In his appearance on Jay Leno's show last night, President Obama argued (video, transcript) for financial regulations by making a comparison between credit cards, mortgages, and toasters:
"When you buy a toaster, if it explodes in your face there's a law that says your toasters need to be safe. But when you get a credit card, or you get a mortgage, there's no law on the books that says if that explodes in your face financially, somehow you're going to be protected."
But is there really a law that says your toasters must be safe? Well, not exactly. You are protected by the protection of last resort -- the right to sue in a civil court for damages if you are injured. But it shouldn't have to come to that; there should be some sort of protection enforced by government. Yet for thousands of consumer products -- including toasters -- the Consumer Product Safety Commission (CPSC) has not crafted a mandatory safety standard. The agency essentially relies on manufacturers to police themselves.
In 1981, Congress amended the Consumer Product Safety Act, creating today's system: CPSC largely relies on industry-developed, voluntary safety standards to address product hazards. In practice, CPSC can only step in when a voluntary standard is found to be inadequate to reduce the risk of injury or if there is insufficient compliance in the industry. If CPSC does start working on a better standard, the industry can force it to put that on hold, essentially by saying "ok, we're working on better standards, give us some time." In the end, CPSC rarely undertakes the laborious process of crafting a mandatory standard.
The bigger picture problem is not just CPSC's limited legal authority, but its absurd lack of resources. The agency’s budget peaked just three years after it began operations, with $145M in funding for FY 1976 (that’s in 2007 dollars). By 1982, the agency’s budget had been whittled down to just $70M, and that budget has yet to fully recover to its original levels. The Consumer Product Safety Improvement Act of 2008 authorized an increase in funding from FY2010 through 2014 that would have put CPSC’s budget at $134M, but when the government started bailing out the private sector, Congress decided that it couldn’t afford an additional $30M for CPSC.
This isn't just about toasters. To be sure, there's no epidemic of toaster-related injuries. This is about a wide-range of products, products we may assume are carefully regulated, but actually aren't. Today's toothless and resource-starved CPSC just can't do that much. The agency ought to get the legal authority and funding it deserves and needs.
Matt Shudtz, Executive Director, Center for Progressive Reform. Bio.
| 1 There is another mechanism besides lawsuits and mandatory standards: recalls. I can be reasonably confident that a toaster I buy is safe, because a company producing an unsafe one would expect to get hit with a recall. (There have been lots of toaster recalls, btw.) -- Dan Wylie-Sears |
| 2 Dan Youre absolutely right, recalls are another regulatory mechanism available to CPSC. But theyre no substitute for good preventive standards. A recall doesnt happen until so many people are needlessly injured that CPSC has a good case for arguing that a product is defective and creates a substantial risk of injury to the public. Even then, CPSC has to negotiate the terms of a recall with the manufacturer or undertake a time- and resource-consuming formal hearing. And unfortunately, in the end, its debatable how effective recalls are once they've been announced. The recall numbers we see reported in the media are staggering (think of the several million toys recalled by Mattel in 2007), but those statistics do not reflect accurately the number of products that are actually returned, replaced, or repaired. According to the Consumer Federation of America, recalls are only about ten to twenty percent effective. -- Matt Shudtz |