Archive for the 'Small Business' Category



Tumbling into a Registry

Remember when you were a kid and you really wanted nothing more than to go out and play, but your parents said you couldn’t until you cleaned your room? Did you try to get by with just shoving everything in the closet? That worked right up until the door was opened and everything tumbled out, revealing the sloppiness of your effort. Now replace the child with a federal agency, and replace parental orders with congressional mandates. That’s what’s happening at the CPSC.

Like a child who “cleans” his room by stuffing everything into the closet, the CPSC rushed through a congressionally-mandated small-batch–manufacturers registry sloppily and at the last minute. As a result the agency may be failing to protect the very people the registry was supposed to protect. Last week, we finally issued a press release to let small batch manufacturers (SBMs) of children’s products know how they can take advantage of the testing relief Congress provided SBMs last August. Left unclear was whether an SBM had to be on the registry not to be required to perform certain tests that are mandated to begin in January 2012.

There is no new rule, and there was no Commission action. We shoved everything into a press release and called it a day. And to make matters worse, we issued our press release on December 23, during the holidays and just days before the new testing requirement kicks in. Our insincerity is obvious.

Another policy question not discussed by the Commission was this: Should the registry be public? There are reasonable arguments that it should be. However, there are also reasons why it should not be public since, by publishing the registry, we are implicitly releasing confidential information. (To register, a company has to be below certain revenue and product-quantity thresholds. Commissioner Northup has detailed the problems with publicizing this information, and I won’t belabor them here.) My key concern is there was no Commission-level discussion of this important policy issue.

Instead of working to find a compromise or a solution that would accommodate both points of view—something that could have been accomplished—the concerns of half of the Commission were ignored. The Chairman decided to call the process of establishing the SBM Registry and the attendant issues surrounding it “operational” rather than policy in order to act unilaterally through staff, instead of through a Commission vote.

They have told companies to use the complicated Freedom of Information Act (FOIA) exemption process if they want to keep the CPSC from telling their financial particulars to the whole world. That process requires time and legal expertise, and I believe our retreat to FOIA is contrary to the spirit of the law.

Congress wanted to relieve the product-testing burden for companies least able to bear it and to protect America’s vital small business job-creation engine. Do we really think Congress meant for these businesses to save money on testing just to spend it on lawyers? All these points could and should have been part of a Commission discussion, so people understand the reasoning behind these important decisions.

Will there occasionally be some substantial, fundamental disagreements about the best course of action? Of course there will be, but we owe to each other and the public to work to make those as infrequent as possible and to resolve them as best we can when they occur. I know we can do better, and I hope we will, but I’ll need some help from my Democratic colleagues to build a bridge.

The Song That Never Ends

If you’re a close watcher of the CPSC Commissioner’s Statements page (and, really, who isn’t?) you may have noticed that my good friend and colleague Commissioner Adler and I have had another round on our perpetual motion statement ride. Back when we took the vote on our lead standard, we got a glimpse of this dynamic, as Commissioner Adler waited a couple weeks after the vote and my written statement explaining my vote, then issued a statement of his own, directly attempting to rebut the arguments I made in my statement.  He has done the same thing with respect to the recently-issued Testing Rule.  We are now on our third round of statements responding to each other.

As I have pointed out, I believe that the purpose of a commissioner’s written statement is to explain why a commissioner voted in a particular way.  If we use our statements as vehicles to respond to arguments made in other written statements, then the commissioner who writes last has the last word.  By using statements to explain ourselves, rather than directly to rebut others, we can guarantee that we do not find ourselves where we are now, trapped on a spinning merry-go-round.

Commissioner Adler does not share this view. In his most recent addition to the dialogue, he explained his rationale. He views these statements as an opportunity for “robust discussion and debate on the critical policy issues that come up before the Commission.” Discussion and debate are wonderful things, but, with all due respect, the time for them is before a vote. That way, the discussion actually has a chance to shape the policy issues. Statement after statement after the fact provides no such opportunity.  It risks becoming repetitive very quickly with the potential for descending into the petty.

