The Baby and the Bathwater

Former long-time CPSCer and agency executive director Patsy Semple used to regularly remind the staff  to “not throw the baby out with the bathwater.”  In other words, do not, through excessive zeal, eliminate the good while working to eliminate the bad. baby-bathwater

Patsy’s admonishment came to mind when, earlier this week, I read an excellent article by Lee Bishop, a very well-respected practitioner, in the Product Safety Letter.  Here is a link to the article.

Using CPSC published statistics, Lee notes that the number of voluntary Section 15(b) reports (required when a company has reason to believe a substantial product hazard may exist) resulting in a recall has dropped dramatically in 2013 compared to earlier years.  Because these reports are what usually triggers a recall, it is no surprise that the number of recalls has also gone down. Lee catalogues recent agency policy changes that, taken together, have resulted in a more punitive posture on the part of the CPSC. As a result, rather than following the agency advice of “when in doubt, report,” more companies are being cautious about reporting to the agency for fear that a marginal safety issue may be turned by the agency into a big enforcement headache.  Lee concludes that the statistics suggest “more companies appear willing to take the risk of a penalty for late or non-reporting for marginal safety issues over the second-guessing and punitive treatment that are now routine for companies that turn themselves in and volunteer to conduct recalls.”

As one seasoned CPSC staffer told me at a recent event, the focus of the agency is more on finding violations and seeking penalties than on trying to work with product sellers to solve safety problems. This is a short-sighted approach that ignores the fact that product safety can best be achieved when regulators and product sellers work collaboratively to address problems.  It is time for the agency to start paying more attention to the baby and less to the bathwater.

 

Testing Assumptions

This week I had the pleasure of speaking to the leadership and staff of the American Association for Laboratory Accreditation.  The association accredits third party testing laboratories to a wide range of standards including, but not limited to those issued by the CPSC.  My presentation was an opportunity to discuss how the agency has implemented the CPSIA with a special focus on the agency’s testing requirements.  However, this was also an opportunity to have a free-wheeling conversation about the role that testing and testing laboratories play, and should play, in product safety.

I asked these experts whether third party testing of children’s products was the most effective way in all cases to assure regulatory compliance.  Interestingly, these representative of the testing laboratories agreed that while third party testing is the most expensive compliance tool, it is not always the most effective tool.  They pointed to the EPA’s green appliance regulations as an example of an effective regulatory regime that does not mandate third party testing. They pointed to NIST’s accreditation of first, second and third party testing laboratories to make the point that it is possible to oversee the integrity of in-house testing.

I pointed to the rule to require warning labels on slings—cloth infant carriers—that the agency plans to proposed next week, asking whether sending slings to a third party testing laboratory to “test” whether the label was correct was an efficient use of resources.  While the audible answer was “probably not”, judging by the body language of the folks in the room, the real answer was “are you kidding me?!”

I asked these experts about whether testing variability occurs among different labs or within the same lab.  The answer I got was “Of course it exists.  Everyone knows that.”  Apparently, everyone but the CPSC. This is an issue I tried to get the agency to address when I was a Commissioner but agency leadership was steadfast in refusing to even see lab variability as an issue.

We talked about the feasibility of laboratories discounting prices to small businesses who are suffering mightily under the burden of CPSC-required testing.  Commissioner Adler has suggested that laboratories do that since the testing requirements of the law and the CPSC regulations have provided laboratories with such a business windfall.  The conclusion of these experts was that this is not a workable option for a wide variety of reasons.

However, we did talk at some length about the role testing laboratories could play in assuring that testing resources are directed at those products that pose the greatest risk and are not wasted on unnecessary testing.  I challenged the industry to participate constructively in suggesting ways to reduce testing burdens beyond the rather unimaginative actions now being taken by the CPSC. While the industry may experience some short-terms gains by a system that requires excessive and burdensome third party testing, everyone, including testing laboratories, benefits from a system that deploys resources efficiently and reduces the costs that product sellers (and consumers) pay to assure safety in the marketplace.

