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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.

Recall the Recall Rule

Earlier this week I was at St. Louis University to present at its product safety management program, an intensive executive education course offered by the University’s business school for product safety professionals.  I have done this several times before and, as always, the students were smart, insightful and articulate as they posed practical questions about complying with the complex CPSC rules that have been issued over the past several years.

It was interesting to me that the class participants were all aware of the CPSC’s proposed changes to the voluntary recall rule.  Quite a bit of concern was expressed by the class about how those rules, if finalized, would change the recall process.  I was very impressed that company compliance professionals are watching what happens with this rule—clearly, this is not inside baseball.

Much has been written about this proposed rule—how it is a solution in search of a problem; how it will fundamentally change the voluntary recall process; how it will slow down recalls to the detriment of consumers.

The Washington Legal Foundation recently asked me for my thoughts on how the proposed rule would impact the voluntary recall process.  Today they published my article and you can find it here:

http://www.wlf.org/upload/legalstudies/legalbackgrounder/042514LB_Nord.pdf.

Let me know what you think.

I saw it on the Internet; it must be true

Earlier this week a friend told me that unfair and misleading information had been put on his Wikipedia page without his knowledge. While I have no idea how things get cautionposted on Wikipedia, I do know that, with greater frequency, Wikipedia posts are being cited as fact. And I could not help but think about how the process of morphing disinformation into “factual” information would be accelerated if the federal government could cite, use, and repost information found on the internet without making efforts to verify the validity of that information.

Unfortunately, that is exactly what the CPSC is suggesting it be able to do in a proposed rule that would “modernize” its regulations dealing with information disclosure. The law requires that the public disclosure of any information obtained by the agency that identifies a manufacturer or product be accurate and fair. The current regulations set out a process for checking with the product manufacturer to verify the accuracy and fairness of the information proposed to be disclosed. The agency now proposed to substantially change the rules with respect to how it carries out its responsibility to assure the accuracy of the product-specific information it publicly discloses.

Among other things, the agency wants to republish with impunity information about a product that has already been made public, including information on the internet.  The agency would have no obligation to go back to the manufacturer to verify the accuracy of the information it proposes to republish. Apparently checking the validity of such information is just too much of a burden. And publishing unverified information by the federal government lends credence to that information, regardless of its accuracy.

While I leave to others to opine on whether this comports with the letter of the law, it certainly violates the law’s spirit. My friend discovered that, on the web, anyone can say anything about you. But is it right that this behavior be condoned and promoted by the federal government?

There are a number of other troublesome changes being proposed by the CPSC’s proposed rule on information disclosure. Comments on the proposal (Docket No. CPSC-2014-0005) are due on April 28. Anyone concerned about agency fairness should read the proposal, go to regulations.gov and submit comments.

Déjà Vu All Over Again

Yesterday the CPSC held an all-day meeting to again address ways to reduce the costs of third party testing.  Recall that three years ago, in Public Law 112-28, Congress told the agency of its concern that testing costs were imposing an undue burden and directed the agency to identify and implement opportunities to reduce that burden.  Over the past three years, the agency has asked for public comment on opportunities to reduce testing costs three, or is it four, times (but who’s counting).

Yesterday’s meeting focused on whether the agency should make “determinations” that certain substances do not and cannot contain phthalates and the various heavy metals listed in the toy standard, ASTM F-963. This inquiry is patterned after the action the agency took in 2009 when it determined that certain substances, such as natural fibers and untreated wood for example, did not and could not contain lead and so therefore there was no need to test for it.

Perhaps the agency will determine that the same substances that are exempt from lead testing should also be exempted from testing for phthalates and heavy metals.  If it does, then perhaps that action will provide a bit of relief for those companies that have been engaged in such useless testing.

But I have two questions for the agency:

(1)  What took you so long to reach such an obvious conclusion?

(2)  What more are you going to do to carry out Congress’ mandate or do you plan to stop there?

The agency was able to make its lead testing determinations very quickly and with a minimum of regulatory gyrations.  It has taken the current agency three years to even make an inquiry into questions that should have been very easy to answer.  What may come out of this exercise is very minimal relief with maximum patting oneself on the back for reducing testing costs.   I do hope the agency proves me wrong.

 


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