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CPSIA – The Worm Continues To Turn

The day we all feared, the day we knew would come someday . . . well, the Federal Register says it’s coming soon. According to a notice of “Final Rule Stage” published on December 20, the CPSC is moving forward on the so-called “15 Month” Rule.

You have to chuckle at the “15 Months” part. This rule was legally mandated to be enacted 15 months after the CPSIA was signed into law. The presumed date of enactment would then have been November 14, 2009, a mere 14 months ago now. They didn’t even published a first draft until May 2010. If the agency can somehow finish this project by January 14, it could be called the “15 Months Times Two” Rule. Then again, it’s basically inconceivable that they will make it. Eventually they’ll need another name for this thing.

The urgency behind finishing up this rule is that the testing and certification stay expires on February 10, 2011. Remember that Bob Adler already said he wouldn’t vote an extension of this stay because . . . he hates stays. Perhaps he prefers market chaos and economic depression instead. Anyhow, to avoid the showdown, they need to get their ducks in a row, hence the need to get this rule going.

I sent in comments on the first draft of this rule on August 3. I wasn’t a big fan . . . and I guess other people had reservations, too. According to www.regulations.gov, the CPSC received 112 comments letters (that may overstate the number, because regulations.gov seems to have some duplicates). I haven’t read them myself, but I assume I am the only one who saw any flaws in this rule. The rest of the letters are probably just “thank you” notes.

Anyhow, it’s worth noting that the Chinese New Year occurs on February 3, 2011 so take my word for it, all the Chinese factories will be closed on Feb. 3rd and probably won’t reopen until Feb. 10 at the earliest after a two-week holiday. Some workers are gone three or even four weeks for this holiday. In a “best case” scenario, the CPSC can’t take action on this rule until they officially acknowledge the public comment “thank you” notes and hold a public Commission meeting. Do the math – if they choose to take action on this rule now, we will get about ten minutes notice to begin conforming. I can’t see any risk of market chaos again . . . can you?

Here’s a fairly obvious fact for you – we have not incorporated any of the pending rules into our supply chain or manufacturing processes. Why? You tell me what I’m supposed to do. The rule that has been published is deeply flawed and, basically, stupid. It is not a final rule. 112 comment letters were filed on it. It could change . . . it BETTER change. How am I supposed to implement rules that haven’t been published or possibly even written? Telepathy? I don’t read minds and I haven’t implemented the unknowable, either.

If this does not make your blood boil enough, consider these excerpts from the notice of Final Rule Stage:

  • “The U.S. Consumer Product Safety Commission is charged with protecting the public from unreasonable risks of death and injury associated with consumer products.” [Emphasis added] The CPSIA makes consideration of RISK by the CPSC illegal. Bummer, huh? Someone should have told the CPSC because they still claim to be concerned with “risk” of injury.
  • “When deciding which of these approaches to take in any specific case, the Commission gathers and analyzes the best available data about the nature and extent of the risk presented by the product.” And then ignores it??? See also the final bullet below.
  • “As for exemptions [from the "15 Month Rule"], the statute does not appear to give the Commission the authority to exempt firms from the testing or certification requirements, so it may not be possible to exempt firms within section 14 of the CPSA.” In other words, HTA, you can lump it. And the CPSC is telling you who to blame – Congress.
  • “The congressional mandate to issue this regulation does not require the Consumer Product Safety Commission to do a cost/benefit analysis for this regulation. Therefore, a cost/benefit analysis is not available for this regulatory action.” Head-in-sand syndrome. I bet you’ll be able to do a cost/benefit analysis pretty quickly when your costs go up again by 20x.
  • “[It] is not possible to provide an analysis of the magnitude of the risk this regulatory action addresses.” Ahem. And it’s okay to put forward a rule of this complexity and far-reaching impact while flying entirely blind because . . . why???

Let’s not forget that there’s a new Congress being sworn in January 5th. The incoming Republican House majority has pledged to shrink the federal government and to closely examine how regulatory agencies are governing. Hmmm. Help may be on the way . . . soon.

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CPSIA – The Worm Continues To Turn

CPSIA – What is a "Substantial Product Hazard"?