 

Illusory Process = Diminished Results

The CPSC staff is now collecting and cogitating on information about how phthalates—substances added as plasticizers to make plastics soft and pliable—are used to manufacture children’s toys and child care articles.  This activity is part of the agency’s effort (perhaps its only effort?) to minimize the burdens of third party testing, as required by Congress in P.L. 112-28.  If the agency can conclude that certain substances do not and cannot contain illegal phthalates, then it can determine that products made up of those substances do not need to be tested for phthalates.

The problem is that the way the agency is going about its inquiry is almost guaranteed to result in very little relief.  And since phthalates testing is very costly, an illusory process that is structured to minimize any relief available does not reduce the testing burden Congress was trying to achieve, much less what responsible regulators should insist on.  The problem with the phthalates inquiry is that the agency is requiring that stakeholders not only show that phthalates are not now being used in the manufacturing process, but also to show that it is impossible that they will be so used any time in the future, in any place in the world.  In other words no matter how much real world data one supplies, it cannot proof the negative as is being asked by the CPSC staff.  Although we all know the moon is not made of green cheese, who can say what will happen in the future.

The outcome of this inquiry is pretty clear.  Certain predictable substances, such as natural wood and fibers, will eventually receive exclusions from testing (after how many years of costly and unnecessary testing?).  The bulk of products that do not use phthalates but whose makers cannot now predict the future in the absolute terms required by the agency will not get relief.  The agency will claim this as an accomplishment and close up shop on any real burden reduction.

I do not understand why the agency has taken the approach it has.  A real and honest effort to understand where phthalates are used, where they are not and then address its compliance efforts at where they are used and its burden reduction efforts at where they are not would result in significant relief.  Rather than ask stakeholders to prove a negative, they should ask stakeholders to help them understand where the agency should be looking for phthalates.

The response, no doubt, is that a collaborative approach does not guarantee that phthalates will not be added by some unscrupulous manufacturer at some point in the future.  However testing relief does not relieve anyone of complying with the underlying phthalates prohibition.  And the agency has plenty of tools to address that eventually if it were to occur.  Because the phthalates prohibition must be complied with regardless of testing, the agency cannot say that its current constrained approach is required to be consistent with assuring compliance with the existing law.  Denying testing relief to the vast majority of manufacturers who do not use phthalates because of some imagined future scenario which the agency can address should it occur does not carry out the spirit of the law Congress passed.

Fielding Differences

BUT BY WHAT MEANS?

It has been said that no two people ever read the same book.  Our perspectives and reactions are all influenced and informed by the points of view we bring to a particular issue.  This is especially true of commissioners at the CPSC who bring a wealth of experiences to the agency and whose outlooks are influenced by those experiences.

My former colleague and good friend, former Commissioner Anne Northup, and I did not always initially agree on various issues that we were confronted with.  But because of mutual respect for the other’s point of view, we were usually able to find common ground on most issues.  Even when we differed in approach or outcome, those differences provided opportunity for healthy debate and persuasion, which is the point of regulatory commissions.

One example of this was the commission’s approach to regulating small powerful magnets.  Former Commissioner Northup and I approached the issue from very different perspectives.  Commissioner Northup voted to bring an administrative action to force a recall of Buckyballs, the brand name of the most popular magnets sold as an adult desk toy.  Like all commissioners (myself included) she was very concerned about the number of injuries to children who swallowed the small magnetic balls.  She saw this as a product that was attractive to children and so, should be regulated as a toy.

My approach was different.  I was concerned by the fact that the product seller had gone to extraordinary lengths to market the product as an adult product.  I was unsatisfied with the commission’s view that it is appropriate to ban a product that is being safety used by its intended audience when unintended users are being harmed through misuse of the product.  I was concerned that the administrative action the commission undertook was tantamount to backdoor rulemaking and that if the commission wished to regulate this product it should do so directly.  Finally, I objected to the agency’s approach to contact retailers informally asking them to pull the product (thereby destroying its market without any kind of due process) rather than go to court to seek an injunction against the sale of the product during the pendency of the lawsuit (as the law allows).  Former Commission Northup shared this last concern.

