbitrariness could be quite damaging to the regulated markets. These consequences deserve deep consideration by the agency. Once doubt about the fairness, consistency or rationality of “justice” under the civil penalties provision creeps into the mindset of the marketplace, investment decisions will start to be made differently. Business people prefer stable and predictable returns on their investments. If they perceive random justice, fairly or not, in children’s product markets, businesses may choose to shift their investment elsewhere to obtain more certain returns, or take other measures to protect their limited capital (such as draining resources from the company, significantly reducing product development investment expenses or restricting other business innovations). A useful change in the Factors would be a formalized appeal process which can independently and efficiently consider the merits of objections to penalties. While an independent appeal process may have the effect of limiting the authority of the agency to assess penalties, this process will also build confidence in the fairness of the process and in the agency itself. In the long run, a closer relationship with industry will lead to better safety outcomes, so this investment in mutual satisfaction with fair penalty administration will accrue to the benefit of the agency and consumers at large. Business Judgment, if Properly Exercised, Should be a Factor in Civil Penalties. I want to reiterate the point I made in my December 17 comment letter that the exercise of business judgment needs to respected by the CPSC and included as a factor in the setting of penalties. The exercise of reasonable business judgment is necessary to administer any operating business. The complexity of the CPSIA and CPSA is well-known and well-documented. Thousands of business questions remain unanswered by the CPSC since passage of the CPSIA almost 14 months ago, leaving open a vast array of legal or factual ambiguities and forcing critical business decisions to be made with great uncertainty. The fact that violations of the CPSIA can create civil or even criminal liability only exacerbates the problems faced by business managers today. Given that circumstance, it would be unfortunate if the CPSC were permitted to exercise 20-20 hindsight on reasonable decision-making. Notably, the Business Judgment Rule was developed to help corporate boards deal with basically the same issue, namely that managers will not exercise judgment if all decisions are subject to liability. A reasonable safe harbor would be a constructive addition to the Factors. The CPSC needs to recognize that only by cultivating the cooperation of the business community can safety gains be made and held. A fear-based enforcement system will lead to market dropouts and possibly bad behavior to avoid detection. Other federal agencies have long taken the approach of rewarding conscientious behavior and responsible decision-making. The Factors should take into account and respect the exercise of sound business judgment. The Factors Should Also Take into Account the Actions and Inactions of the CPSC. The Civil Penalty Factors betray a one-sided view of violative behavior under the CPSA and related statutes. While the Factors carefully document a variety of factors in the behavior of the offending company for consideration, it omits extenuating factors such as the behavior of the regulatory agency itself. For instance, right now there are thousands of unanswered questions in the possession of the CPSC, many of which are many months old. What if those unanswered questions relate to a penalty case? What if the pendency of an unanswered question forced a company to make a business judgment that is later deemed violative – is this entirely the company’s fault? There is no Factor enumerated which would introduce the behavior of the CPSC into consideration as a mitigating factor. Mitigating factors that might be relevant include (a) the investment made by the agency in education of a particular subgroup in the regulated community (Did the CPSC give seminars at trade shows or reach out to trade show participants regularly?), (b) the outreach effort made by the agency (Was a liaison office formed? Did the CPSC contact members of the regulatory community for counseling or Q&A? Did it attempt to run seminars on site for regulated companies to help broaden understanding of the complex new laws? Did it answer reasonable questions on a timely basis?), (c) the availability of programs to reward good compliance efforts, (d) the existence of prior disclosure options to eliminate penalties, (e) the rational and consistent pattern of penalties imposed by the CPSC, (f) the ability to appeal penalties to a neutral third party on a reasonable basis (In other words, has the agency attempted to relieve the coercive nature of the current penalty process?), and so on. Compliance is a two-way street. The idea that compliance is entirely the responsibility of the regulated community and that the regulatory agency has no influence over or any responsibility for compliance results, will not likely stand the test of time. The CPSC can anticipate and address this problem by building a fairer and more equitable penalty system upfront, something that will accrue to the benefit of the agency over time. We Support the Factors Which Evidence Bad Faith or a Pattern of Non-compliance. The inclusion of factors which reflects the consistent bad behavior of certain companies is long overdue. It is hard to not believe that we owe the existence of the CPSIA in part to repeat offenders of the past. While the purpose of penalties and even a regulatory agency itself could be debated, there is no doubt that these cases involve unnecessary risk to the public and demonstrate an intolerable disrespect for the law. That said, I do not believe that all infractions demonstrate disrespect for the law or operational incompetence. Careful and balanced factual inquiry is necessary to properly administer justice under the CPSA and to maintain a safe marketplace. I do not think that this factor should be over-played, however, as a market administered with an unrealistic expectation of perfect compliance with an ultra-complex law will be as self-defeating as lax treatment of repeat offenders. Some middle point will produce the best results for all concerned, including consumers. Thank you for considering my views on this important topic. Sincerely, Richard Woldenberg Chairman Learning Resources, Inc. 380 North Fairway Drive Vernon Hills, IL 60061

More here:
CPSIA – My Comment Letter on Civil Penalty Factors

CPSIA – Another One Bites the Dust (Change We Can Believe In?)

The funereal CPSIA has claimed another victim, a Chicago-based business named Woodland Magic Imports. This company is an importer of craft kits aimed at boys

See the original post here:
CPSIA – Another One Bites the Dust (Change We Can Believe In?)