The astute reader will no doubt be asking why I have responded to Commissioner Adler’s statements—both the Supplemental and the Further Supplemental—if I believe the entire exercise is such a misuse of the forum. The answer is simple: Unilateral disarmament may be noble, but it looks the same as surrender. If I don’t respond to Commissioner Adler’s arguments, no matter how fallacious they are, it will appear that I have conceded them. That is not so, and it would be inconsistent with my public policy role to allow such a misconception to exist.

That reality—that a Commissioner cannot let the conversation be one-sided, even if she feels it is hopelessly misplaced—is precisely why the CPSC statement format works best when it is kept to an explanation of the author’s perspective and decision. If we all stick to that approach, we give the public a clear, concise view of the arguments surrounding each CPSC action (or inaction) and an opportunity to provide informed comment on future debates on similar issues. If just one of us abandons this approach, we will all be inevitably sucked into a potentially endless exchange that leaves the reader confused, annoyed, or both.

I love Lambchop, but The Song That Never Ends is best sung on children’s television, not by the leadership of a Federal agency.

Help Wanted: Fixing the Testing Rule

Yesterday, with little fanfare, the agency posted in the Federal Register an announcement that we invite comments from the public on ways to reduce the costs of third-party testing of children’s products required under the Consumer Product Safety Improvement Act.  This inquiry is mandated by a new law (H.R. 2715) passed by Congress this past summer.  After reviewing the comments we receive, we may either implement cost-saving changes to our regulations and/or report to Congress on additional authority we need to reduce costs.  This new law explicitly acknowledges what our staff economists have told us—third-party testing by outside labs is very expensive and will result in increased costs and reduced choices for consumers. 

I remain hopeful (call me naïve!) that, with this push from Congress, my colleagues will finally get serious about addressing the costs of the CPSIA in an honest and forthright manner.  However, the recent vote on the Testing Rule, which imposes expansive and expensive third-party testing requirements beyond what is required by statute, may show this hope is misplaced.  Today I filed a supplemental statement describing why I believe that the CPSIA does not require that all periodic continuing testing of children’s products needs to be done by a third-party lab.  Had my colleagues adopted this interpretation, testing costs would have been lowered without sacrificing safety and without the months of staff time the majority’s piecemeal approach will require.

I challenge readers of this blog to respond to the Federal Register request with comments on how to lower testing costs.  Be creative and constructive in your comments!  All suggestions will be read and considered, and I will be pushing my colleagues and our staff to actually think about ways to drive down costs and adopt the best ideas we get.

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.

What Does CPSC Stand for These Days?

The CPSC seems to be floundering around in the deep end of the pool without a lifeguard to save it.  What was intended to be a quick, “under-the-radar” vote to flip-flop on a rule dealing with swimming pool drains now has turned into a big mess. 

Common sense and good administrative practice say that when you reverse course, you should find out who will be impacted by your action before you do it.  This is even truer when there is no impetus for the reversal and no rallying cry or public discussion prompting you to act.

In this case, many states and local jurisdictions have relied on the guidance we gave them 18 months ago and therefore we should have determined how a rule reversal would impact them.  Since the agency refused to ask for that information, I did, and I have been getting a number of troubling letters that detail the adverse safety impacts and the financial and regulatory burdens we will be placing on those jurisdictions by this action.  These letters make clear that, had we bothered to ask the public for their thoughts in the first place, they would have had plenty to tell us. Now we have gotten a letter from the Chairmen of the two Congressional Committees who oversee our activities asking why we are taking this action without even asking for public comment. 

This is not the only instance where the Commission is rushing to regulate before the effects of potential changes are understood.  We will soon be voting on the testing and certification rule.  Our own regulatory analysis tells us that this rule will be enormously expensive.  Recently, Congress told us to better consider the costs of testing, especially to small businesses.  In response, the majority plans to push out a final rule with a vague promise to perhaps amend it before it becomes final final, after we get input from the public on ways to reduce testing costs and burdens.  So, without getting the cost information Congress told us to get, we’re going to put the rule out, then maybe change it after people have already started relying on it, thus increasing the cost even further.

