Archive for the 'regulation' Category



Court to CPSC: Your Magnet Rule’s a Turkey

Zen Magnets, the tiny Colorado company that has challenged the CPSC’s actions turkeyregulating small, powerful magnets, will be having a very good Thanksgiving this year.  That is because, once again, Zen has shown that it is possible to fight the federal government and win.  Today the United States Court of Appeals for the Tenth Circuit ruled that the CPSC’s safety standard banning the magnets sold by Zen did not withstand judicial scrutiny.  The court told the agency that if it wanted to regulate magnets it needed to follow the requirements of the Consumer Product Safety Act, and that it should go back to the drawing board and rethink its justifications for the rule.

The CPSA requires that the agency do a cost-benefit analysis and make findings that identify the nature and degree of the risk of injury weighted against the public’s need for the product and then regulate in the least burdensome manner possible.  The Court found that the agency’s analysis was deficient.  The court found that the agency overstated the number on injuries and neglected to consider the public utility of many of the uses of the product.  In other words, the statutory requirement to weight the costs and benefits of a proposed action is a critical part of regulating.  My experience in the last several years of my term as a CPSC Commissioner was that this statutory requirement was seen as an annoyance rather than as a tool for informed decision-making.  Perhaps the Tenth Circuit’s decision will change the agency’s approach to using this statutory tool.

The agency’s approach to regulating magnets has been characterized by an “ends justifies means” mind-set.  The agency worked to cut off the ability to sell the magnets through retail channels by “asking” retailers to stop selling the product.  The agency sought to recall the product, knowing that consumers would not respond to the recall but also knowing that this device could stop further sales.  The agency sued those few distributors who had the fortitude to challenge the agency’s action.  The one company that has stayed the course is Zen, and its success rate has been quite remarkable.  The administrative law judge that heard the recall action ruled in Zen’s favor.  Now an appellate court has found that the rule the agency issued to ban future sales of the product is defective because it blew by statutory requirements that provide for balanced decision-making.

Zen is like a little Yorkie terrier that has grabbed ahold of the ankle of the CPSC and will not let go.  Yet, through its determination to challenge what it believes is over-reach by the federal government, it has forced the agency to reexamine its approach to a serious issue.  It may be that, through Zen’s actions, the CPSC will come to understand that it can protect consumer safety without disregarding basic notions of due process.  What a good Thanksgiving that would be.

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Steps Forward; Steps Back

Now that August is over and Labor Day is but a memory, it is time to focus on how the twostepsforwardCPSC spent the closing days of summer.  On a positive note, the agency was able to push forward helpful initiatives that ease compliance costs without diluting safety.  Then they had to put a damper on this positive glow with threats of resurrecting the discredited and flawed proposals dealing with voluntary recalls and public information (the §6(b) rule).

Forward Steps

The recently published NPR interpreting the fireworks rule is one of those steps forward.  The fireworks regulation has been on the books for several decades and is sorely in need of updating.  Among many other things, the regulation is designed to address overloaded fireworks but does so in a less-than-straight-forward manner.  It bans fireworks “intended to produce audible effects” if those “audible effects” are produced by using more than 2 grains of pyrotechnic composition.  Rather than measure the pyrotechnic materials in the fireworks device to determine compliance, for years the staff has listened for the intensity of the sound produced by the device to determine if it was intended to produce audible effects or whether the sound produced was merely incidental to the operation of the device.  The staff’s determination as to how loud the device was, based on what a staffer heard, was hardly either objective or measurable and has resulted in compliance actions that have been criticized for lack of objectivity.

The American Pyrotechnic Association has a standard that actually measures the presence of materials that may be used to produce an audible effect.  The APA standard has been adopted by the Department of Transportation regulations that deal with the shipment of fireworks.  The proposal, which has been pushed by Commissioners Robinson and Mohorovic in particular, would adopt the APA standard as the testing measure for the CPSC as well. An objective standard would add clarity both for the staff who must make compliance decisions, and the industry which can stop worrying that compliance is dependent on a staffer’s ear.