How does the CPSC decide which items to recall and which ones to permit to remain in the market?
The basis for a CPSC recall is found in Section 15(c) and 15(d) of the Consumer Product Safety Act. The CPSC is only entitled to recall items which present a “substantial product hazard”, defined in section 15(a) in relevant part as: “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.
Can the CPSC designate anything it wants as a “substantial product hazard”? Not in my opinion, if this legal standard is to have any meaning. Some things are substantial product hazards, and some things are lesser hazards. Those lesser hazards may still be of concern to the CPSC, but the agency lacks the legal authority to order their recall. Other solutions, such as public warnings or voluntary action by the industry, can appropriately address less severe risks adequately.
It gets tricky when there are injuries to children. [This legal dilemma has previously been parodied by The Onion - eerily anticipating the recall of dart guns pictured here.] If there are injuries or deaths, will the product always be considered a “substantial product hazard”? What if the accidents occur because of product abuse, recklessness or age-inappropriate behavior? If injuries under those circumstances constitute a “substantial product hazard”, will ALL similar abuses of products be considered a “substantial product hazard”? I would think this line of reasoning would make many things, including guns, knives and even forks, suitably for urgent recall. What about broken glass – if a kid eats broken glass or ceramic, wouldn’t he/she be terribly injured? Should the CPSC now recall everything made of glass? What about newspapers – paper can burn and cause injury. Recall the Chicago Tribune? [This is my fantasy.]
And if you can go this far, why must the abuse or inappropriate behavior even have to take place? Why not recall items just because you can imagine an injury occurring from an abuse that may have never happened? Is that a “substantial product hazard”? Is this pure fantasy or could recalls occur on this basis? Read on.
When there are injuries to kids, emotions run high, and the “substantial product hazard” standard expands. Add in newspaper headlines, and anything seems possible nowadays. Let’s not forget that in the last eleven years, there has been ONE death from lead, when a four year old swallowed a lead jewelry charm – and, BINGO, we were gifted the CPSIA as a result. The law gives a lot of wiggle room to the motivated regulator. Some recent recalls call into question whether the substantial product hazard” standard is being observed at all.

Case 1:
Cadmium jewelry. It is accepted that cadmium has been used in jewelry for decades, although not widely. Nevertheless, to my knowledge, there has never been a reported case of “cadmium poisoning” from jewelry. Pediatricians have virtually no awareness of cadmium poisoning as a health threat. The low probability of childhood injury from cadmium in children’s products is also evidenced by the CPSC’s lack of data on the health impact of ingesting cadmium in this form – it never came up until the Associated Press sounded the “alarm”. The available data on cadmium relates only to workplace exposure or airborne cadmium.
It is equally well-accepted that children inappropriately mouth jewelry. It is also known that children can and do swallow jewelry, which happens thousands of times each year. No child thinks jewelry is food – but these things happen.
Cadmium is in (some) children’s jewelry. Kids are known to mouth and/or swallow jewelry. Cadmium is a dangerous metal and can be harmful if swallowed. So, does this mean that cadmium in jewelry a “substantial product hazard”? Given that there has NEVER been a reported case of injury, it is hard to describe the risk of “severe” or even “substantial”. It is best described as “possible”. Yet, the CPSC has recalled cadmium jewelry three times now.
Unfortunately, the CPSC has chosen to respond to the stimulus of newspaper headlines and the ill-informed action of state legislatures, rather than the discipline imposed by its own statutory legal standard. By labeling this hazard “substantial”, the CPSC creates many problems that could have lasting impact on the market. It imposes high costs on the industry for something that may not matter much, dilutes the impact of recalls of more dangerous products (have you noticed that the pace of recalls has really picked up at the agency – does that help or hurt the CPSC’s mission?), and diverts the resources and attention of the CPSC staff away from larger and more pressing issues.
Perhaps worst of all, contrary to the assertions of Inez Tenenbaum, the confidence of the marketplace is being eroded by the deluge of recalls. Who can you trust anymore? Is the message that you can only trust Mother Government? If so, is Mother Government planning to take over the manufacturing of all children’s products next? No one will have enough capital to survive this style of “regulating” for much longer so they better get ready to take over. This is no market stimulus program.