Former Commissioner Northup recently wrote an opinion article that describes her reactions to the recent settlement of the CPSC’s administrative suit against Buckyballs.  Her article is worth reading.  Like me, she is most disappointed that the agency staff, presumably with the acquiescence of the Chairman, expanded the scope of the lawsuit to include one of the company’s principals as a party in his personal capacity.  This unprecedented action was never put to a vote and, hence, was not done by agreement of the commission.

While Anne and I did not agree on the merits of whether this case should have been started, we do agree that it soon badly went off the tracks.  And I cannot find anything but agreement when she concludes that “collaboration with manufacturers and retailers is a faster and fairer way to protect the public…”  Unfortunately, this is a lesson that I do not think the agency has yet learned.

 

Betting on the CPSC–never a sure bet

Earlier this week the Senate Commerce Committee had a marathon confirmation hearing with several subcabinet nominees from various federal agencies.  The hearing included in this disparate group Commissioner Robert Adler who has been nominated for a second seven year term on the CPSC.  Because of the number of nominees before the Committee and votes on the Senate floor, the hearing was rather truncated without much probing of Commissioner Adler’s views on issues before the CPSC.

Nevertheless, Senator Thune, the senior Republican on the Committee, did ask Commissioner Adler to explain the agency’s delay in implementing PL 112-28, which directed the agency to work to reduce the costs of third party testing.  Senator Thune made similar inquiries with the two earlier nominees, demonstrating that he has concerns with the manner that the agency is implementing the law.

Commissioner Adler’s response to Senator Thune was both interesting and disturbing for at least two reasons.  First, Commissioner Adler said that because of the way the law is written, it is “not easy to come up with” constructive ways to reduce burdens.  Huh?!  The public has presented many suggestions over the years as has the agency staff.  What is not easy is to get the Commission to devote the staff resources to get the job done.  This is a problem of the Commission’s own making and clearly the Commission does not want to clean up after itself—to do so would implicate several of the rules the agency put in place without regard to the burdens them impose.  The Congress told the CPSC that if it needed additional authorities to get the job done, then it was to come back to Congress with a request for tool to do the job.  No such report has been sent.  In other words, it is too hard to do the job, but the agency will not ask for what it needs to do the job.  In the meantime, scare resources are being spent on testing that does not advance safety.

Second, to demonstrate his commitment to carrying out Congressional direction, Commission Adler pointed to the one proceeding the agency has ongoing to address burden reduction.  This proceeding is to come up with “determinations” that certain products do not and cannot contain phthalates and various heavy metals.  This determinations proceeding, first suggested in 2011, finds precedent in similar action the agency took in 2009 to determine certain materials did not contain lead and so did not require testing.  However, the lead determinations took the agency a matter of months to put in place not the years that the current proceeding is eating up.

Commission Adler also stated that the determinations will solve the problem saying that the “small businesses I have talked to want expanded determinations” as if this is all they want.  Of course, if you are a small business making toys out of natural wood, you do not want to have to test for phthalates and heavy metals when you know they are not present.  That is pretty obvious. However, there are many other small businesses who look to the federal government not to put in place regulations that impose costs without added safety benefits; who want the federal government to consider laws in other jurisdictions and minimize repetitive testing; and who want to be able to have manufacturing processes that are flexible enough to meet market demands without having to stop to do third party testing when this does not add to safety but does impact their bottom line and their ability to expand and create jobs.

If confirmed, Commissioner Adler will be in office until 2021.  I was thinking about starting a pool on whether the agency will actually complete meaningful action to reduce testing burdens before his new term expires.  But given the agency’s pace and progress so far, betting on the agency to act is not a sure bet.