Another example of a “step forward” is a proposal determining that four types of plastics used extensively in children’s products do not need to be tested for the presence of phthalates.  This proposal would put into action what product manufacturers have been telling the agency for some time—phthalates are not added to these substances and so testing for them both is unnecessary from the standpoint of safety and is costly and burdensome.  This proposal, which has been a long time in the making, compliments the flexibility found in the 2009 statement of policy on phthalates testing and, hopefully, should provide some relief to a number of manufacturers and importers.

Backward Steps

However, the Commissioners could not end the summer on a positive note.  Instead, on the last day of August, the Commissioners met to talk about their regulatory priorities for the upcoming fiscal year.  Observers of the agency are well aware of the controversy engendered by the agency proposal to significantly change the way voluntary recalls are negotiated and agreed to.  Similarly the proposed changes to §6(b) dealing with how information about individual products is made public would distort the statute and surely subject the agency to needless litigation. I have discussed the problems with these proposals in detail, and the Congress has told the agency to cease and desist.

Chairman Kaye has repeatedly expressed his lack of interest in moving forward with these two troublesome proposals.  However, each time he has been given the opportunity to vote to remove them from the agency’s regulatory priorities list, he has refused to do that.  At the recent priorities hearing he was given yet another chance to do that and he did not step up.  Instead, Commissioner Adler, a staunch foe of §6(b) and a supporter of the voluntary recall rule, announced that he would be trying to draft a “compromise” to offer at some unknown point in the future (and not specifying if that would be before or after the elections).  For those who thought that perhaps these two ill-conceived proposals were behind you, do not be so sure.  Commissioner Adler’s gambit may provide the excuse 3 Commissioners need to defy logic, good public policy and the Congress to promulgate these divisive and poorly thought-through rules.

EU-U.S. Regulatory Cooperation: Strides Made but More Should Be Done

Today the George Washington University Regulatory Studies Center released a significant report, “International Regulatory Cooperation:  Benefits, Limitations, and Best Practices.”  This report builds on earlier work done by the Center and examines opportunities to improve regulatory cooperation between the European Union and the United States.  The report is timely because negotiators from the U.S. and the EU this week are continuing their discussions to hammer out the Transatlantic Trade and Investment Partnership (TTIP) agreement.

The study examines the efforts of three federal agencies to foster regulatory cooperation, including a case study on the efforts of the CPSC, which I authored.   The case study builds on my experiences over an eight-plus year time span as a CPSC Commissioner, when I saw first-hand the need for collaborative efforts among jurisdictions internationally to address the issue of import safety. The study looks at the potential benefits of and the limits of and barriers to regulatory cooperation.  I also have made recommendations for changes that I believe would improve the agency’s ability to work with its foreign counterparts to improve safety.  The report identifies ways to reduce unnecessary regulatory divergences (and related wasteful regulatory costs) such as convergence on testing and standards, sharing of data and more active consideration of unnecessary differences when promulgating or reviewing regulations.

The CPSC has a good track record working with its foreign counterparts to enhance consumer safety. However, given the complexity of both consumer products and the global marketplace, consumer safety will demand even greater and more creative work among regulators but that work needs to minimize the unnecessary regulatory burdens that come from an unimaginative approach to regulation.

I would welcome feed-back to the recommendations made in this report.  Give me your comments here or at nnord@ofwlaw.com.

It’s Not Just Size That Counts

Today, the CPSC announced a civil penalty settlement agreement for an eye-popping $15.45 million.  The settlement involved dehumidifiers sold by Gree Electrical Appliances Inc.  The penalty is the statutory maximum that could be imposed and is well beyond any penalty imposed by the agency at any time in its history.

CPSC alleged that Gree:

  • knowingly failed to report a defect and unreasonable risk of serious injury to CPSC  with dehumidifiers sold under 13 different brand names (the dehumidifiers were recalled in 2013);
  • knowingly made misrepresentations to CPSC staff during its investigation; and
  • sold dehumidifiers bearing the UL safety certification mark knowing that the dehumidifiers did not meet UL flammability standards.

Given the size of the penalty, one should expect that the alleged misconduct to be off-the-charts in terms of the severity of injury to consumers.    Yet, even though the earlier related recall involved well over 2 million items and significant property damage from fires caused by the defective product, there are no reports of injury.  In fact, there is little to distinguish this hazard pattern from others involving defective appliances posing serious fire hazards where penalties have been fractions of the amount imposed in this case. Certainly there was potential for serious injury but the fact remains that there were no injuries.  While there was substantial property damage, presumably this was covered by insurance and it is not the purpose of the CPSC to protect insurance companies.