Case 2
: Dart Guns. I am in the educational toy business and have children of my own. So I am prejudiced – I have no idea why anyone makes toys of this nature. Our company certainly doesn’t, and we never allowed them in our home either. However, in our society, guns and dart guns have a certain appeal and they apparently sell well. Family Dollar Stores sold 1.8 million units of a small dart gun set for $1.50 in recent years (pictured above). It looks pretty generic to me, and for $1.50, it is clearly a cheap, disposable novelty toy.
Sadly, two boys (9 and 10 years old, respectively) died in separate incidents in which they were chewing on these darts and aspirated them. The dart suction cup blocked their airways, leading to tragedy. These terrible accidents are sad confirmation of the unnecessary risk posed by dart guns as toys. But do these circumstances meet the “substantial product hazard” standard? If they don’t, how can the CPSC recall this item?
My argument is that while this toy is very objectionable and apparently capable of harming children, I do not know if they rise to the level of a “substantial” product hazard just because of the two accidental deaths (especially in light of 1.8 million sets sold, plus many millions more of similar items already in the market presenting the same “risk”). The statute does not provide that deaths automatically constitute substantial product hazards. Presumably, if that’s what Congress meant, it might have said so. The tragic accidents occurred when two children were doing something they shouldn’t. They were also at an age where they were supposed to know better. That doesn’t make the loss of these boys any less painful but it does suggest that these incidents were terrible accidents rather than substantial product hazards. It may be that the families’ remedies should be in the courts, not via the CPSC. In any event, if we (as a society) don’t like dart guns, that’s fine – we should ban them. Notably, the CPSC is not taking that position in this case.
Recalls cost a lot of money, and it is naive to believe that the market will not respond to an erosion in the legal standard for recalls. Legal standards are an important part of the “rules of the road”. If the rules change, the entire game changes. In this case, if we are all exposed to the risk of a massive, multi-year recall of our legal products because of accidents and tragedies arising out of misuse, we will have to change our business models in ways very disadvantageous to consumers. No one has the profit margin to accommodate these unplanned and random expenses. We have no answer for this business problem – we are not clairvoyant.
For small, niche businesses like ours, the erosion of expected legal protections is very scary. These recalls are a gross expansion of capricious government power, no matter how scary cadmium jewelry is or how much we might be angry at dart gun makers. With an increasingly reactive CPSC demanding recalls to meet the expectations of newspaper headlines, randomness is complicating business planning and generally demoralizing the regulated community.
I may sound like a broken record, but this style of government is stoking voter anger. We have little recourse over these policies or over the intransigence of the Dems in Congress other than in the voting booth. I, for one, won’t forget all this. We need a new sheriff in town.

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CPSIA – What is a "Substantial Product Hazard"?

CPSIA – CPSIA Casualty of the Week January 7

The Alliance for Children’s Product Safety’s “CPSIA Casualty of the Week” highlights how the Consumer Product Safety Improvement Act (CPSIA) is disrupting the U.S. marketplace in order to draw attention to the problems faced by small businesses, public institutions, consumers and others trying to comply with senseless and often contradictory provisions of the law. These provisions do nothing to improve product safety, but are driving small businesses out of the market.

Congress and the CPSC need to address the problems with CPSIA implementation to help small businesses by restoring “common sense” to our nation’s product safety laws.

CPSIA Casualty of the Week for January 11, 2010

NEW SAFETY LAW CLEANING OUT “THE KIDS CLOSET”

Kitty Boyce worked for 18 years to build her resale shop, The Kids Closet, located in Rochester, IL, into a well-known resale shop. With its colorful signage, brightly decorated interior and whimsical whale logo, The Kids Closet built its reputation on offering customers quality second-hand children’s products at great values.

Shortly after being voted the “Number One Place to Shop Resale” by the Illinois Times, Kitty announced that because of CPSIA she was converting her store to sell predominately teen and adult clothing, home accessories and furniture, and changing its name to Remarkable Resale. The loss of revenue in her shop due to the changes in inventory forced her to lay off several employees.

“CPSIA has been devastating for us,” said Kitty. “We just decided to get rid of all the toys and furniture. It’s just not worth the risk.”

While the Consumer Product Safety Commission has temporarily stayed requirements for testing and certifying products, all resale shops still must comply with the new lead and phthalate standards. Realistically, resale shops cannot be 100 percent certain that the used items meet the new requirements.

Due to the over-reaching law, Kitty Boyce’s dedicated attempts to provide children and families with reasonably priced, gently used baby equipment, furniture and toys have been shut down. For Kitty and others, the risk of enforcement action by state attorneys general or private groups is too great. The result is that during one of the worst economies in decades, resale shops around the country are avoiding selling winter clothing for kids and other children’s products.

