Archive for October, 2011

Regulatory Malpractice

In a decision that surprised few, the CPSC voted today to ignore common sense and regulatory conscience. We witnessed a majority putting its last grasp of political power ahead of doing what was right.

In 2008, Congress required that we put in place a rule telling the regulated community how to test and certify that the products they make meet the relevant standards. The deadline Congress imposed has long since passed, but we all agreed that the details of the rule proved much harder to write than its basic idea did. Staff put much time and effort into a rule with some solid pieces that I could support. Then the majority, all behind closed doors, summarily dismissed these changes and determined they knew better than our experts. I cannot support their changes, and I cannot ignore their tactics.

The way the majority has handled this rule is, in my opinion, regulatory malpractice. They ultimately didn’t listen to staff, they really didn’t listen to Congress, they didn’t sincerely listen to the regulated community, and they certainly didn’t listen to their fellow Commissioners. All parties pointed in the direction of re-proposal so that we could hear and learn from public comment on the significantly changed rule and the new law surrounding it. Instead, the majority seemingly pushed this through because they soon would not be a majority.

Their reckless disregard for the value of public input in writing regulations is stunning. Other agencies have sought extra public comment when proposals or facts changed. Here, we had a new law change the framework supporting a rule, and, still the majority said we will listen to public comment only after we vote out the thing the public will be commenting on.

The majority is quick to suggest that seeking re-proposal is seeking delay. That’s pure fiction. I offered an amendment to re-propose this rule in light of the statutory changes Congress made, to make the rule better and more likely to stand up in court. Under my proposal, the rule still would have taken effect within the same timeframe as the rule passed today. The majority had a chance to get this done better and faster. Instead, they blew it.

My heart aches for any family who has lost a child due to a faulty consumer product. The pain they feel can never be dismissed or diminished. That pain, however, cannot justify irrational decision-making or misuse of power.

There’s an old lawyer adage: When you have the law on your side, pound the law; when you have the facts on your side, pound the facts; when you have neither the law nor the facts on your side, pound the table. The table-pounding by my colleagues today speaks for itself.

This arrogant dismissal of input from both peers and the public on such an important vote betrays the public trust we bear to implement statutes fairly, openly, and responsibly.

Major Rule, Major Costs

For those of you who aren’t experts in the field of administrative law, when an agency issues a significant new rule, it has to do what’s called a Regulatory Flexibility Act analysis, also known as “Reg Flex”. That’s not Calisthenics for Commissioners (though that’s not a bad idea). It’s a report that examines the impact a new rule will have on the economy, and specifically on small businesses.

The Reg Flex analysis for the testing rule we will vote on tomorrow looked at the costs of this rule, especially on small businesses.  Here is some of what our staff is telling us:

  •  This rule “will have a significant impact on all firms” making children’s products.  For example, the staff estimates that for large firms, increased testing costs will be approximately 1.2% of revenues.  For small firms, testing costs as a percent of revenues could be expected to increase to a staggering 11.7%. 
  •  The rule will have this financial impact on all manufacturers and importers of children’s products.  While we do not have a good handle on precisely how many firms this may be, it will be in the hundreds of thousands of firms.
  •  The testing rule “could be a barrier that inhibits new firms from entering . . . the market.”
  •  Impacted companies may “forgo or delay implementing improvement to products’ design or manufacturing processes in order to avoid the costs of third party testing.”
  •  Firms may be able to mitigate “the adverse impacts if they are able to raise their prices to cover their costs.”
  •  “The impact is expected to be disproportionate on small and low-volume manufacturers.”

At a recent briefing on this rule, one of my colleagues suggested that we already have done everything we can to reduce the costs of this rule.  What I believe he was saying is that we have done everything three Commissioners are willing to do to reduce the rule’s cost.  There are a number of things we could actually do to bring down the testing costs imposed by this rule.  Some of those things are even suggested in the Reg Flex analysis.  And we could still have a robust testing rule to address safety concerns. 

We know that this rule will burden our economy.  Our staff says so.  Because Congress was concerned about the high costs of testing, it recently told us to seek out ways to reduce the testing costs in this rule.  Therefore, before issuing this rule, we should do as Congress asked and look at ways to reduce the costs of testing consistent with assuring compliance with our safety standards. 

Unfortunately, politics often trumps good policy here at the CPSC, so tomorrow we will issue a final testing rule and then look for ways to reduce costs of the rule we are issuing.  Talk about putting the cart before the horse!  And this approach certainly raises the question of how sincere the effort to reduce costs will be. 

While we all agree on the goal of child product safety, I am convinced we can achieve that without incurring the staggering costs identified by our staff.

Solid Floor or Trap Door

Government shouldn’t be in the trap door business. The idea is to let people know what the law is, so that we have the moral ground to penalize violations. I’m worried the CPSC’s looming testing and certification rule has at least one giant trap door built in, and it creates opportunities for abuse. 

Along with initial and material change testing by an independent third party testing lab, this rule tells manufacturers to third-party test each product periodically for as long as it’s sold. What worries me is how we’ve structured the periodic testing.

Our rule tells manufacturers to third-party test at least once a year, or once every two years if they have production testing, or once every three years if they have their own lab certified by ISO. That sounds simple enough, but we’ve left a trap door.

Those intervals are ceilings, but the rule doesn’t have a floor. Manufacturers may have to test much more often than what is outlined above, but we’re going to put all the risk on them for making the right judgment call. What the rule actually says is that products need to be tested often enough to give a “high degree of assurance” of compliance, and then it gives ten factors – all of them judgment calls – we think manufacturers should consider.

This creates a situation where a well-intentioned manufacturer could set an interval it thinks is appropriate based on our factors. Then, when we step in to investigate an issue, we get to decide on our own with the benefit of 20/20 hindsight if that was good enough, with no limits on our discretion.

The obvious uncertainty that means for manufacturers is bad enough, but, worse, it’s an avenue for abuse. When a manufacturer – again, trying to do things the right way – is negotiating with us the remedies for a problem, including monetary penalties, we could stack on extra “violations” for its failure to read our minds accurately on the testing interval.

My colleagues have told me my fears aren’t real, and there’s no way we would use our rule like this. If that’s the case, why write it this way at all? Why not just make it clear: If you don’t do production testing and don’t have an ISO-certified lab and you third-party test at least once a year, you’re fine; if not, you’re in violation of this aspect of the rule. Period. No mind reading. No guessing games. No trap doors. Just a clear rule and clear enforcement, the way it’s supposed to be.


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