$375,000: The Price for Peace

Yesterday the CPSC announced that it has reached a settlement with Craig Zucker, in the litigation to force a recall of Buckyballs.  The Commission alleged that 0727_buckyballs_630x420Buckyballs, although designed and marketed for adults, were defective because a number of children had sustained serious injuries after swallowing the tiny powerful magnetic balls.  The settlement calls for the CPSC staff to establish a recall trust fund to manage the recall. Mr. Zucker will fund an escrow account to dole out money to the trust fund up to $375,000.  In its press release, the CPSC trumpets that this is “a win for safety.”  Mr. Zucker, on the other hand, says that he hopes “the settlement will discourage the CPSC from wrongfully pursuing . . . entrepreneurs in the future.”

Who, then, won and who lost?  In the most simplistic terms, perhaps one could say that the agency won since it accomplished a recall that would not otherwise have occurred.  But what is that recall worth and at what price was the recall obtained?

Left on the table is the question of whether Buckyballs are defective.  The government’s theory of defect was that warnings are not sufficient to prevent injury to an unintended user group and therefore the product cannot be made and sold, even though there were no injuries to the intended user group.  In the settlement Mr. Zucker does not concede that Buckyballs are defective, and the settlement leaves unresolved the agency’s apparent philosophy that a product can be banned if warnings do not work.

Also left on the table is the question of whether the agency even had jurisdiction over Mr. Zucker in his personal capacity. The agreement makes clear that Mr. Zucker is not conceding the issue of jurisdiction and so the applicability of the Responsible Corporate Doctrine is not addressed by this agreement except to say that Mr. Zucker personally is released from all agency liability (assuming it existed in the first place).

The recall itself is very curious.  The CPSC staff will implement the corrective action plan and claims (accompanied by proof of purchase or an affidavit attesting to purchase location and price) must be presented within six months of the recall trust being established and consumers notified of the recall.  Refunds will be made in the order they are received and any consumers who either file after the six month period ends or after the funds have been depleted are out of luck.  A web site paid for out of the recall fund will be established and maintained by the Commission for five years. The escrow account funding the recall will be closed after 12 months with any remaining funds reverting back to Mr. Zucker.  But since the government does not have experience administering recalls and will, no doubt, have to hire a third party (paid for out of recall funds) to administer the fund and oversee the recall, it is pretty unlikely that there will be any monies going back to Mr. Zucker.

The settlement agreement does raise a side issue that may be interesting to lawyers or students of regulatory policy.  The Antideficiency Act prohibits a federal agency from obligating the government to pay out money before funds have been appropriated and a real question exists as to whether this agreement violates the Antideficiency Act.  Further, administering recalls is not within the specified functions of the Commission and the act is rather specific in stating that recalls will be undertaken by the product seller.  It is not clear to me that the agency has the authority to take the actions specified in the agreement but it is also not clear who (other than the agency’s inspector general) would be in a position to object.

Going back to the question of winners and losers, it seems that there are lots of losers but I don’t see any winners.  The agency lost since it has spent substantial public resources (would it not be interesting to know how much the government has spent on this?) to reach an agreement that is about half a percent of what it initially wanted.   The agency lost because the issues that were central to the litigation were left unresolved.  Mr. Zucker lost because he, no doubt, ended up spending more in legal fees than the value of the recall and basically paid the government to get them off his back.

But at the end of the day, consumers lost. Scarce public resources were spent to achieve a recall that cannot be effective both because of how it is structured and what it is trying to accomplish.   Past experience shows that very few of these products will be returned, thereby achieving little added safety even if the government’s theory of hazard is correct.  And if the past is prologue, then the government achieved very little at a very great cost with consumers footing the bill.

 

 

Time for Doing the Work, Not Looking for Shortcuts

Those who follow the CPSC closely expect that the President’s new commission nominees will be confirmed soon.  The question is: will new leadership change either the tone or the direction of the agency?  Two exchanges during the confirmation hearings made my ears perk up since they went to that question.  Both exchanges addressed the regulatory approach of the nominees.