This winter, ask Congress how denying a perfectly safe used winter coat to a child whose parents can’t afford to buy a new one is protecting that child’s health.

For more information about Kitty Boyce, visit http://www.thekidscloset.net/closet.htm

For additional information on the Alliance for Children’s Product Safety and CPSIA, and to view previous “Casualties of the Week, visit http://www.AmendTheCPSIA.com/.

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CPSIA – CPSIA Casualty of the Week January 7

CPSIA – Tracking Labels Answer Received Today

The CPSC answered my letter of September 18 regarding tracking labels today. In a nutshell, my question was about how small businesses are supposed to ascertain “cohort information” from fungible products if we are permitted to not use lot markings. The answer to that question was not clear (to me) from the Tracking Labels Guidance.

In today’s response, the CPSC seems to indicate more flexibility than I had read into the Guidance. Tony Cook of the Office of General Counsel states: “Your letter suggests that the manufacturer lacks flexibility regarding information that must be ‘ascertainable’. As with the ‘marking’ requirement, the manufacturer’s reasonable judgment and consideration of the manufacturer’s particular circumstances, are guiding issues.” He carries on helpfully: “Without such an approach, an absolute requirement to have ascertainable all required information would in effect swallow the Commission’s considered course with respect to marking.” This is the conflict that motivated my concern.

On the other hand, Mr. Cook states “. . . what can be marked and what can be ascertainable are separate questions”. This is the rub, of course. This means that even if you can’t mark the item, you might still have to be able to ascertain the cohort information. How do you do that? Well, you can’t.

It all boils down to what is considered “reasonable judgment”. In fact, I have never found this a challenging standard to meet in our business but that was before there were huge penalties and possibly jail time to consider.

In an environment where the regulators want us to exercise sound judgment, there needs to be some recognition that the incentive to take the risk of exercising judgment only makes sense when that judgment is PROTECTED. No one wants to risk huge fines for doing their job (or let their teammates incur this risk). Thus, I think the CPSC needs to look at the question about ascertainability again. The CPSC needs to say flat out that it will respect the judgment of manufacturers on how they determine which information, if any, can be ascertainable, as long as the decision on marking was deliberate, consistent and made on a good faith basis.

In the case of our business, tracking labels serve no particular purpose except to slow us down and waste our money. We have recalled 130 pieces since 1984 (out of an estimated one billion shipped, all units believed recovered) so the risk to consumers, at least thus far, seems controlled. I would like the authority to decide how much to spend on tracking labels and information retention/accessibility, based on my knowledge of our products, our market, our track record and our legal obligations. Then, if we exercise good faith and are reasonable and consistent in our approach to markings and cohort information, the CPSC should respect our decisions. thus, a failure to mark or ascertain would not be held against us unless our balancing of the equities is demonstrated to be unreasonable.

None of this would be necessary except for the ridiculous penalties and fines possible under the CPSIA. The indiscriminate manner of penalizing under the law makes minor issues (even inconsequential errors) into potentially serious problems. In addition, given that the CPSC recent practice of doling out penalties for long ago settled disputes, the long tail of 20-20 hindsight makes this dilemma particularly uncomfortable.

I appreciate the CPSC’s effort in replying to me, and look forward to working with them to bring more clarity to this very important point.

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CPSIA – Tracking Labels Answer Received Today

CPSIA – Recall Insurance Update

One of my eagle-eyed friends noticed an article (or ad masquerading as an article) offering a new recall insurance product in Earnshaws in its most recent issue on page 36. The subject of recall insurance has been on everyone’s mind since passage of the CPSIA. The new law considerably increases the risk and expense exposure from recalls in a multiplicity of industries. Earnshaws caters to the apparel industry, but the issues are the same elsewhere in the children’s products marketplace. The insurance broker here is HUB International. For those of you in the toy business, you may be familiar with them from messages sent under the auspices of the TIA. HUB International is endorsed insurance broker to the TIA.