There is nothing in the agency’s press release or the settlement agreement itself to tell us why this case was so more egregious than other cases involving violations of the requirement to report hazards to the agency.  One has to assume then that it was the alleged misrepresentations to the government and the unauthorized use of the UL mark that bumped the penalty up to the limit.  But other than these general statements and based on what has been made public, it is not clear what actual conduct triggered such a huge penalty.  For those trying to stay on the right side of the law, the government has an obligation to be more transparent in describing the activity that warrants this type of penalty.

Certainly the allegations in the settlement agreement are very serious and, if true, warrant a significant penalty.  But it would be helpful to know whether this penalty is unique to a particular set of circumstances or is just a very large scalp from another “failure-to-report” case. As Commissioner Mohorovic points out in his statement, if the agency wants to change behavior through its penalties, it is important to more fully describe the behavior those regulated should avoid.

While this is a significant case because of the size of the penalty, its importance diminishes because of the agency’s opaqueness in describing the bad acts that occurred.  If you are not confused and troubled by all this, then I suggest you are not paying attention.

 

The Leap Year Effect at the CPSC

Leap year occurs every four years when an additional day is added to the calendar—February 29.  This is a corrective measure to account for a lack of precision in the earth’s orbit around the sun.   According to old folk traditions, during a leap year, role reversals are common, upsetting the usual norms of behavior.  We saw two examples of the leap year effect in operation last week when the CPSC considered its 2016 operating plan.

During last week’s meeting, Commissioner Mohorovic proposed that the agency adopt an enforcement policy to eliminate a costly and burdensome p impacting the apparel and footwear industry but that could set a useful precedent for other industries as well.  The 2008 Consumer Product Safety Improvement Act requires that manufacturers and importers certify that their products comply with safety regulations.  One of those regulations deals with the flammability characteristics of fabrics used in apparel, sets out testing criteria to determine flammability and exempts from testing those fabrics that, because of their weight and material, inherently do not present the risk that the rule is concerned with.  As the agency rushed to quickly (and somewhat thoughtlessly) implement the requirements of the CPSIA, a majority of commissioners determined that apparel manufacturers needed to certify that exempt fabrics were, indeed, exempt from testing—in other words, they were required to certify that they did not need to test and certify.  Talk about circuitous logic!

But this overreach by the agency is costing the apparel industry—and consumers–$250 million each year in paperwork costs.  These costs have nothing to do with assuring the safety of consumers and are totally related to wasteful paperwork requirements.  Commissioner Mohorovic was able to convince his colleagues to reverse their earlier position and adopt an enforcement policy that abrogates this process of “certifying that you do not need to test and certify.”

In a similar example of good judgment trumping regulatory excessiveness, at last week’s meeting, Commissioner Buerkle convinced her colleagues to agree to direct staff to prepare a briefing package on the attributes of the California revised rule (known as TB-117) addressing the smoldering hazards associated with upholstered furniture.  The flammability hazards associated with upholstered furniture have been flummoxing the agency since it was created.  The agency exacerbated the problem by insisting that any rulemaking address every ignition source for upholstered furniture fires —not only the vast majority of fires that are caused by smoldering cigarettes, but also those caused by open flames such as lighters and candles. This insistence made the process of writing a rule that much more difficult.  And since the majority of fires are caused by smoldering cigarettes, the agency’s approach meant that the risk of upholstered furniture fires went unaddressed while the regulators pursued unrealistic and uneconomical solutions.  Given this dithering on the federal level, California took the practical step of writing a standard that applied to smoldering fires, which account for the vast majority of fires.

Commissioner Buerkle’s proposal asking the staff to analyze the California regulation is a good first step in moving the agency toward a realistic and, hopefully, more timely effort to address this important issue.  After close to 40 years of analysis, it is time that the agency brought this rulemaking to a sensible resolution.  I hope that Commissioner Buerkle’s proposal has given the CPSC staff the latitude to accomplish this objective—one which advances consumer safety in a practice way.

Isn’t it too bad that leap year comes only every four years.

