Mattel agrees to $12m pay out over toxic toys

The scale of the financial and reputational risks associated with breaching environmental standards governing the use of potential harmful materials was underlined this week, when it was announced that toy manufacturer Mattel had reached a $12m (£7.7m) settlement with 39 US states following the discovery of excessive lead levels in its products last year.

The news prompted consumer rights groups to warn the rest of the toy industry to take greater care to ensure its quality assurance processes are robust.

Mattel, which owns the Fisher Price subsidiary and popular Barbie brand, must pay the money by 30 January next year, and will also be subject to strict controls over the future level of lead in its products.

The State of Massachusetts, which led the investigation into the company's practices, has taken $625,000 of the settlement figure. Half a million dollars will go towards preventing childhood lead poisoning, while the rest will help cover legal costs.

Brian Imus, Illinois state director for consumer rights group US-PIRG, said the judgement, and the introduction of new legislation in the form of the Consumer Product Safety Improvement Act, will force toy manufacturers to be more accountable for levels of lead in their products.

"If retailers want to extend their supply chains into China, then they have to be willing to spend more money to ensure that their products are safe," he added.

The standards now imposed on Mattel go beyond the provisions of the Act, which was signed by President Bush in August. The legislation requires lead levels of no more than 600 parts per million (ppm), dropping to 300ppm a year after enactment, and 100ppm two years after that. Mattel will be required to restrict its lead levels to 90ppm for lead paint and surface coatings, and 300ppm for substrates. The limits apply to all of its toys manufactured after 30 November this year.

"Mattel has demonstrated its commitment to children’s safety by pledging to meet standards even more stringent than those currently required," said the toymaker in a statement. "Mattel has some of the most rigorous quality and safety testing procedures in the toy industry, and continually works to improve its quality assurance system."

The company recalled two million toys last year after it found lead levels of up to 50,000ppm in some products.

The symptoms of lead poisoning in children include headache, inability to concentrate, and trouble eating or sleeping.

The settlement represents 3.8 per cent of Mattel's third quarter profits. Its shares closed up 3.58 per cent yesterday, trailing the S&P 500's 5.13 per cent rise.