The Earnshaws “article” touches on some important points:

  • “. . . with thousands – or in some cases millions – of units with an untold number of components and coatings, it’s not unreasonable to imagine that even the most careful company could inadvertently end up shipping goods that don’t comply [with the CPSIA]. The consequences of such an error would be costly and possibly catastrophic.”
  • “HUB has developed the Children’s Apparel Recall Expense (C.A.R.E.) program to cover well-meaning wholesales, importers and distributors of children’s apparel and footwear. . . .”
  • One happy customer noted: “We do not want to accept the risks of the threats we cannot control . . . .” [Emphasis added]

I particularly appreciate the tone of doom and regulatory randomness in this “article”. Of course we should all mortgage our houses to buy this insurance. As HUB notes, the consequences of an “inadvertent” error is “possibly catastrophic”. This point is not lost on their customer either, who notes that the risk cannot be controlled. Even “well-meaning” companies will be subject to this capricious fate. At least they can get insurance . . . . Ouch.

Hmmm, I wonder why the HUB customer thinks that CPSIA risks cannot be controlled. Could it be that Target was whacked with a $600,000 penalty for using reasonable QC procedures and meeting its standard of care, but nonetheless somehow failing to find a lead-in-paint violation in time. [Of course, they had passing test reports and turned themselves in as soon as they found the problem, but they're very nice in Minnesota. Nice, but $600K lighter now.] Could it be that Mattel paid for a massive recall, settled with California, settled with Arizona and 38 other states, paid a $2.3 million fine to the CPSC . . . AND still had to process and pay an extortionate class action settlement with plaintiffs attorneys to the tune of tens of millions of dollars – all for a violation that resulted in NO deaths and NO injuries? Nah, must be something else. . . .

So the ways to waste money on the awful CPSIA expands now to include Recall Insurance. Yet another reason for businesses to hang it up. And then, consumer advocates rejoice!, there will be fewer and fewer children’s product recalls to worry about – because there will be fewer and fewer children’s products available for purchase. What-a-country!

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CPSIA – Recall Insurance Update

A Quick Guide to What’s Wrong with the CPSIA

1. CPSIA Needs a Concept of Risk Assessment. The new law has absolute standards which are difficult or impossible to modify.Without consideration of quantifiable risk of injury, far too many safe products are swept up into this broad safety legislation.

2. Definition of Children’s Products Too Broad. By defining Children’s Products to include ALL consumer goods intended or designed for use by children up to 12 years of age, the new law incorporates many categories of products not previously subject to regulation or known to present a quantifiable risk of injury to children. There are similar concerns about the definition of Toys in the phthalate ban.

3. Retroactive Application of New Standards is Excessively and Unnecessarily Penal. The retroactive application of the new standards is causing widespread market chaos and significant business losses in a range of industries, including thrift stores, ATV dealerships, educational suppliers, mass market retailers and so on. The retroactive application is virtually unprecedented in the history of the CPSC and is not merited by quantifiable assessment of risk of injury.

4. Implementation Timeline is Unreasonable. The timeline of implementation of the new law left insufficient time to sell off inventory or transition manufacturing standards. Likewise, there was not enough time for the CPSC to manage the deluge of questions, certifications, rulemakings, etc. Lack of preparation time led to larger business losses.

5. Excessive Penalties and Possible Criminal Charges Are Unfair. The historical behavior of Children’s Products companies does not merit such extreme personal and financial risk. Whistleblower provision is equally inappropriate.

6. The Complexity of the Law Will Depress Markets. The many compliance and immediate self-reporting requirements makes compliance with all aspects of the new law unlikely for most companies with more than 50 products in their line.

7. Tracking Labels Will Cost Too Much and Bring Little Benefit. The cost-benefit of this provision is very unfavorable as vast numbers of items which would never be recalled will have to be tracked by lot. This provision will be very disruptive and expensive for most companies.

8. The Sum of the Requirements under the CPSIA Are Penal to Small Business. Large businesses selling through mass market outlets can manage the high expense of compliance with the CPSIA with high volume items. Small businesses will incur much greater costs per item, and will suffer competitively. Many small businesses are suffering because of this law already.

9. Effective Pre-Emption is a “Must”. As many as 38 States have pending or active children’s product safety legislation. The burden of understanding and complying with so many competing legislative schemes exceeds most companies’ capabilities. This explosion of law may reduce inter-state commerce.True pre-emption to restore Federal regulation of children’s product safety is called for.

10. State Attorney General Enforcement of the CPSIA Should be Abolished. Arguments that SAG enforcement increases the number of “cops on the beat” are false. SAGs have no obligation under the law to follow the lead of the CPSC or even tell the CPSC what they are doing. This means that there are now 51 CPSCs, an untenable situation for the business community – very risky!