“Means are Inconsequential; Only the Ends Matter”

History is replete with examples of bad things that happen when good people, with good motives, act to achieve an end without regard to the means used.  The CPSC’s letter last week to sellers of self-balancing scooters (most of us call them hover boards) brings squarely to mind that Machiavellian notion about ends justifying means.

The agency’s action came in the form of a letter from the acting director of compliance to sellers of hover boards telling them that their products should comply with the newly-released UL voluntary safety standard addressing the risk of fire associated with some of these products. Those products that do not comply with this voluntary standard will be considered by agency staff “to be defective and . . .may present a substantial product hazard,“  thereby triggering the reporting and recall provisions of §15 of the Consumer Product Safety Act and related penalty provisions.  While this may perhaps be a good safety result, the statute sets out a path for achieving this result and that path involves a bit more by way of due process than just issuing a decree to make it so, as seems to have been done here.  That path forward is set out in §9(b) of the Act and instructs the agency on how to rely on voluntary standards to address an established safety risk.

Few would argue against the need to address the safety issues associated with hover boards that have been highlighted in recent months.  And the CPSC is to be praised for its desire to investigate and fashion an across-the-board solution as opposed to its unfortunate recent tendency to regulate class-wide hazards by recall or retailer intimidation.  But no matter how laudable the motives of the agency may be, short-circuiting the statute is never good practice by a regulator.  Yet, in a striking example of ends justifying means, this is exactly what the agency has done.

9(b) of the Act sets out a process for the agency to use when it wishes to rely on voluntary standards to address safety hazards. That process requires the agency to collect and consider public comments before making a final decision to rely on a standard written by a voluntary standards organization. Once the agency uses this process to rely on a voluntary standard, the reporting and related enforcement provisions of §15(b) apply.  This process has rarely been used by the agency.  Why this is true is inexplicable to me. However, its use would have allowed the agency to quickly put in place a regulatory mechanism to address the risks associated with these products in a way that was consistent with the statute and that respected the due process considerations central to good regulatory practice.  Aside from being the right thing to do, it would also bolster the agency’s enforcement position in the (unlikely) event its actions are ever challenged. Instead, the agency acted by fiat to achieve the result §9(b) contemplates without bothering to follow the statute.

Some may argue that these products are so dangerous that the agency needed to act quickly and just could not be bothered to follow the law.  But again, the statute contemplates this type of imminent hazard situation and instructs the agency on the path to follow in such circumstances, a path that also includes due process protections. The statute was written to balance the public’s legitimate safety concerns with the public’s need for procedural protections to assure a just and fair result.  Hop-scotching over the statute, no matter the reason, is not something the federal government should do.

Saying Goodbye to Another CPSC Star

Several weeks ago, Neal Cohen, the CPSC small business ombudsman, called to tell me that he was leaving the agency.  Neal created the job of ombudsman and it turned out to be one of the most difficult and most under-appreciated but critically important positions at the CPSC.

The office of small business ombudsman was set up in 2010 in an effort to respond to the growing cries, especially from the small business community, that the agency’s regulations implementing the 2008 CPSIA statute were imposing a crushing burden on product sellers, notably small businesses.  When the office was set up, I argued that it should be a true ombudsman, bringing to the agency the concerns of small businesses as well as developing and advocating for solutions to the problems that community faced because of agency action.  Instead, the office was designed to be an outreach and education office—to help the small business community understand and comply with regulations.   While not fully meeting the true definition of an ombudsman, this still was a very important role, especially given the complexity of the rules the agency was in the midst of writing.  And Neal was just the right person to fill the position.

Over the past five years, Neal has worked tirelessly to make sure that businesses, especially small ones, understand their safety obligations as product sellers.  He has designed educational programs, given presentations throughout the country, answered thousands of emails and phone calls, and through that process, has helped the agency put a human and caring face on its work.  The latest achievement of his office, development of the Regulatory Robot, an on-line tool to help businesses understand what regulations they are subject to, will continue to be a testament to his dedication and hard work.

Whoever follows Neal in this role will have big shoes to fill but also a very good role model for how to get done a difficult but important job.  February 19, 2016 will be Neal’s final day at the agency. And as Neal leaves federal service to go into the private sector, no doubt he will come to understand even more the important public service he provided.


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