Rushing out rules without concern for the consequences is becoming standard operating procedure for this agency. Between our blind rush on the testing rule and our belly-flop of a hush-hush reversal on pools, with the enormous sums of other people’s money we’ll be wasting in both actions, CPSC might soon have to stand for Consistent Producer of Sunk Costs.

Radio Interview on Over Regulating Government

Last week I talked with Hugh Hewitt, a nationally syndicated radio show host, about government regulation run amok. Hugh asked me if I thought the CPSC’s new regulations were straining an already struggling economy. I wholeheartedly agreed, and discussed (again) how the agency is not doing the required leg work before issuing rules. I will continue to work to change the poorly-thought-through rules now being implemented at the Commission. Click on the link below to listen to my interview with Hugh.

Hugh Hewitt Interview 9-13-11

Is The CPSC Taking Regulatory Reform Seriously?

Last week I discussed both substantive and process issues surrounding the periodic ongoing testing rule the majority shortly plans to ram through the commission.  A majority of the commissioners proactively decided that, since they were not concerned about the costs of the rule, they did not need to do a cost-benefit analysis.  This is true even though agency past practice and directions from the President would suggest that as the appropriate course of conduct. 

Last week I sent a letter to the Administrator of the Office of Information and Regulatory Policy, who is the person designated by the President to assure that the costs of regulations do not outweigh their benefits.  Here is a copy of that letter.  Should I get a reply, I will be happy to share that as well.

Majority’s Plan: Ram it through while we can

The past three days in this blog I have discussed my disagreements with the three-member majority on the Commission about the pending testing and certification rule they plan to ram through in October.

  • The proposed rule applies a one-size-fits-all approach to third-party testing that is guaranteed to be a misfit rather than requiring third-party testing where it is the most necessary (i.e., where the risk is highest);
  • The proposal needlessly sets detailed definitions of a “reasonable testing program” in regulatory stone; and
  • The voluntary component part testing rule—which holds the promise of actually lowering costs and for which work was completed some time ago—has been needlessly held back while we work on the testing rule.

I also question the insistence on rushing this flawed product through. H.R. 2715, passed just weeks ago, expressly instructed us to consider the costs of our testing rules and get public feedback on how to mitigate those costs while still ensuring the safety of children’s products.  It would make sense to get that information before we issue the rule, but the three-member majority doesn’t want to do that. I have to ask: If we don’t have time to get it right the first time, when are we going to have time to fix it?

Congress addressed another problem that I had with our proposed testing rule. The CPSIA required companies to submit “random” samples of their products for testing, but didn’t define the term “random.” It would have been good for the Commission to interpret “random” to mean that manufacturers couldn’t rig the game by choosing “golden samples” they knew would comply.

Our proposal, however, did not take that plain-language approach. It read “random” in a much more technical, complicated sense that might have meant lots of money for statisticians but little or no safety benefits beyond those of a common-sense reading.

In H.R. 2715, Congress resolved this dispute. The new law makes clear that Congress intended to prevent the cherry picking of samples by striking the word “random” and replacing it with “representative.” We could have done this by interpretation, but we chose to let others clean up our mess after the fact. Sound familiar?

 So:

  • Congress has expressly informed us that the majority was mistaken on at least one key aspect of the testing rule.
  • The new law re-shapes the landscape to require us to look at ways to reduce costs. 
  • The proposed testing rule has serious flaws that will make it more burdensome than it has to be and less effective than it could be.

Given all this, prudence indicates the path forward. We should take a few moments to re-examine what we’re trying to accomplish and how we’re trying to accomplish it. If we do that openly and sincerely, we will arrive at a better product.

Instead, because three members of the Commission want to do all they can while they still have their majority, they are poised to foist a misguided, misconceived, and likely expensive regulation on an already fragile economy. All with the promise that sometime in the future it could be fixed.  Man up and fix it now.


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