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When Dan Marshall and Millie Adelsheim started Peapods Natural Toys and Baby Care in St. Paul 10 years ago, they set their store apart by carrying only items made from natural woods and fibers, to the exclusion of battery powered, plastic or vinyl toys.

Because relatively few American toy manufacturers were making the kinds of toys Millie and Dan were looking for, they imported a great deal from Europe – so much so that they became known among many of their customers as “the German toy store.” Over the years, they forged strong bonds with dozens of European toy makers, many of them with very small, artisanal operations.

So, when the toy recalls hit in 2007, Peapods was uniquely situated to take advantage of consumers’ desire to avoid toys made in China. “The Christmas season was just crazy-busy for us because of the recalls. I would not like that to happen every year. It was insane,” explained Dan.

One might think that the legislation that resulted, the Consumer Product Safety Improvement Act (CPSIA), would have little impact on a store like Peapods, given that virtually everything it carries is natural. In reality, the CPSIA has had a dramatic and negative impact on the business.

Dan said, “We had close relationships with a great many small suppliers – not necessarily the people you’d find at Toy Fair – and they are hit hard by this because they are required under the law to do testing at the same level as Mattel would. They’re getting quotes of, say, $4,000 to test a wooden rattle. As a result, many of the small, German toy companies are pulling out of the U.S. market. Upon learning of this, we became very concerned that we’re going to lose all our small vendors, and we’d only have a few brands left to fill our store with at the end of the day.

“In response to that, I set up the Handmade Toy Alliance (HTA), www.handmadetoyalliance.org, last November,” Dan continued. “I started recruiting representatives from our vendors and other retailers to work together to get some changes in the law, or at least in how it’s enforced. It really threatens what is special about our store. It also totally unplugs our ability to import directly from Germany because as an importer, we take on the responsibilities of a manufacturer and become responsible for the testing. Given the very small quantities we’re importing, we have no way to do it. It also forces us to re-evaluate everything we carry in terms of whether a company can afford the testing or not.”

More than 300 retailers and manufacturers have joined the HTA since Dan founded it. The group does a lot of work in educating people about the requirements of the act, and has been actively working with the Consumer Products Safety Commission (CPSC) during the rulemaking process currently underway. The rules being set now will determine specifics on compliance and what classes of products could be exempted from some of the requirements of the law.

While the rules are being finalized, some requirements of the new regulation have been put on hold, but painted toys must have certificates of compliance (COCs) now to meet the letter of the law. The issue, as identified by members of the HTA, is that the cost of compliance is especially onerous to small manufacturers. “We’ve already lost a number of vendors whose items are painted. They can’t be compliant, even though they have results from their paint supplier showing that the paint does not contain lead. Because of the way the law is written, the finished product must be tested,” explained Dan.

The alliance is pushing for component-based testing, which would allow manufacturers to prove that all materials going into a product are compliant. Thus, the finished product could be deemed safe under the law without having to test every single batch of every single line item made. The group is also requesting an exemption for natural materials that are known not to contain lead, like wood and fabric. Dan said, “We feel that those two proposals would reduce costs for manufacturers, and also push compliance up the supply chain, which would ensure a safer stream of products overall.”

Though it’s not clear what rule changes the CPSC will ultimately adopt, several U.S. senators and representatives are supporting the HTA’s efforts, and negotiations continue. Nonetheless, even some larger companies are finding the costs of testing so high that they are dropping some of their lines or pulling out of the U.S. market altogether.

And if the HTA and other lobbying groups can’t get the rules changed? Dan suggests that it might be a unique opportunity for a forward-thinking entrepreneur. He explained: “Say you have 100 stores across the country importing from one small toy maker. Each store is responsible for compliance, but no one can afford the testing, including the toy maker, who may pull out of the market. As a solution, someone could step in and become a distributor, if he could get the testing done for the certificates of compliance.”