The first exchange dealt with testing burden reduction.  Remember that PL 112-28 directed the Commission to undertake actions to reduce the costs of third party testing or report back to Congress if it needed additional authorities.  Senator John Thune noted that the agency has done nothing to implement measures to reduce costs in any meaningful way.  Senator Thune asked each nominee, upon confirmation, to provide the Senate Committee with their plans for implementing efforts to reduce testing costs. Senator Thune has given the nominees a real opportunity to show leadership and provide actual relief from the agency’s overly-expansive and costly testing approach—which does not provide consumers with additional safety but does add additional costs to the products they buy.

So as the two nominees craft their plans in response to Senator Thune’s request, will those plans reflect business as usual, with the agency doing only enough to make it appear that it is doing its legal duty but still managing to avoid any real change?  Or will those plans show a thoughtful and creative approach to fixing a problem that Congress and members of the public have identified but which the leadership of the agency, up to this point, has sought to minimize?

Another interesting exchange during the hearing dealt with procedures for issuing regulations.  While addressing the five-year delay in issuing rules for recreational off-road vehicles, the nominee for Chairman, Mr. Kaye, bemoaned the lack of “express” rulemaking authority in the Consumer Product Safety Act.  He attributed regulatory delays to the findings the agency has to make before issuing a final rule and the cost-benefit analysis that he said was “unique” to the CPSC (implying that such analysis was overly burdensome).  But Mr. Kaye did not identify which findings and what aspects of cost-benefit analysis are overly burdensome to the agency. Having that information would provide the basis for a good discussion on regulatory policy at the agency.

Section 9 of the CPSA (15 U.S.C. 2058) spells out how the agency must go about issuing product safety rules or bans. The law states that before the agency initiates rulemaking it must make some preliminary effort to assure itself that the rule is indeed needed.  Those efforts include:

  • a first-cut at describing the potential costs and benefits of the proposed rule;
  • a discussion of why any existing voluntary standard is not adequate; and
  • a description of reasonable alternatives to the rule and why those alternatives should not be considered.

But which of these points of analysis do those advocating for express rulemaking want to eliminate?  Do we really want federal agencies beginning the rulemaking process without doing initial homework in the form of some upfront analysis to assure the public that the proposed direction is correct? To my ears, the complaint that doing your homework is too hard rings hollow.

But perhaps it is the cost benefit analysis that must been done during the rulemaking process that is the problem for those complaining about burdens and advocating express rulemaking.  The law states that the analysis must include a description of the potential benefits and potential costs of the rule and a description of the alternatives to the rule that the commission considered, the costs and benefits of those alternatives and a description of why they were not chosen.  But the law merely states explicitly what necessarily should be included in any competent regulatory analysis.  Unless we are willing to agree that the feds are always right in their regulatory approach, would we not want any agency to gather, write down and then actually consider that information before regulating?

I suspect that the real problem for those advocating for express rulemaking is the law’s expectation that the data will be used to inform results–that the agency actually will use the data to tailor or perhaps even change its preferred regulatory approach.  The law tells the agency that it may not issue a rule unless it finds, among other things, that

  • the benefits of the rule bear a reasonable relationship to its costs; and
  • the rule imposes the least burdensome requirement to adequately address the risk.

In other words, if the agency’s preferred regulatory approach is not the most efficient way to address a risk, then Congress expects the agency to change its approach.

Here are a couple of follow-up questions to the nominees.  Do we want the agency to be able to regulate without regard to costs and benefits? Should not the agency have to change its preferred approach if the costs and benefits are not reasonably related?  Do we want the agency to impose requirements that are more burdensome than they need to be and do so out of ignorance because it did not bother to consider alternatives?  I submit that we do not.  And I believe that experience over the past four years illustrates the importance of these requirements. Several extremely costly and burdensome rules were put into effect without the analysis described above since the CPSIA did not require that analysis.  Indeed, PL 112-28 was passed because the testing rule, not subjected to that analysis, resulted in costs that are excessive.

Regulation is not and should not be easy.  If data shows the need for a rule, then the agency should roll up its sleeves and get to work, not complain about how hard it is and look for shortcuts.  It will be interesting to see if the new leadership is up for doing the hard work.


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